INSIGHT: US glycerine market perspectives fogged on biodiesel crude

01 June 2011 17:17  [Source: ICIS news]

By Judith Taylor

HOUSTON (ICIS)--Crude glycerine from biodiesel production (bio-crude) is fogging market perspectives in an otherwise stabilising US refined market.

And biodiesel production issues are fostering uncertainties about how glycerine supply and demand fundamentals will develop in the third and fourth quarters of the year.

Many of the players that entered the glycerine market with the advent of biodiesel consider bio-crude supply to be a primary driver of refined glycerine fundamentals. 

But while there are cross-currents between the glycerine segments, or tiers, the defining driver of refined prices is the balance of supply and demand, not the availability of bio-crude, and that is where the fogged perspectives begin. 

Newer market entrants, like bio-crude traders, as well as traditional olechemical players, are seeking to clarify the very real differences between the refined glycerine market and the multiple tiers of crude glycerine.

Improved clarity about the production, refining and end-use segments of various types of glycerine can help in better understanding the potential impact of bio-crude on the refined sector - if any.

US glycerine refiners are largely the traditional oleochemical tier. These include Procter & Gamble, Vantage Oleochemical, Emery Oleochemical and Dial Corporation.

Cargill and Archer Daniels Midland (ADM) entered the glycerine refining business via biodiesel production when they built refining units in conjunction with their biofuels plants.

They are the exception to the rule in US biodiesel production, however, in which many players consider co-product glycerine to be a waste-stream.

This is pertinent because the US is a net-importer of about 50% of its refined glycerine requirements.

Most of the imported glycerine is refined because the US is net-short on glycerine refining capacity.

Asia is the main refined glycerine exporting region. There the huge fatty acid and fatty alcohol producing areas in Malaysia and Indonesia crank out significant volumes of vegetable-based, kosher quality high-purity refined glycerine. 

Asia is also an active buying region for South American and US bio-crude.

There are basically two types of crude glycerine. One is hydrolyser crude - also called splitter crude or soap-lye crude - from oleochemical processes such as fatty acid production, fatty alcohol production and soap-making via saponification.

The other is the bio-crude arsising from biodiesel production from various feedstocks via transesterification with an alcohol - typically methanol.

Methanol, along with various chlorides and sulphates, comes along for the ride when making biodiesel. The methanol is used for esterification and the salts are the by-product from the acids used to neutralise the glycerine as it comes from the biodiesel stream.

Top quality bio-crude begins at 80% glycerol-to-methanol and other impurities. Some bio-crude can have a slightly higher, 82-85% purity, but the presence of salts and other inclusions reduces the potential for the bio-crude to go immediately into the refining process. Salts can be corrosive and methanol is toxic.

Hydrolyser crude glycerine contains no methanol or salt residues and can go directly into refining. This process further purifies the crude to the 96.5-99.9% level required for fully certified USP food grade and the strictly monitored pharmaceutical-grade glycerine.

Both refined and bio-crude glycerine prices can drop if supply becomes designated as long.

But there are significant differences in supply and demand fundamentals between bio-crude and refined glycerine. 

Bio-crude prices are more volatile than refined glycerine prices and at a considerably lower level.

Since first assessed by ICIS in October 2009, bio-crude glycerine assessments have ranged from a low of 1.5 cents/lb free on board (FOB) midwest to a high of 18.00 cents/lb, on the same basis, in February 2011.

US bio-crude prices were last assessed, in May 2011, at 5.50-7.50 cents/lb FOB midwest, having dropped by more than 2 cents/lb from March on lengthening supply.

Prices in the refined tier have floundered over the past 12-18 months, weakening because of the toll taken by the economic recession and because of its impact on the biodiesel industries in the US and in South America.

Tallow-derived US refined glycerine prices were assessed at an historical five-year low of 28 cents/lb FOB midwest in January 2010, but moved to a high of 45 cents/lb, on the same basis, for the tallow product in May 2011.

Vegetable-based refined glycerine was assessed at the same level in January 2010, but was slightly higher at 47 cents/lb by May 2011.

Hydrolyser crude does not trade in the commercial market.

Thus bio-crude has become widely discussed as the "crude" glycerine benchmark, but this assumption is incorrect.

Unless bio-crude is refined, it goes into quite different end-uses.

Unrefined bio-crude with high methanol content typically finds its way into bio-digesters, dust dispersants and maintenance, concrete production and other low-end market areas.

Plus, there is the "will the tax credit for biodiesel be extended, or not" dilemma.

With the biodiesel credit, there is a bio-crude glycerine market, with various tiers and prices. Without the biodiesel tax credit, the viability of the industry is uncertain, and new applications for bio-crude - and, to some extent, refined glycerine - tend to fade.

Going into June, refined glycerine supply and demand fundamentals are widely balanced, and the industry is enjoying the first stability it has experienced in a number of quarters since the recession.

But the misunderstanding of how bio-crude supply can affect - and not affect - refined glycerine and new end-uses is fogging the market picture. 

By: Judith Taylor
+1 713 525 2653

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