09 November 2012 11:34 [Source: ICB]
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, according to buyers and sellers.
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 many buyers from entering contract negotiations with suppliers.
PALM KERNAL OIL
Feedstock palm kernel oil was trading around $808/tonne DEL (delivered) south Malaysia at close of trade on 31 October. This compares with $960/tonne DEL south Malaysia on 8 August. Although many participants now argue mid-cut fatty alcohol prices have reached their lowest level, 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 in 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 impact 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, few participants 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.
Another said: "If mid-cut alcohol prices remain at this level, we will have to seriously consider shutting down our operations."
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.
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