Market outlook: Oleic acid demand reshapes North American fatty acids market

10 May 2013 09:47  [Source: ICB]

Oleic fatty acids are experiencing increased demand in North America, with the upswing driven largely by new and broader use of the C18s in oilfield and drilling applications.

Stronger US demand began to exert its effect on fundamentals in the latter part of 2012, draining ready supply of tallow derived oleics and pulling sharply on C18s from tall oil feedstock, referred to as TOFAs, or tall oil fatty acids.

Since most vegetable derived fatty acids are imported from Asia, local tallow-based oleic acids are more commonly being used in these evolving industrial applications.

US tall oil fatty acids

US tallow derived C18:1 oleic acid April contract prices were assessed at 78.50-82.00 cents/lb ($1,731-1.808/tonne), while the April TOFA contracts were assessed at 80.00-85.00 cents/lb, both on bulk delivered basis.

The chart shows a comparison of the contract prices of C18:1 tallow oleic and TOFAs from February 2011 to April 2013. The extended timeframe is shown in order to illustrate the relative steadiness of TOFA to oleic that prevailed before the new applications and the points at which the previously discounted TOFA prices began to overlap, and surpass, that of oleic.

Feedstocks are playing a role in the shifting fundamentals of these fatty acids, although the main driver is demand.

In the US midwest, Chicago's feedlots and rendering facilities produce the tallow fat feedstock used for fatty acid production - generally bleachable fancy tallow (BFT).

BIODIESEL IMPACT

US tallow and other grease prices are steadier than expected in April because of changing feedstock choices available for multifeedstock biodiesel production, said grease traders, fatty acid market players and biofuel sources.

BFT prices were in the low-to-mid 40s cents/lb in April Chicago cash markets, holding that level better this year than at the same time in 2012 when the price was in the high-40s cents/lb.

Fatty acid producers and grease traders had expected the price of BFT to soar into the high 40s or even the 50s cents/lb in the second quarter of 2013 because of its use as a feedstock in US biodiesel production.

"Fatty acid demand is good right now and the biodiesel plants are up and running, so why is grease not higher?" one US fatty acid market participant said.

At least part of the answer is that there are ongoing efforts in the renewable fuels industry to move away from food-related feedstocks, offering options to oils and greases.

The TOFA acids are another story on the production side. TOFA feedstock is crude tall oil (CTO), produced by processes used in wood-pulping, typically softwoods, and associated mainly with the paper milling business.

Because of the different feedstock equations, the supply factors between oleics and TOFAs are going in different directions.

In October 2012, Vantage Specialty Chemicals announced plans to expand its oleochemical production capacity at its Chicago, Illinois, US plant, stating that this work will also include expansion in oleic fatty acid production.

The oleic fatty acid expansion will add 30m lb/year of additional fatty acid production capacity to the plant, with full output streams available by year-end 2013 and product shipments outgoing by late 2013 and early 2014, the source said. The company did not indicate current fatty acid capacity.

On the other hand, increasing supply prospects for TOFAs are less likely to develop. The significant feedstock factor in TOFA supply is the wood.

Softwood imports from China are said to be dwindling as the Chinese seek to use more pine oil products.

NESTE DEVELOPMENT

But the item grabbing attention in the domestic TOFA market is Finland's Neste Oil's new use of tall oil pitch to make renewable diesel. Market players in the US are concerned that North American CTO may be exported as feedstock for the diesel.

These supply/demand fundamentals for oleic acids are unlikely to be fully resolved until the latter part of 2013 when Vantage's 30m lb/year expansion is scheduled to produce commercial volumes of tallow oleic.

Potential solutions for the TOFA C18s remain on a seesaw.


By: Judith Taylor
+1 713 525 2653



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