Europe Q4 fatty alcohol prices tumble from Q3 levels

31 October 2012 23:59  [Source: ICIS news]

LONDON (ICIS)--Mid-cut fatty alcohol contracts in Europe have dramatically declined from third quarter levels, settling within a range of €1,350–1,600/tonne for the fourth 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 €400/tonne ($519/tonne) on the low, and €300/tonne on the high end of the third quarter’s range.

Consumers who concluded business during the end of the third quarter reported 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 secure material at the lower end.

Plummeting palm kernel oil values throughout the early part of the fourth quarter had deterred a number of buyers from entering contract negotiations with their suppliers.

Feedstock palm kernel oil was trading around $808/tonne DEL (delivered) south Malaysia at the close of trade on 31 October. This compares with $960/tonne DEL south Malaysia on 8 August.

Although many participants now argue that mid-cut fatty alcohol prices have reached the lowest level they can go, some buyers remain hopeful for further declines, and report either stalling negotiations or purchasing volumes on a hand-to-mouth basis.

One buyer reports it had over-estimated demand during the previous quarter, and therefore had excess fatty alcohols left over.

“I am in no hurry to purchase any further material at this time,” the buyer said.

Another buyer remains wary over the impacts of the economic downturn on demand, and having purchased small volumes of fatty alcohols at the end of the third quarter, is only anticipating going back into the market for further material should demand improve.

With the fourth quarter traditionally a quiet period where companies look to destock before year end, many participants do not anticipate activity increasing until negotiations pick up for the first quarter.

Producers argue that current mid-cut price levels of €1,300-1,350/tonne ex tank Rotterdam are not feasible over the long term.

With feedstock prices looking like they may have bottomed out, many suppliers remain concerned.

“This current [pricing level] is not maintainable for us,” one producer said.

“If mid-cut alcohol prices remain at this level, we will have to seriously consider shutting down our operations,” another producer 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.

One source suggests that the dramatic decline of fatty alcohol prices in Europe has been amplified by the increased volumes being shipped over from Asia.

“With demand from China much lower than anticipated, the excess material has been appearing in the European market,” the producer said.

Buyers were hopeful that a decline to the November ethylene contract price would bring with it a fall in synthetic, and therefore natural fatty alcohols.

The ethylene contract price for November was this week established at €1,275/tonne FD NWE, a fall of €15/tonne from October; however, this has yet to have any effect on the price of the synthetic mid-cut fatty alcohol price.

The majority of market participants now expect alcohol prices to pick up in line with the increased demand levels expected heading into the first quarter of 2013.

($1 = €0.77)

By: Neha Popat
+44 208 652 3214

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