Some players in the refined glycerine market expect the market to tighten sharply sometime in the second or third quarters. However, other players say the supply scenario would also depend on global economics and will ultimately depend on demand.
The two largest buyers of crude and/or refined glycerine globally are the US and China and there are serious questions whether those economies will see growth or fizzle in 2014, a large Argentine refined glycerine seller said.
The $1/gal incentive would cover biodiesel, renewable diesel and renewable aviation fuel
The final Markit/HSBC manufacturing Purchasing Managers’ Index (PMI) released on 3 March showed China’s manufacturing sector fell to a seven-month low of 48.5 in February, the third straight monthly decline, from January’s 49.5. A reading below 50 indicates a contraction, while one above 50 shows expansion. Some analysts cautioned against reading too much into the report, which was affected by the Lunar New Year holiday. China’s full-year GDP growth for 2013 was 7.7%, steady from 2012, according to China’s National Bureau of Statistics.
US ECONOMIC CONCERNS
Fears that the US economy had lost some momentum in the 2014 new year after a strong finish to 2013 were reinforced by a decline in the Institute for Supply Management’s (ISM) US Manufacturing PMI. The index fell to 51.3 in January from 56.5 in December 2013. The February PMI reading registered an increase of 1.9 percentage points to 53.2, but still below December’s level. According to the new orders index, which reflects the proportion of companies saying new orders improved during the month, numbers plunged to 51.2 in January, but saw some recovery for February new orders at 54.5 an increase of 3.3 percentage points from January’s reading.
“The supply scenario really all depends on demand,” a large glycerine producer said. “Depending on how the economy is doing will make a big difference in the health of our market.” When looking at US glycerine, another key question, other than macroeconomic health, is what will happen with the US biodiesel sector and its supply of by-product crude glycerine.
The market seems to be split when looking at the fate of the biodiesel industry and the supply chain for refined glycerine for 2014.
Many US glycerine players expect that US biodiesel industry production will be much lower in 2014 considering proposed stagnant renewable fuel volume blending mandates in the US and the lack of the $1/gal tax credit.
Senators Maria Cantwell, a Washington State Democrat. and Charles Grassley, a Republican from Iowa, introduced a bill to the US Congress to extend the expired biodiesel tax incentive for three years. The bill introduced on 12 February, S. 2021, would extend the tax incentive until 2017, providing the tax certainty the industry needs to gain access to capital and plan for production expansions.
“The biodiesel tax incentive has expired three times over the past five years, and each time it has severely disrupted production,” said National Biodiesel Board (NBB) Vice President Anne Steckel. “By comparison, we know that at least $4bn in incentives encouraging domestic petroleum production are built into the tax code. We need that same kind of stability for younger, cleaner industries like biodiesel and renewable diesel to compete,” added Steckel.
A proposal from the US Environmental Protection Agency (EPA) has biodiesel producers wary that the market could be dramatically reduced. “The biodiesel industry hit a grand slam in 2013, hitting an average annualised monthly production rate of 2bn gallons for the last half of the year – double that of last year’s record,” said Joe Jobe, CEO of the NBB in his address at the Biodiesel Conference & Expo in January.
“The EPA’s volume proposal for 2014 would effectively cut the volumes in half from current production levels. I can’t think of a more unacceptable example of a call for full retreat during such an overwhelming victory,” Jobe said.