Europe Q3 mid-cut fatty alcohols decline on weak feedstock values

11 July 2012 23:59  [Source: ICIS news]

LONDON (ICIS)--The majority of European mid-cut fatty alcohol contracts have declined from second quarter levels, settling within a range of €1,750–1,900/tonne for the third quarter, buyers and sellers said on Wednesday.

The range for contract prices, which were settled on a free delivered (FD) northwest Europe (NWE) basis, dropped by €50/tonne ($61/tonne) on both the low and high end of the previous range.

There were a small number of contract settlements either side of the range, but these were outside of a wide-ranging consensus.

Consumers who concluded business earlier in the second quarter report purchasing material towards the higher end of the range, while those who had held back from negotiations in the hope of cheaper prices were able to settle at the lower end.

Softening feedstock crude palm oil values throughout the second quarter had deterred a number of buyers from entering contract negotiations with suppliers.

The Bursa Malaysia crude palm oil contracts were at M$3,100/tonne FOB (free on board) south Malaysia at the close of trade on 11 July.

This compares to highs of M$3,490/tonne FOB reached during April.

Some buyers remain hopeful for greater declines to mid-cut fatty alcohols, and report either stalling negotiations further, or purchasing volumes on a monthly contract.

“My plant will be undergoing a scheduled maintenance shutdown for three weeks, I am therefore in no hurry to purchase my third-quarter requirements,” said one buyer.

Another buyer remains wary over the effects of the economic downturn on demand, and is currently only covering its requirements on a monthly basis.

Palm oil traders remain unconvinced that European fatty alcohol prices will decline further during the third quarter, despite fatty alcohols in Asia currently trading at lower levels than available in Europe.

“The weaker euro compared to the US dollar is placing the European market at a disadvantage to their Asian counterparts, as palm oil is widely traded in US dollars” one trader explained.

“Crude palm kernel oil values have also halted their decline in recent weeks, so it is unlikely that suppliers will drop their prices further,” he added. 

One European producer argued that with palm kernel oil prices now on the rise, its margins were already being squeezed.

“We are barely making a profit on sales of mid-cut fatty alcohols at the level they are currently trading…there is no way I would be able to continue producing them if prices fall any further,” he said. 

A lack of shipments from southeast Asia had previously led to severe supply shortages in Europe, however, sources now report ample availability of material in the region.

With such volatility and unpredictability currently being demonstrated by the feedstock, participants remain increasingly bemused over where feedstock values will stand during the third-quarter.     

($1 = €0.82, €1 = M$3.90)

By: Neha Popat
+44 208 652 3214

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