OUTLOOK ’14: Oleochemical markets eyes US biodiesel sector’s fate

Leela Landress

27-Dec-2013

SoapMEDELLIN, Colombia (ICIS)–Global oleochemical players are closely watching the fate of the highly politicized US biodiesel industry as a gauge for what 2014 holds in store.

The key question looking at 2014 pricing and trends is what will happen with the global biodiesel sector and its supply of by-product crude glycerine and, when or if, the worldwide glycerine markets will tighten up.

The market seems to be split when looking at the fate of the biodiesel industry and the supply chain for refined glycerine next year.

Many players expect that US biodiesel production will shut down considering stagnant renewable fuel volume blending mandates in the US and the lack of the $1/gal tax credit in 2014.

Many market players in the biodiesel sector do not expect the tax credit to be renewed, which is considered crucial to most producers.

However, a recent report quoted Iowa Senator Chuck Grassley saying that he expects the $1/gal federal tax credit to be extended for 2014.

Mandated volumes are another unknown for the biodiesel sector.

Twenty percent of volumes produced this year can be carried over to 2014, meaning that less production will be needed next year to meet renewable volume obligations (RVO), sources said.

Globally, European biodiesel production is declining, a distributor said. Additionally, Argentine biodiesel production is uncertain as well.

Some players in the refined glycerine market expect it to tighten sharply sometime in the second or third quarter.

However, other players say the supply scenario would depend partly on global economics and will depend ultimately on demand.

Looking to the tallow-based fatty acids sector, US tallow and other grease prices are expected to be more available in 2014 because of changing feedstock choices available for multi-feedstock biodiesel production, said grease traders, fatty acid market players and biofuel sources.

A large fatty acid producer said the lower biodiesel production rates, paired with other feedstock options, would take the pressure off tallow prices in 2014.

Increasing use of distiller’s dried grains (DDG) corn oil in biodiesel is relieving pressure on the supply of tallow, the seller said.

“1bn lbs of DDG corn oil are being used in biodiesel and it’s taking the pressure off tallow. This could grow to 3bn lbs in the future,” the source said.

Ethanol production from corn generally yields, on a per bushel basis, about one-third ethanol, one-third DDGs and one-third carbon dioxide.

Corn oil can be obtained by pressing the DDGs to release the oil, with the remaining fibre and protein component moving into the traditional DDG animal feed end-use market.

US tallow-based fatty acid producers typically use bleachable fancy tallow (BFT) as feedstock. They have had to compete with the biodiesel sector for the feedstock.

BFT has been hovering around 35 cents/lb in the Chicago cash market in December.

The fat or oil feedstock can be any vegetable oil – in the US, usually soybean oil; in Europe, typically rapeseed oil – tallow fats, yellow grease and some other greases.

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