Europe oleochems Q1 prices up sharply on short supply, potential rebalancing from April

LONDON (ICIS)–European oleochemicals first-quarter contract prices have been settled at triple-digit increases on the back of ongoing tightness.

The show availability of material is likely to continue until at least the end of the first quarter.

UPSTREAM CUTS, GLYCERINE SHORTAGES
Glycerine first-quarter contracts jumped up amid tightness in the market towards the end of the fourth quarter.

There was tightness in the crude glycerine market at the end of the fourth quarter, and this, alongside higher vegetable oil prices, boosted prices for Q1.

Limited availability was caused by a lack of upstream biodiesel production amid ongoing coronavirus restrictions which have dampened fuel demand.

Very low biodiesel margins also reduced interest in the biofuel amid a spike in vegetable oil prices.

Vegetable oil prices mainly rose in light of issues with several crops due to limited workers available because of coronavirus, combined with adverse weather in both South America and Asia.

Shortages are likely to persist in the crude glycerine market for at least the first quarter, with some players anticipating tightness could carry on into the second quarter as well.

While the refined glycerine markets are currently balanced, there are expectations that shortages may arise further into the first quarter if crude tightness continues.

“We do see enough material on the market [currently], but if crude tightness remains the next month could be difficult,” one source said.

Refined glycerine demand is set to be fairly lukewarm in the first quarter, with players covered on annual and first-quarter contracts.

Offtake of contracted volumes is likely to remain strong, however, with some spot enquiries possible towards the end of the quarter.

Crude glycerine buying interest is very strong due to the ongoing shortages, and is not expected to wane in the coming months.

FATTY ACIDS: TIGHT THROUGH Q1
Fatty acids first-quarter contract prices posted mostly triple-digit increases amid limited availability across both the tallow and palm grades.

Tallow-based supply limitations were caused by shortages in the raw tallow market, caused by an increase in tallow biodiesel production.

Because of high vegetable oil prices in recent months, some players have been substituting their vegetable-based biodiesel with tallow biodiesel instead.

This has impacted the tallow oleic market more than the tallow stearic market amid limited automotive demand for stearic acid.

Tallow oleic tightness is lightly to last through the first quarter and the market could even see shortages throughout 2021 if tallow biodiesel demand remains robust.

There has been palm-based supply constraints in the fourth quarter and into the first quarter due to a combination of higher palm oil costs and vessel limitations from Asia due to the global shipping shortage.

Similarly to the tallow market, palm oleic was impacted more than palm stearic, due in some cases to the different vessels used to transport stearic acid compared to oleic.

Palm oleic supply may increase once material reaches the region, though it is likely there will be shortages at least until the end of the first quarter while players catch up with delayed orders.

One player explained that while there are constraints in the first quarter, it is unclear yet what availability will look like for the second quarter.

“Availability in the first quarter is tough, but almost no one is offering for the second quarter [yet]”, said the source.

Demand for palm material into the personal care, food and cosmetics markets is expected to remain healthy through the first half of the year.

Coronavirus restrictions boosted personal care demand slightly but there has been no serious boost to buying interest so far.

The tallow stearic acid market is heavily dependent on demand from the automotive sector, which was very weak in 2020.

Oxford Economics forecasts that automotive sector growth in Europe should jump significantly in the second quarter and remain in positive numbers throughout the rest of 2021.

This would lead to a boost in tallow stearic demand, but some delay is to be expected while players get through previous stocks.

FATTY ALCOHOLS: SUPPORTED BY PKO, TIGHTNESS
European fatty alcohols first-quarter contracts have been agreed at triple-digit increases amid recent hikes in feedstock palm kernel oil (PKO) costs.

PKO values have almost doubled since the end of September, steadily rising from around $750/tonne at the time to $1,366/tonne last week, both prices on a delivered (DEL) Malaysia basis, according to trading house Matthes and Porton.

Tightness arose in the market at the end of the fourth quarter amid the global container shipping shortages.

This has continued into the first quarter, and limited availability is likely to continue through the quarter and possibly into the second quarter dependant on how long it takes to catch up with delayed orders.

Demand is healthy from the downstream alcohol ethoxylates market, though ongoing force majeures in the ethylene oxide (EO) market are halting orders in some cases.

This is balancing out the fatty alcohols market slightly amid limited material; however, when EO players return to the market and alcohol ethoxylates demand increases, tightness could reappear.

“I’m scared I will have to purchase some alcohols in the first quarter. I don’t want to, but demand is so strong I might have to,” said one source.

Front page picture: Qinzhou Port in China; the shipping industry’s woes have also caused shortages in the oleochemicals markets, propping up prices in Europe
Source: Xinhua/Shutterstock

Focus article by Samantha Wright