20 April 2012 10:41 [Source: ICB]
Product performance, system efficiency and price are high priorities for end-users of oleochemicals
Buyers and sellers of oleochemicals are focusing on product performance and efficiency in production systems rather than on "green" and sustainability aspects.
Downstream end users are more concerned with performance than sustainability
Basically, the product has to perform according to standards. And the base of end-users willing to discuss taking higher prices that encompass producers' costs involved in sustainability or green issues is small.
Companies are paying attention to both factors, but green is not the same thing as sustainability. Green addresses non-petroleum-based feedstocks and/or additives, while sustainability is a broad sweeping initiative - or set of initiatives - that goes beyond bio-based production.
Some companies have developed teams to research sustainability, involving certain criteria of evaluation and certification throughout the supply chain, and potentially inclusive of feedstocks.
In applications such as ones in the food industry, thorough certification of all aspects pertaining to materials from feedstock to end-use product can translate readily into the markets.
This includes the Global Food Safety Initiative (GFSI), the BRC's (British Retail Consortium) Global Standard for Food Safety, and the SQF (Safe Quality Food) certification program.
The certification for these programs comes via a global company called CERT ID that offers accredited third-party certification to the food industry and has done so since 1999.
At least one large oleochemical producer with numerous downstream finished products in this market has met all tiers of the certification program.
The development of efforts to meet these strict certifications was a result of the January 4, 2011 signing by US President Barack Obama of the New FDA Food Safety Modernization Act (FSMA), the largest overhaul to the Food and Drug Administration (FDA) since its formation in 1906.
The FSMA enables the FDA to be proactive on food safety rather than react to food crisis occurrences.
It also enhances the FDA's authority over preventative controls, inspection and compliance, imported food safety, mandatory recalls and enhanced partnerships among food safety agencies.
While the FSMA is still in its infancy, many of the programs are being initiated and rolled out, such as product-tracing pilots. The FDA is also working with China, Mexico, Canada and Europe on global food-safety issues.
But all this certifying comes at a cost, and not every company is eager to sign up to the added expenditure.
FATTY ALCOHOL BUYERS BALK
US fatty alcohol buyers are among a group of industry participants unsure that the cost of meeting such widespread sustainability targets can be passed on to US consumers frayed by rising costs and shrinking cash and credit resources.
The targets potentially stretch from regions outside the US, through ocean shipping lanes and across the US itself and its boundary countries.
Finished-goods producers using fatty alcohols are asking if consumers are willing to pay more for shampoo, household cleaners or industrial lubricants that are certified as sustainable. While steps to ensure food safety are viewed with favor, some companies question the market sensibility of such measures for other applications.
With performance and sustainability issues simmering on one side of the oleochemical market, fatty alcohol participants are looking harder than ever at costs. This brings up the system efficiency issue within the feedstock and production chain, where some players weigh possible impacts from shifts taking place in Asia.
There is significant new natural fatty alcohol capacity planned, but no clarity as to whether or not the bulk of this capacity will actually come on stream.
More than 500,000 tonnes/year of natural mid-cut alcohol capacity has been announced or discussed in Asia, causing some market participants to question the need for such volumes and to question the viability of older production facilities.
While global demand for fatty alcohols is considered to be relatively good, US buyers say domestic consumption is down. Demand in some key end-uses such as surfactants and personal care was average-to-soft at the end of the first quarter and not expected to change during the second quarter, according to several large buyers of mid-cut and blended alcohols.
Shifts between palm oil and palm kernel oil (PKO) production in Malaysia and Indonesia are getting attention. Buyers are becoming wary of the jockeying between the prices of the oils and alcohol supply. There has to be sufficient PKO availability to warrant alcohol production. PKO and palm oil, while coming from the same plant, can have widely different fatty acid compositions.
Other issues such as duties, oil production capacity and increasing vertical integration from the palm plantation to oleochemicals are also grabbing attention.
Indonesian refining capacity is expected to come up fast. But industry sources say inefficiencies in various areas and regions may be revealed that will highlight the importance of streamlining the feedstock-to-alcohol chain.
The prognosis is that the 2012 fatty alcohol business will see price fluctuations as non-integrated alcohol producers work to secure market share and margin health alongside the integrated groups. Alcohol prices are moderating from benchmark high levels achieved in early 2011, having fallen by double-digit percentages during the fourth quarter of 2011 and the first quarter of 2012.
US consumers are dealing with rising gasoline prices, rising food prices and banks still holding credit in a vise-grip.
Passing along costs of any kind where not clearly underpinned by need is not likely to be an easy task.
The relative importance of green and sustainability issues may well fade in the consumers' view in the harsh light of need.
"Efficiency makes the difference," a source said. That applies in all sectors of all markets and may not leave much room for environmentally stipulated, costly, programs that have yet to be proven effective.
In the glycerin oleochemical segment, there are differences. Glycerin is common in food applications, and major glycerin producers and buyers are participating in both the green-push and in incorporating sustainability.
However, one element that changes the dynamics for glycerin versus fatty alcohols or fatty acids is refined glycerin's emerging use as a chemical feedstock.
One example of this is US-based Archer Daniels Midland's (ADM) 100,000 tonne/year glycerin-to-propylene glycol plant at Decatur, Illinois, US. The plant's start-up in January 2012 took ADM out of the USP glycerin market as a seller, turning the company into a net buyer instead.
Another example on the near horizon is refined glycerin being used in engine coolants. Specifications for an American Society for Testing and Materials (ASTM) certified refined glycerin for use in engine coolants - which could compete with monoethylene glycol (MEG) - are now in place, according to oleochemical industry sources and the ASTM.
The ASTM specifications ensure that the refined glycerin to be used in engine coolant applications can be expected to perform precisely as its petroleum-based counterpart, industrial grade MEG.
US refined glycerin first quarter contracts were assessed at 41-48 cents/lb FOB midwest bulk for vegetable and 37-46 cents/lb for tallow, same basis. US industrial grade MEG March contracts were assessed at 52-55 cents/lb FOB as of March 28.
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