Asia glycerine market poised to firm on tight supply

Focus article by Alexis Gan

SINGAPORE (ICIS)–Asia’s glycerine market is expected to uptrend on the back of tight supply arising from a slowdown in biodiesel as it loses its attractiveness against low-priced crude, traders said on late Wednesday.

On 21 January, drummed glycerine cargoes were at $600-650/tonne FOB (free on board) southeast (SE) Asia, up by $20/tonne compared to previous week, ICIS data showed.

Selling indications were mostly bullish, with sellers raising their asking prices by $20-50/tonne higher from the previous month’s prices, on anticipation of forward months’ supply tightening.

A few suppliers, who previously sold at $580-600/tonne FOB SE Asia in December, withheld their offers for February and were holding out for higher prices amid expected tight inventories and uncertain biodiesel production plans after February.

“With crude oil at the current level at below $50/barrel, we are making losses on biodiesel, based on the pricing structure in Indonesia,” said one integrated oleochemical and biodiesel producer.

The biodiesel sector, which accounts for more than half of the overall glycerine production, has lost its attractiveness as an alternative fuel following sharp falls in the crude oil market in recent months, sources said.

Several refiners in southeast Asia faced difficulty in obtaining cheap and suitable crude glycerine cargoes given the depleting supply regionally, and nudged up asking prices for their refined glycerine as a result.

A pick up in buying enquiries including those long positions up till May boosted buying confidence, a few producers added.

“Refined glycerine prices would be higher in the coming months, while demand from traditional applications continue to be stable and robust,” said one trader planning to procure bulk volumes of  2,000-3,000 tonnes during the week for deliveries until April.

Meanwhile, crude glycerine scarcity propped up import prices to China as last-minute buyers getting ready for post-Lunar New Year productions in March rushed to secure volumes.

On 21 January, crude glycerine prices to China were higher by $10-15/tonne from previous week, assessed at $225-235/tonne CIF (cost, freight and insurance) CMP (China main ports).

The crude glycerine shortage as a result of the slowdown in global biodiesel markets has led buyers from southeast Asia and China vying for the reduced pool, boosting selling sentiment.

A few southeast Asian suppliers indicated selling prices at $250-290/tonne CIF CMP, given the limited availability and attractive prices in the domestic market.

However, those were considered too expensive by the Chinese buyers, who capped buying indications at $250/tonne CIF CMP.

Several Chinese buyers, who sought cargoes for post-Lunar New Year production in March, acknowledged that they would have to pay higher prices than in November or December in order to secure some volumes ahead of the major festive season in mid-February.

One such buyer in alkyd resin sector said it raised buying ideas by $10-15/tonne from its previous orders in December, in order to procure some volumes to keep its plant running during the Lunar New Year break and to get ready for March production as well.

In Thailand, the Energy Ministry said retail biodiesel in the country will be cut to 3.5% from from 7% methyl ester content, in an effort to free up palm oil supply and prevent shortage in the food industry during seasonal decline of palm oil.

Petrol stations will begin selling retail biodiesel with the lower percentage of biodiesel starting from 22 January, according to official statement.

According to director-general of the Energy Business Department, Witoon Kulchroenwirat, the B3.5 mandate would last until the country’s crude palm oil stocks return to a normal level.

Biodiesel producers in the country expect the B3 to hold for two months, up till March, when typical seasonal production of palm oil rise.

The 50% reduction would affect supply of crude glycerine in the next two to three months, sources added.

In Philippines, there were talks of abolishment of the Biofuel Law in the country, local traders said.

Currently, the country blending requirement, using coconut methyl esther stands at 2%.

The proposal and deliberation, however, would take a longer period and is expected to be finalised by the end of this year.

Trader expect that the scrapping the biodiesel law would slash crude glycerine supply to its main market in China in medium term.

Nonetheless, a few end users with comfortable inventory levels attributed the current uptrend to speculative trading by traders and not entirely demand-driven.

Market outlook is expected to be clearer after February once real demand from buyers after the Lunar New Year celebrations resurfaces, they added.

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