Oleochemicals: European fatty alcohol buyers delay 3Q negotiations on weak market sentiment

18 June 2012 00:00  [Source: ICB]

As palm feedstock prices continue to soften and market demand remains weak, European fatty alcohol buyers are holding back from concluding third-quarter contract negotiations in the hope of a decline to fatty alcohol prices.

Malaysian crude palm oil (CPO) prices - quoted at ringgit (M$) 2,954/tonne ($931/tonne, €745/tonne) as of June 8 - have steadily fallen over the past two months.

Economic uncertainty highlighted by the eurozone debt crisis has been crimping commodity demand and could further hurt palm oil prices, according to several industry analysts.

But some palm market players expect prices to go up because of lower palm oil stocks.

Fatty acids priceWith palm feedstock prices continuing to demonstrate volatility, fatty alcohol participants remain unclear over where fatty alcohol prices will be in the third quarter. Europe buyers remain hopeful that the softening palm feedstock values will soon translate into lower fatty alcohol prices.

European fatty alcohol prices rose sharply in the second quarter because of a significant supply shortage. Prices for mid-cut material in the spot market as of May 30 continued to rise because of short supplies.

"Mid-cut fatty alcohols have been offered in the market at €2,050/tonne ex tank," one buyer said. This compares with an average of €1,875/tonne FD (free delivered) NWE (Northwest Europe) during second-quarter contract negotiations.

WAIT-AND-SEE MODE

As of June 6 trading, however, spot prices of mid-cut fatty alcohols were reported in a wide range of €1,800-1,950/tonne FD NWE. Europe suppliers note increasing reluctance among their regular buyers.

One buyer reported there is no longer a shortage of material in Europe. With further volumes scheduled to arrive, the buyer believes suppliers may be forced to lower prices the longer that negotiations take to conclude.

"There is a lot of hesitation [among buyers] at the moment. Many are waiting on the sidelines and watching what happens," one producer said.

With demand currently at lower levels than anticipated, buyers are in no hurry to commence negotiations for the third quarter. Traders also note increased levels of inquiries from buyers looking to purchase material and then holding back from concluding business.

Another European buyer has purchased enough material to cover only its contracted requirements, and will look to purchase further volumes in July if fatty alcohols prices fall further.

With confusion rife in the market over the direction that feedstock prices will head, participants agree that negotiations will be slower off the mark than usual.

BASF PLANT MAINTENANCE

A number of market participants noted that Germany's BASF is planning to bring forward a scheduled maintenance shutdown at its fatty alcohols plant in Dusseldorf, Germany.

BASF declined to comment, however, adding that shutdowns were part of regular operations and that "supply reliability is secured." The company also declined to comment on the capacity of the plant.

Sources in the market suggest the shutdown will now take place in July for around three weeks. It is not known when the shutdown was originally planned for.

Many believe the scheduled shutdown could have been brought forward after a period of low demand for fatty alcohols from end users in Europe, who continue to show increasing concern over the economy.

Participants also believe the shutdown could also have been timed to coincide with the start of the third quarter, when demand is at its lowest point in the year.

"As well as demand remaining at low levels, the shutdown may have been brought forward to coincide with the lower demand levels traditionally seen in Europe during the quiet summer months," one buyer said.


Author: Neha Popat and Doris de Guzman



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