China crude glycerine falling on weak demand, rising supply

Focus story by Alexis Gan

SINGAPORE (ICIS)–China’s crude glycerine market faces a downtrend as a result of weak demand and ample supply but some players expect that prices may bottom out in a few weeks, industry sources said on Monday.

Crude glycerine in flexi bag, at purity level of around 80%, was at an average of $292.50/tonne CIF (cost, insurance, freight) CMP (China main port) in the week ended 9 July, according to ICIS pricing.

This was lower by $72.50/tonne, or nearly 20%, from two months ago when average price was $365/tonne CIF CMP.

Market sentiments were bearish ever since late 2013 because of weak derivative consumptions amid a slower economic growth in China.

Local Chinese companies, which import crude glycerine for refining, were cautious in purchasing owing to persistent weak demand for the product. 

“Maybe they (buyers) stock(ed) up too much in year-end [2013] and now they are reconsidering their positions,” one China-based trader said.

Supply of crude glycerine, a by-product from biodiesel production, is expected to be abundant in the upcoming months as a result of increased biodiesel production in some Latin American countries. The ramp up of biodiesel started in May as government mandates for biodiesel blending requirements and tax changes.

In early June Brazil announced its plan to move up mandatory biodiesel blending to 6% by July and by 7% in November.

With a 7% biodiesel blend requirement, biodiesel consumption in Brazil could rise to 4.2bn litres/year from the current 3bn litres.

Brazilian government may have increased the blending ratio in view of  attractive soya bean prices due to higher yeilds. Soya bean is used as feedstock for biodiesel production in Latin America and Europe.

Another Latin American crude glycerine exporter, Argentina, slashed its biodiesel export tax, from 22% to 11% in May in a bid to revive its ailing biodiesel sector, which may result in more offerings from Buenos Aires.

The biodiesel sector in Argentina was in a slump after being slapped with definitive anti-dumping duties (ADD) by Europe in 2013, barricading entry into its biggest biodiesel market.

Indonesia – another major exporter to Europe also slapped with ADD – is trying to boost domestic consumption by hiking up mandatory biodiesel mandates to 10% since September last year.

However, underdeveloped blending facilities, logistic issues and profitability issues are likely to hamper full implementation of the government mandate.

In southeast Asia, Thailand moved up its mandatory biodiesel mandate from B4 (4% biodiesel, 96% petroleum diesel) to B7 blend in mid-May, after shelving the plan in first quarter of 2014.

Additionally in neighbouring Malaysia the government might be delaying nation-wide B5 implementation because of logistic issues, several Malaysian market players said.

The nationwide B5 plan that covers province of Sabah and Sarawak in east Malaysia was initially expected to be rolled out by 1 July but production sustainability and various issues might result in further delay by another two to three months, one Malaysian trader said.

Crude glycerine market in China was described as “free-fall momentum” by some of the players because of persistent resistance to buying. Many buyers expect downstream demand to remain soft while supply to increase further.

However, market outlook is set to be cautiously mixed as some Brazilian players who have committed most of their August requirements are optimistic that prices in China will bottom-out soon.

Some Brazilian players say they could move cargoes at better margins at alternative market in the Middle East countries.

The recent waiver of crude glycerine import duty by India also potentially widens alternative outlets for crude glycerine beyond China.

“Further bottoming will spark interest for substitute applications such as animal feeds sectors, and market will rebound,” one trader from Brazil said.

According to the trader prices were low enough to make crude glycerine attraction for substitute applications that include blending into animal feedstock, burning for heat generations, or used as lubricants for transportation in mining sector.

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