Oleochemicals: Fatty acid Q2 contract prices rise on high feedstock costs

23 April 2012 00:00  [Source: ICB]

Fatty acid contract prices in Europe and in the US have risen for the second quarter owing to firming palm and tallow costs as well as tightened fatty acid supply.

In Europe, palm stearic acid settled at €1,050-1,200/tonne ($1,378-1,575/tonne) FD (free delivered) NWE (northwest Europe) - an increase of €50/tonne on the low side and €100/tonne on the high side from the first quarter, as assessed by ICIS as of April 11.

Palm oleic acids settled at €1,150-1,300/tonne FD NWE - up €100/tonne on the low side and €150/tonne on the high side.

With the vast majority of market players now thought to have settled their contracts for the second quarter, many attribute the increase in palm-based acids to the increase in palm feedstock costs, which have climbed rapidly in the past few weeks.

Although prices of all grades of fatty acids remained stable throughout most of the first quarter, a lack of recent shipments from southeast Asia, together with rising feedstock costs, have caused the rapid price hikes for palm-based fatty acids.

The Bursa Malaysia crude palm oil (CPO) April delivery contract settled at ringgit (M$) 3,610/tonne ($1,176) at the close of trade on April 12 compared with M$3,510/tonne on March 28. Many expect that the upward trend will continue throughout the rest of the month and heading into May.

"With no new shipments scheduled to arrive [from Asia] until the end of April, I cannot see prices softening in the short term," one buyer said.

Uncertainty over future product pricing continues to drive increasing numbers of consumers into the spot market. "We are now seeing greater enquiries in the spot market, as buyers remain optimistic that the further volumes arriving in April will place downward pressure on prices come May," one producer said.

In addition to the influence of higher feedstock costs, producers believe extra interest in fatty acids is tightening the market. This is likely to add upward pressure on prices in the coming weeks.

TALLOW SHORTAGE

Improving demand from the European biodiesel sector has also led to a shortage of raw tallow feedstock in Europe, pushing up prices of the material.

Producers now report prices of raw tallow in a range of €800-850/tonne, depending on the quality of the material.

Tallow stearic acid prices increased from first-quarter levels, settling between €1,050-1,150/tonne FD NWE - an increase of €50/tonne on the low side. Tallow oleic acids settled at €1,150-1,250/tonne FD NWE - up €100/tonne on the low side.

Although the rate of price increases for tallow-based fatty acids has been slower than that for their palm-based counterparts, many sources expect prices for these tallow grades of acids to continue to climb in the second quarter.

TALL OIL SUPPLY TIGHT

In the US, tight supply of crude tall oil (CTO) - a feedstock for tall oil fatty acid (TOFA) - was widely discussed as a main driver for the increases in both C18 oleic acid and TOFA.

CTO is a by-product of certain paper mill processes. A slowdown in production at US paper mills and less softwood being imported from China were two reasons sources gave about the short supply in the TOFAs.

"It is ugly tight, and it will not get better until the third quarter," a producer said.

When C18 oleic acid supply tightens, many buyers can switch to TOFAs to access additional resources, and often at a lower price.

However, overall demand for C18 fatty acids is also described as very strong in most end-uses ranging from oilfield applications to food additives. Buyers have been scrambling for C18s, sources said.

"I am sold out through May," one supplier said.

"In fact, I am beyond sold out," a source added.

C18 fatty acids typically carry a premium of about 5 cents/lb over the TOFAs. Both are up by 3 cents/lb ($66/tonne, €50/tonne) in April contracts as tight supply in the C18 chain has buyers hunting for material, buyers and sellers said.

As of April 11, ICIS assessed C18 oleic fatty acid April contracts at 73-76 cents/lb delivered, with TOFAs assessed at 68-73 cents/lb, same basis.

Author: Judith Taylor and Neha Popat

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