Chemical profile: Asia fatty acids

14 April 2014 00:00 Source:ICIS Chemical Business

USES

Fatty acids are used in diverse consumer-related end applications such as soaps, detergents, personal care products, and the food, flavouring and fragrance sectors. It is also used in industrial applications for the pharmaceutical, lubricant, textile, plastic, paint and rubber sectors.

SUPPLY/DEMAND

The supply level in Asia has increased significantly over the past years on strong growth of the oleochemicals industry, driven by crude palm oil tax incentives as well. Currently, supply outstrips the demand.

Fatty acidsIn 2013, there were some capacity expansions – Musim Mas expanded to around 600,000 tonnes/year and Wilmar in Indonesia to around 700,000 tonnes/year.

Some new facilities in Indonesia such as Asian Agri (268,000 tonnes/year), VVF (117,000 tonnes/year) and KLK (170,000 tonnes/year) were utilised for palm products processing instead of fatty acids fractionations.

Meanwhile, Pacific Oleochemicals with nameplate capacity of 140,000-150,000 tonnes/year was offline for two months from early September 2013, for facility upgrading.

The demand for mid-cut fatty acids and triple pressed stearic acids (TPSA) has weakened with the industrial slowdown in the key consumer market of China.

Volatility in upstream costs because of natural disasters, harsh weather, and feedstock competition from regional biodiesel production, has also resulted in reduced purchasing activities over the past few months.

Competition for feedstocks, palm stearin for biodiesel productions, lower demand for co-products, higher stearic acids production and robust demand for animal feedstocks have led to tighter availabilities of palmitic acids, C16, since the last quarter in 2013.

Regional fatty acids plants were operating at around 60-70% over the past year because of the slower demand.

PRICES

Mid-cut lauric acids, C12, were higher by around $450/tonne while co-product myristic acids, C14, were up by around $485/tonne, at the end of March 2014, as compared to prices before typhoon Yolanda hits the Philippines, which caused upstream palm kernel oil volatility.

The uptrend, meanwhile was reined-in, because of slower than expected demand from the key Chinese market after the Lunar New Year celebrations, and resistance by buyers to absorb higher feedstock costs, amid competitive pricing among sellers who faced inventory pressures.

TPSA prices were stable, at an average of $1,095/tonne FOB (freight on board) SE (southeast) Asia in late March, despite fluctuations of palm stearin costs and limited availability of raw materials.

FEEDSTOCKS

Malaysia and Indonesia are the major production hubs for global fatty acids because of raw material availability and government incentives for value-added palm industries. The major feedstock is palm oil, while coconut oil is sometimes used for certain fatty acids production.

The major products for Asia fatty acids are C12 and C14 fatty acids, and TPSA.

Outside Asia, C18 fatty acids are produced from animal fats or crude tall oil.

OUTLOOK

Feedstock competition between regional biodiesel productions and fatty alcohols new start-ups will likely hit fatty acids supply.

However, with a few more new start-ups and expansions centered in southeast Asia between 2014-2015, supply is expected to be long, leading to competitive pricing and eroded profitability.

Strategic partnerships between buyers and producers or downstream integration will likely be the trend in the coming years in order to optimise utilisation in the value chain amid overcapacity and competitive pricing.

One example is fatty acids/fatty alcohols plant synergy, which will help to mitigate the fatty acids surplus and ensure feedstock for fatty alcohols production.

Demand in Asia, especially in consumer related products, will be led by developing countries such as China, India and southeast Asia because of growing population, higher disposable incomes, and lifestyle changes.

However, the uncertainty in economic outlook, especially with China’s growth slowdown, may drag on demand for fatty acids.

By Alexis Gan