By Cuckoo James
LONDON (ICIS)--European palm-based fatty acids and alcohols prices were on an upward trajectory last year, and the outlook for pricing in Q1 remains bullish due to a rise in feedstock prices.
Palm-based fatty acid and alcohol prices in the first quarter of 2017 are expected to increase due to a feedstock supply shortage in Europe, albeit amid minimal purchases as buyers wait for softer prices.
Many Q1 fatty acids and alcohols contracts are currently being finalised. Upstream prices have been increasing from the beginning of the fourth quarter, primarily on insufficient production.
Feedstock tallow prices have been on the rise because of competitive demand from the energy sector, supply issues from inefficient production and on the back of a spike in alternative feedstock, vegetable oils. The tallow market is balanced to tight.
Feedstock palm kernel oil (PKO) prices have also been on an upward trajectory, driven by market shortage. Heat from El Nino this year has adversely affected PKO production and yields in Indonesia and Malaysia.
There is stiff competition between tallow and palm fatty acids, with some customers choosing to buy the cheaper tallow-based products. This has, in some instances, offset some of the upward pressure on palm-based product, especially on palm oleic acid.
There is some market consensus that PKO supply could ease towards the end of the first quarter as crop yields in Indonesia and Malaysia are expected to improve after last year's El-Nino adversely affected farming.
However, others disagree as PKO prices have shown no signs of dropping.
There are other factors that are expected to exert upward pressure on fatty acids and alcohols, including the euro to US dollar exchange rate.
The euro weakened versus the dollar in 2016, from $1.08 in January 2016, down to $1.03 at the time of writing.
The rise of the US dollar has typically pushed up prices for European fatty acids and alcohols.