OUTLOOK ’14: Asia glycerine outlook mixed, unclear on supply front

07 January 2014 02:24  [Source: ICIS news]

By Alexis Gan

SINGAPORE (ICIS)--The Asian glycerine market is anticipated to be mixed in 2014, as expectations of an increase in glycerine supply remains uncertain, many industry participants said.

The supply of glycerine, a by-product from biodiesel productions and oleochemical facilities, is expected to increase in the coming years because of an anticipated ramp-up in regional biodiesel productions to meet governmental biodiesel blending mandates.

Indonesia has mandated a minimum B10 biodiesel blending requirement, from the previous B7, with effect from September 2013.

However, many market players expect the actual implementation to be rolled out in 2014, judging from the tenders called by Pertamina to fulfil its 6.6bn litters biodiesel requirement for 2014-2015.

The other countries in the region such as Thailand, Malaysia and Philippines have also planned for a higher biodiesel blending mandate for 2014 onwards.

The higher regional biodiesel mandates are expected to lead to increased production in biodiesel facilities to meet domestic consumptions, and consequently more glycerine is expected to surface in the market in 2014, said one industrial user.

With more supply in the market, prices are expected to be much more competitive, asserted a few southeast Asian traders.

Drummed refined glycerine prices in 2014 are expected to be at below $900/tonne (€666/tonne) FOB (free on board) SE (southeast) Asia, they added. 

Prices of drummed refined glycerine on 18 December 2013 were at $900-950/tonne FOB SE Asia, according to ICIS data.

A few buyers have held back their purchases for the forward months of January and February in the last month of 2013, in anticipation of lower prices in 2014.

Additionally, a few new fatty acids plants are expected to start operations in 2014, with an additional capacity of around 2.8m tonnes/year.

This potentially translates into 280,000 tonnes/year of refined glycerine, commented a few sources.

However, a few industry sources do not expect the regional fatty acids plants to run at full operating rates simultaneously, mainly because of firm feedstock costs and an unclear fatty acids demand outlook.

Consequently, they do not expect supply to be increased significantly by the start-ups of the new fatty acids facilities in 2014.

Furthermore, a few market participants held uncertainties surrounding the expectations of  increased biodiesel production, questioning  the sustainability of higher production rates.

"It is non-sustainable to run a biodiesel plant at the current high palm oil price, because they will be making losses," said a palm oil products trader.

Unless crude oil prices are stable at $100/bbl and crude palm oil prices fall below ringgit (M$) 2,300/tonne ($699/tonne), biodiesel production will not be cost effective, commented some market players.

“The regional government might need to consider the cost factors when subsidising the local biodiesel production cost when gas oil prices are not as high as biodiesel,” added one trader.

Market participants also held concerns that it will take some time for the higher biodiesel-blending mandates to be rolled out region-wide.

“Currently, the Malaysia biodiesel B5 mandates is only implemented at certain states of the country, they will need time to implement nation-wide,” one Malaysian trader said.

Additionally, the European Commission (EC) have imposed definitive anti-dumping duties (ADD) on Indonesian and Argentinean biodiesel imports, with effect from 27 November 2013.

A few industry players speculated that unless domestic biodiesel consumption and alternative outlets in China, Taiwan and South Korea are able to help absorb the higher biodiesel productions, the expected increase in supply remains uncertain in view of the ADD and firmer feedstock costs.

Consequently, the market sentiments on glycerine supply were mixed with a few sources sceptical that the above two factors- both the higher biodiesel blending mandates and increased fatty acids capacity, will be in place smoothly.

Norman Ellard, managing director of IP Specialties Asia, said to ICIS during 9th ICIS World Oleochemicals Conference in October 2013, that the biodiesel industry made it difficult to gauge the outlook for products such as glycerine because of governmental policies like mandates, tax incentives and ADD.

On the demand front, major industrial application epichlorohydrin (ECH) sector is expected to pick up in the second half of the year, boosted by a positive outlook in the epoxy resins market for 2014, according to a few market participants.

Market demand for ECH will largely be influenced by China, which is the world’s largest ECH market, with an annual growth of 6%. The epoxy resin market represents more than 90% of ECH demand in Asia.

The demand for crude glycerine in China was higher by 25% in the first 10 months of 2013 as compared to 2012 during the same period, according to custom data.

However, imports of refined glycerine dropped by around 28% during the same period, possibly because of ample lower-priced local products, from domestic  refineries which refine crude glycerine into refined glycerine for industrial applications such as glycerine-based ECH.

Demand in traditional applications related to consumer products such as food, personal care, cosmetic sectors, will be driven by increased income-levels in Asian countries, a few industry sources said.

Those sectors are expected to grow, in tandem with the average gross domestic production (GDP) at around 3-4%, added a few regional producers.

Nonetheless, a major glycerine-based ECH producer maintained that the growth in the sector will not have a significant impact on the glycerine market as it expects the increase in supply to outpace that of demand.

Overall, glycerine market outlook remains mixed, with the expected higher supply, primarily from biodiesel production, to remain uncertain, amid firm feedstock costs and questions on how the implementation of mandates will roll out.

($1 = €0.74 / $1 = M$3.29)

By: Alexis Gan
+65 6780 4327

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