Asia fatty alcohols to extend gains on restocking, firm PKO

By Alexis Gan

SINGAPORE (ICIS)–Asia’s fatty alcohols prices may continue rising in the coming weeks as restocking activities start, with firm costs of feedstock palm kernel oil (PKO) seen providing strong support to the market, industry sources said on Tuesday.

On 19 February, mid-cut C12-14 fatty alcohols were at $1,750-1,850/tonne FOB (freight on board) SE (southeast) Asia, up by $50-100/tonne from the previous week, according to ICIS data.

Over the same period, PKO spiked $137.68/tonne to close at $1,327.22/tonne DEL (delivered) south Malaysia at midday of 19 February.

PKO prices continued to strengthen, settling at $1,337.44/tonne DEL south Malaysia on Monday noon.

Mid-cut C12-14 fatty alcohols make up 60-70% of the total global fatty alcohols production.

Last week, producers were offering $1,800-2,000/tonne FOB SE Asia for blended C12-14  fatty alcohols.

Based on the current PKO cost, a few regional producers said that fatty acids should be priced $2,000/tonne FOB SE Asia and above to buffer their losses.

Buying indications at around $1,750/tonne FOB SE Asia were no longer deemed workable by producers, which are opting to hold on to their cargoes than sell at a loss, market sources said.

Buyers are currently purchasing cargoes on a need-to basis, but restocking activities are expected to ensue in the coming weeks.

Spot purchases had been minimal in the weeks before and right after the Lunar New Year, which falls on 31 January this year.

Higher consumption of PKO as a substitute crude coconut oil (CNO) may also be lending support to the market. There were concerns that the devastation wrought by Super Typhoon Haiyan in the Philippines – a major supplier of CNO in Asia – may have affected the country’s production.

Meanwhile, some end-users and distributors with March requirements acknowledge that they will have to accept higher prices for fatty alcohols and may have to take smaller-than-usual volumes.

Long chain fatty alcohols were also discussed at higher prices, to which buyers posed a strong resistance citing a tapering off of demand. The resulting wide buy-sell gap drove market participants to the sidelines.

On the supply side, initial hopes of increased supply were dashed because of delays in start-ups of new plants, while some regional facilities are due for turnarounds between February and April.

A new 100,000 tonne/year fatty acids plant in southeast Asia was supposed to begin production by end-2013, but the start-up was pushed back to the second half of this year. In Saudi Arabia, the launch of a new plant with an 83,000 tonne/year capacity was also delayed from the initial plan last year, according to market sources.

“With the current high PKO price, some plants might even scale back production if margins are unsustainable, especially those without upstream (plantation) support,” a regional trader said.

($1 = MYR3.28)

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