SE Asia PME exports to remain subdued in Q1 on weak demand

Focus article by Fahima Khail

SINGAPORE (ICIS)–Discussions in southeast Asia’s palm methyl ester (PME) export market may remain limited for the rest of the first quarter amid soft demand and a general weakness in energy prices, market sources said on Monday.

On 26 February, export prices were assessed stable at $650-740/tonne FOB (free on board) SE Asia, according to ICIS.

Sellers were largely quoting $740/tonne FOB SE Asia for March-loading cargoes, taking into account recent spikes in raw material prices.

Buyers, on the other hand, capped their working buying ideas a $620-650/tonne FOB SE Asia, citing limited demand.

PME prices have largely been on a downtrend since early July, tracking the sharp falls in the energy markets, with some volatility attributed to the movement of feedstock crude palm oil (CPO) prices.

Between July 2014 and end-February 2015, PME prices have fallen by $140-200/tonne or by more than 20%.

PME is a type of biodiesel – a clean burning alternative fuel produced from renewable resources – that is mainly produced in Asia, particularly, in Indonesia and Malaysia.

It is usually sold with a guarantee of up to 15° C cold filter plugging point (CFPP) – the temperature whereby biodiesel starts to solidify and clogs up car filters. Standard PME made from refined, bleached and deodorised (RBD) palm oil is between 13-15° C CFPP.

European and Chinese importers – the major export markets for southeast Asian PME – have not been active in procuring cargoes amid the winter season, which makes using the biodiesel in cars difficult, industry sources said.

Indonesia, the biggest producer of PME in the world, produced around 2.65m tonnes of the biodiesel in 2014, 46% of which were exported. Malaysia, on the other hand, produced about 600,000 tonnes of PME and shipped out 42% of the total, according to industry estimates.

Within southeast Asia, growth in consumption is limited as it is tied to the fuel blending policies of governments. Malaysia, Indonesia and Thailand have these policies in place.

Exports to Europe, meanwhile, has been adversely affected by the depreciation of the euro as a weaker currency makes imports expensive, industry  sources said.

Taking into account the $120 freight cost from southeast Asia to Europe and a 2% import duty on PME, “it’s not viable to import. [It is] better to produce locally”, an importer said.

Meanwhile, recently declining prices of gasoil – a substitute product to biodiesel have further weakened the demand for PME, market sources said.

Some players were expecting firm discussions to begin in March depending on how crude and feedstock CPO prices will behave.

The gap between CPO and gasoil would have to narrow substantially for PME production and trade to be economically viable.

Market players said the CPO price was at $620-645/tonne FOB SE Asia in the week ending 26 February. However gasoil price was about $600/tonne.

PME producers, meanwhile, would rather run at low rates or keep their plants shut than base their selling prices on gas oil prices, which tracks crude prices.

Biodiesel is made through a chemical process called trans-esterification,  whereby  glycerine is separated from the fat or vegetable oil. The process leaves behind two products – methyl esters and glycerine, which is used in soaps among other products.

“We are not sure when to resume production, we have our other products, we buy and sell glycerine,” a PME producer said.

“I’d rather remain shut, no problem,” said a source at another southeast Asia-based producer, adding that its PME exports will only resume when crude prices go back to $80/bbl.

In general, biodiesel plants could stay shut for maximum six months, “without costs being prohibitive”, an industry source said.

Integrated producers have a clear advantage over smaller peers, market players said.

“As long as the price of crude oil and gas oil is down, we’ll remain shut. We still have refineries, we produce [other chemicals], so PME is optional,” said a source from one of the producers.

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