FocusAsia fatty acids get firm support from strong palm oil market

28 February 2014 07:42  [Source: ICIS news]

Focus story by Alexis Gan

Asia fatty acids get firm support from strong palm oil marketSINGAPORE (ICIS)--Spot fatty acids prices in Asia are being buoyed up by strong upstream palm oil market, offsetting the downward pull from weak demand, industry sources said on Friday.

Further gains, however, are unlikely to be sustainable as demand is weaker than expected, particularly for the main products - C12 and C14 fatty acids, and amid a strong resistance being posed by buyers, they said.

On 26 February, mid-cut C12 lauric acids were assessed higher by $50/tonne week on week to $1,500-1,650/tonne FOB (freight on board) SE (southeast Asia), according to ICIS data.

C14 myristic acids prices, meanwhile, declined by an average of $25/tonne over the same period to $1,450-1,550/tonne FOB SE Asia, the data showed.

The benchmark May contract for crude palm oil (CPO) on the Bursa Malaysia Derivatives Exchange rose to a 17-month high on 26 February, to close at ringgit (M$) 2,803/tonne - up by M$91/tonne from the previous week. CPO prices spiked on expectations of lower output from Malaysia – the world’s second largest palm producer – partly on dry weather .

Meanwhile, regional producers of fatty acids have cut production at their facilities because of poor demand in the mid-cut fatty acids, market sources said.

“Some plants in southeast Asia are operating [at] lesser than 50% now – they [producers] can’t keep up the high fixed cost with the current resistance level from the market,” a trader based in southeast Asian said.

Most buyers are resisting higher prices, especially in key market China market as competitively priced cargoes are available in the domestic market.

Also, a weakening of the Chinese yuan against the US dollar curbed import discussions.

A weaker currency makes imports more expensive.

Import cargoes for C12 were available at $1,600-1,700/tonne CFR (cost and freight) China this week but enquiries were scarce.  

In India and Europe, fatty acids were thinly traded as traders have ample inventory to serve these markets, industry sources said.

Given this background, a few southeast Asian producers cut C12 prices to $1,500-1,550/tonne FOB SE Asia from the previous week’s $1,600-1,650/tonne FOB SE Asia, just to move cargoes.

Others, however, raised their offers to $1,750-1,800/tonne FOB SE Asia to buffer any loss from the underperforming co-product C14 myristic acids.
Mid-cut lauric acids are produced on a 3:1 ratio to myristic acids during fractionations, with C14 normally priced higher than C12.

Producers without captive consumers were forced to move C14 cargoes at lower prices because of weak downstream demand.

Inventory level for C14 were described as high and the lower pricing below co-product would definitely tilt the stock balances in mid-cuts, according to a few market sources.

“The myristic acids are very difficult to move. It took me from half-year to one year just to move a few containers [of] less than 100 tonnes,” a northeast Asian distributor said.

Lower C14 prices, however, could trigger restocking activities, according to market players.

Meanwhile, supply of C16 palmitic acids continued to be tight as most producers are sold-out on cargoes, with new bookings in March likely to be exclusively for April shipments, market sources said.

Weak demand for higher stearic productions led to lower C16 output, they said.

Discussions were largely at around $1,200/tonne FOB SE Asia or higher, but a number of traders were unable to procure March cargoes, they said.

Meanwhile, gains in the palm kernel oil (PKO) market drove up prices of drummed oleic acids C18 by $20/tonne at the high-end to $1,500-1,550/tonne FOB SE Asia on 26 February.

Availability of competitively priced cargoes, particularly in the northeast Asian region, capped the price gains, while demand is mostly coming from the lubricants and textile sectors, market sources said.

Triple pressed stearic acids (TPSA) were assessed higher at $1,050-1,100/tonne on 26 February, tracking higher cost of feedstock palm stearin and amid limited cargo availabilities. Discussions for April and May shipments were largely at $1,070-1,100/tonne FOB SE Asia.

Industry players are looking forward to the upcoming Palm and Lauric Oils Conference & Exhibition Price Outlook (POC) that will be held on 4-5 March for any clues on where the market is headed.

($1 = MYR3.28)

Read John Richardson and Malini Hariharan’s blog – Asian Chemical Connections


By: Alexis Gan
+65 6780 4327



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