Europe palm fatty acid price rise renews demand for alternatives

30 November 2011 23:59  [Source: ICIS news]

LONDON (ICIS)--Recent increases in palm fatty acid prices have rejuvenated demand for tallow-based alternatives, which are now the cheaper option in Europe, market participants said on Wednesday.

Initial first-quarter contract negotiations have led participants to believe that the prices of palm acids are now trading at a premium to tallow grades.

Early discussions among sources suggest that prices for palm oleic acid are currently around €1,200/tonne ($1,600/tonne) FD (free delivered) NWE (northwest Europe), and tallow oleic acid prices are around €1,150/tonne FD NWE.

Palm stearic acids are currently being discussed around €1,100/tonne FD NWE, while tallow stearic acids are around €1,000/tonne FD NWE, sources said.

Fourth-quarter contract settlements saw tallow grades trading at higher levels to palm, with tallow oleic acid averaging €1,225/tonne FD NWE and palm oleic averaging €1,150/tonne FD NWE.

Stearic grades also followed the same pattern, with tallow stearic acid averaging €1,030/tonne FD NWE and palm stearic acid averaging €975/tonne FD NWE.

The decline in palm kernel oil values during the third quarter saw increasing numbers of European tallow fatty acid buyers switching to palm-based alternatives, resulting in a lagging demand for tallow grades in the continent.

Although crude palm kernel oil (CPKO) values declined rapidly throughout the third quarter, prices have since stabilised and are slowly edging upwards.

This week, CPKO is trading at $1,300/tonne FOB (free on board) Malaysia.

Sources in the market believe palm feedstock values may have bottomed out and many predict prices are going to increase throughout December and in the early part of 2012. 

Although no reported business has as yet been concluded for the first quarter, sources believe the strong upward pressure on palm-based acids, as a result of higher feedstock values, will reignite demand for its tallow-based counterpart.

“We have noticed lowered demand for palm-based fatty acids from our plant … those buyers with the capacity to switch grades with ease are now looking to source the cheaper alternative,” one European producer said.

A trader of both grades of fatty acids agreed and believes there is now a much “greater level of interest in tallow fatty acids than during previous contractual negotiations.”

A greater availability of tallow feedstock supplies has helped tallow fatty acid manufacturers in Europe keep prices of this product stable throughout the fourth quarter. Most sources expect these prices to roll-over or decline slightly from fourth-quarter contract levels.

($1 = €0.75)

By: Neha Popat
+44 208 652 3214

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