Oleochemicals: Fatty alcohol price down on weak demand, lower feedstock cost

01 August 2011 00:00  [Source: ICB]

Mid-cut fatty alcohols prices worldwide are falling from weak demand, lower palm oil costs

The price of worldwide mid-cut fatty alcohols for the third quarter have been falling from record second-quarter highs because of weak demand and sharp price declines in feedstock crude palm kernel oil (CPKO) and crude palm oil (CPO).

Southeast Asian spot prices for mid-cut C12-C14 blended alcohols, as of July 20, fell to $2,550-2,650/tonne (€1,775-1,845/tonne) FOB (free on board), from the $3,220-3,280/tonne range a month ago.

Demand remains weak and trading activity is being hampered by price volatility in the feedstock markets, according to market traders.

"Demand for C12-14 alcohols has started to weaken, as buyers are expecting prices to fall ­further and are only replenishing cargoes on a need-to basis," an Indonesian fatty alcohols producer said.

"Prices of C12-14 alcohols are falling because CPKO is weakening," a Singapore-based fatty alcohols trader added.

Asian market players in the oleochemicals sector welcomed the decline in CPKO prices - a result of oversupply because of increased production in June of 194,324 tonnes - up by 1,682 tonnes compared to May. Still, palm oil traders expect only a temporary price softening for both CPKO and CPO, as global export demand is expected to increase over the next few months, despite higher supply from a good second-quarter harvest in Malaysia.

"We are seeing demand for palm oil firming in the last few weeks, and believe that Malaysia's July palm oil exports will increase," a Malaysian palm oil producer said.

"Although supply has been ample in the last few weeks, I expect that the increased demand could support higher prices in the coming weeks, despite current soft prices," a Singapore-based palm oil trader added.

As of July 20, Malaysian ­exchange and trading group Bursa Malaysia was trading CPO at Malaysian ringgit (M$) 3,125/tonne ($1,050/tonne) - a M$518/tonne decline from the highs of M$3,643/tonne reached in mid-March.

The majority of European mid-cut fatty alcohols contracts have settled within a range of €2,350-2,600/tonne ($3,398-3,759/tonne) for the third quarter - significantly lower than the record high levels of the previous quarter, buyers and sellers said.

The range for C12-C14 contract prices, which were settled on a free delivered (FD) Northwest Europe (NWE) basis, are down by €250/tonne, to €2,350/tonne on the low side and by €200/tonne, to €2,600/tonne on the high side, compared to prices from the second quarter.

Market participants attributed the lower price of mid-cut ­material to the declining price of CPO feedstock.

The dramatic price cut for CPO in recent weeks has resulted in a varied range of contract prices, depending on the date of the settlement.

"Those customers who settled earlier on have had to pay at higher levels than those who decided to wait," one producer went on to add.

With ample availability of mid-cut fatty alcohol material in Europe - and the volatility of feedstock prices - some buyers opted to purchase material on a hand-to-mouth basis, in the hope of a predicted further ­decline in prices.

Concerns among buyers over provisional anti-dumping duties imposed on imports into Europe from fatty alcohols producers in India, Indonesia and Malaysia have also been alleviated. German specialty chemical company Cognis, now owned by chemicals giant BASF, has withdrawn its complaint to the European Commission over the alleged dumping on June 30 (see related story in ICIS Chemical Business, May 23, page 22).

"Affected producers have been able to incorporate the duties into the ultimate cost of fatty alcohols, due to the sharp falls in feedstock prices," a buyer commented. Still, many oleochemicals market participants are unsure whether the duties will be quashed after the six-month provisional period.

But with recent favorable conditions in Malaysia leading to increased CPO production, buyers are optimistic that lower prices can be achieved throughout the third quarter.

US mid-cut detergent range alcohols for both natural and synthetic contract prices fell as well - but moved down less than some players had expected.

One reason behind the limited fall was that suppliers with feedstock oil inventories priced above current levels held firm in contract positions.

Natural and synthetic alcohol contract prices for the third quarter fell back 10 cents/lb ($220.50/tonne) to $1.85/lb, compared to $1.95/lb in the second quarter, while the low end of the third quarter assessment remained steady at $1.70/lb.

Large and medium-sized buyers said widely improving supply was the main driver for the price decrease. Prices in the high $1.60/lb range were heard being competitively shopped for August and September shipments, but no verification of finished transactions at this level was yet detected.

Industrial and household surfactants form the primary demand for mid-cut fatty alcohols, with C12-C14 and C12-C16 representing the naturals and C12-C15 the synthetic forms.

US surfactant demand has reportedly remained strong in the first half of 2011.

Additional reporting by Serena Seng in Singapore, Neha Popat in London and Judith Taylor in Houston

By: Doris de Guzman
+1 713 525 2653

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