Asia soap noodle price gap may prevail in Q4 on uncertainty

By Andrea Heng

SINGAPORE (ICIS)–Asia’s soap noodle market may continue to see a gap between buyers’ and sellers’ prices into the fourth quarter of this year, market sources said on Friday.

The buy-sell gap started to widen during the week of 22 June, when buyers started indicating softer prices at around $920-950/tonne (€745-770/tonne) FOB (free on board) southeast (SE) Asia, in line with a decline in feedstock prices, according to data from ICIS.

However, sellers remained firm in their indications at $1,010/tonne FOB SEA and above, citing squeezed margins as a result of costly raw materials during the second quarter of the year.

“It is impossible for me to sell anything below $1,010-1,030/tonne FOB SEA because our feedstock costs are high. I will earn a very slim margin and I’m not in any urgency to sell soap noodles so that I can focus on other oleochemical products,” a southeast Asia-based producer said.

Feedstock crude palm oil (CPO) prices were at the mid Malaysian ringgit (M$) 3,000s/tonne (around $965/tonne) FOB Malaysia in early May before steadily declining to the low M$3,000s/tonne FOB Malaysia by early June, according to ICIS.

The CPO prices hovered at this level throughout July.

From late June through July, the buy-sell gap prevailed as sellers were unable to offer cargoes of 80/20 soap noodles – which goes into making of soap bars – at below $1,000/tonne FOB SEA.

On the other hand, buyers persistently indicated prices at the mid-$900s/tonne FOB SEA, causing a standstill in the market.

“The volatility in the feedstock market is not helping the situation. Buyers keep quoting lower numbers the instant they see a drop in CPO prices, but they fall silent when we quote our selling ideas when CPO prices rise again,” another southeast Asian producer said.

However, the price gap narrowed slightly during the week ended 3 August to be assessed at $950-980/tonne FOB SEA after sellers lowered their offers as a result of downward pressure from buyers.

Buyers are not in a hurry to purchase because of ample inventories, so they were able to hold on to their lower indications and even purchase in small quantities.

Despite the narrowed buy-sell gap, players believe trade will remain limited during the fourth quarter as buyers continue to push down prices, with some testing the market with bids at below $900/tonne FOB SEA.

 “It will be difficult for producers to sell below their current levels at $980-990/tonne FOB SEA because their margins will be squeezed. CPO prices are hovering at the same levels, so any transactions during this time will be for small volumes,” a trader said.

($1 = €0.81, $1 = M$3.11)

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