OUTLOOK ’14: Volatile PKO to weigh on Asia fatty alcohols market

By Alexis Gan

SINGAPORE (ICIS)–The Asian fatty alcohols market is expected to be in cautiously mixed sentiments in the first half of the year because of the volatility in the upstream palm kernel oil (PKO) after Typhoon Haiyan hit the Philippines in November.

The Philippines is one of the major global suppliers for crude coconut oil (CNO). With the landfall of typhoon expected to impact production there is market speculations of PKO shortage in Asia as it could substitute CNO.

As a result, PKO prices saw an overnight sharp spike of $311/tonne (€227/tonne) at that time. Subsequently, PKO experienced price corrections, although the prices were still fluctuating at a firm level of around $1,100/tonne tonne DEL (delivered) south Malaysia in December 2013.

However, this is still much higher than the $800s/tonne level of PKO in September, which led to a higher fatty alcohols prices in the market by December.

Furthermore, market experts predicted a bullish trends on palm oil prices in 2014 during a trade event in Indonesia in November, which further boosted their selling sentiments.

C12-14 fatty alcohols for January and February shipments were at $1,700-1,800/tonne FOB (free on board) SE (southeast) Asia in the week ended 18 December, according to ICIS pricing. This was a rise of around $150/tonne within a month, and some buyers were buying cautiously on a hand-to-mouth basis.

Mid-cut C12-14 fatty alcohols makes up 60-70% of the total global fatty alcohols production.

Demand for mid-cut fatty alcohols, which are also known as detergent alcohols, is expected to be healthy in Asia, especially with the growing population and more people upgraded to middle-income levels in China and India, driving demand in the liquid laundry market, said a few industry players.

The expected growth in the surfactant sector is 4-5%, depending on how good the economy is, some market sources commented.

However, the supply is not adequate to match demand, especially with some plant outages in the region, leading to limited cargoes for January shipments, a few industry participants said.

“The tight supply for January spot cargoes will hold the prices [firm] at least until February,” speculated one trader.

A few southeast Asian trader added that some regional fatty alcohols facilities were heard to be operating below capacities or not operating because of technical problems or other issues in the month of December, tightening supply for spot cargoes in January and February.

In addition, a 100,000 tonnes/year fatty alcohols plant in southeast Asia is expected to be shut down in January or February 2014 for at least two weeks for a catalyst change, said a market sources.

Nonetheless, with the expected start-up of three new plants in the region, buyers expect more supply in the market and prices will be more sustainable for their downstream needs.

Three new plants, which include two delayed start-up plants, will potentially boost the total annual nameplate capacity of Asia’s fatty alcohols market by more than 300,000 tonnes (see table) by end of 2014, according to a survey by ICIS pricing.

The current nameplate capacity is at approximately 1.8m tonnes/year.

With the Asian capacity expected to increase by around 20%, and fatty alcohols demand growth at an average of 4% per annum, supply will outstrip demand if producers operate at full capacity, a few buyers said.

One southeast Asian alcohol ethoxylates producer is looking forward to the expected higher capacity, which would ease the supply tightness in the market.

“It’ll be good for producers like us who are non-integrated unlike the bigger players, we can get more supply of mid-cut fatty alcohols,” the producer said.

one southeast Asian player in the surfactant sector said: “The [fatty alcohols] market is going to be very crowded with so many new plants in Asia, and smaller [fatty alcohols] players which are non-integrated are going to suffer.”

Table: Asian fatty alcohol plant start-ups in 2014

 ($1 = €0.73)