Focus article by Neha Popat
LONDON (ICIS)--A softening in both palm and tallow feedstock costs is causing difficulties for participants in the European fatty acids market which are in the process of concluding third-quarter business negotiations, sources said on Wednesday.
Third-quarter contract negotiations continue to take place, and although some discussions have now reached a conclusion, others remain ongoing with buyers hoping to secure volumes at lower prices than they did during the second quarter.
A buyer which is currently in the process of negotiating its third-quarter contracts said it was hopeful it could source its requirements at lower levels than it did during the second quarter.
“Animal fats are softer and palm oil prices are also decreasing,” it said.
The buyer added it was hoping to purchase palm oleic fatty acids at €20-30/tonne lower than it did during the second quarter, and tallow oleic fatty acids at €60/tonne cheaper than during the second quarter.
One producer of tallow-based fatty acids said it has finalised negotiations with the majority of its consumers.
It noted a slight decline to tallow-based stearic acids from the second quarter owing to the softening raw tallow feedstock costs seen of late.
The source added however, that tallow-based oleic prices were at more or less similar levels from the second quarter, as demand for this grade is better than tallow stearic acids.
The producer sold tallow stearic volumes for the third quarter at €900-925/tonne FD (free delivered) NWE (northwest Europe), and tallow oleic volumes for the third quarter at €1,150-1,200/tonne FD NWE.
With palm feedstock costs having declined of late, some participants note that the price spread between palm and tallow-based alternatives has now started to narrow, although it is thought that tallow-based grades still remain the more competitively-priced option.
Another producer of palm-based fatty acids noted that in the stearic market, tallow was still cheaper compared to palm, with tallow stearic prices heard as low as €820-850/tonne FD NWE, compared to palm stearic prices of €900/tonne FD NWE.
It added that prices of the palm oleic grades were also coming under pressure, owing to the expected arrival of volumes from Asia.
The producer said it was offering palm oleic acid at just over €1,100/tonne FD NWE, but suspects it would have to lower its offers shortly to compete with the impending arrival of these lower-priced imports.
“People aren’t in a rush [to finalise negotiations],” one trader said.
Although feedstock palm kernel oil (PKO) prices have increased slightly this week, the trader believes the palm oils market is still bearish.
“There has been a slight pick-up [in prices], but in general I think they will stay at these levels,” it added.
Outstanding negotiations are expected to reach a conclusion in the coming weeks.