Fatty acids are used mostly in cosmetics and toiletries such as shampoos, liquid detergents, fabric softeners and body lotions. They are also used as lubricants and plasticisers in rubber and polymer processing.
Additionally, fatty acids add qualities to foods – and can also be used to modify other well-known materials.
In recent years, global fatty acid demand has increased as a result of end-use consumption growth, as well as strong growth of oleochemicals (fatty acids, fatty alcohol and glycerine).
Currently, supply of both palm and tallow-based fatty acids remains in line with European demand.
Oleic grades tend to be in higher demand to stearic grades in Europe, and these continue to trade at a premium as a result.
There is a strong competition between vegetable and tallow based fatty acids, with some buyers, particularly in the surfactants sector, switching between the two grades.
A lot of these buyers can switch to palm, and vice versa, as their plants can use blended palm/tallow acids.
They tend to do this to cut down on operating costs when one product is significantly cheaper than the other.
With prices of both palm stearic and palm oleic grades now higher than the tallow-based alternatives, participants expect demand for tallow grades to increase.
Although tallow feedstock is currently readily available in Europe, participants remain concerned with the increased competition from biodiesel firms on tallow feedstock supplies.
This always intensifies during the summer months, and participants believe supplies could tighten during Q2 as a result.
Volatility in upstream palm oil costs owing to natural disasters and harsh weather in southeast Asia have resulted in upward pressure being placed onto palm-based fatty acids.
Producers were able to achieve higher prices for both palm stearic and palm oleic acids during Q2 contract negotiations as a result of the higher feedstock costs.
Second quarter palm stearic acid traded at €950-1,000/tonne FD NWE, and palm oleic acid for the same contractual period traded at €1,140-1,270/tonne FD NWE.
Meanwhile, tallow stearic acids prices declined during Q2, trading at €900-980/tonne FD NWE, and tallow oleic acids prices edged up slightly on the high end, at €1,130-1,250/tonne FD NWE.
Tallow oleic acids experienced greater levels of demand than tallow stearic acids, resulting in the oleic grades increasing slightly and the stearic grades declining.
Higher upstream palm feedstock costs continue to place upward pressure on palm-based fatty acids prices in the spot market and a wider price spread has now emerged between palm and tallow-based fatty acids.
Fatty acids are derived primarily from vegetable oils such as palm and coconut oil.
Most fatty acid production is in southeast Asia, particularly Malaysia, Indonesia and the Philippines. Palm oil is the raw material used for fatty acid production in Malaysia and Indonesia, while coconut oil is used in the Philippines.
In Europe, fatty acids are also produced from tallow fats. The basic acids from this production are the C18 stearic and oleic acids.
Glycerine is a co-product of fatty acid production.
Lower prices in the imported vegetable-based fatty acids in recent weeks could push the market downwards.
Although softer palm kernel oil (PKO) costs has added to the pressure on fatty acid prices in southeast Asia in recent weeks, this has yet to impact European palm-based pricing.
Softening raw tallow feedstock prices over recent months lead participants to anticipate lower tallow-based fatty acids prices during Q2; with buyers with the ability to do so switching to tallow-based fatty acids.
However, this could be counteracted should demand from the biodiesel industry improve and eat into tallow supplies, this traditionally occurs during the summer months.
Should this occur than prices of raw tallow feedstock will increase, placing upward pressure on tallow-based fatty acids prices and reducing the attractiveness amongst buyers.
Additionally, the use of oil and fat feedstocks instead of petroleum-based feedstocks to make industrial products such as biofuels and plastics has created competition for fatty acids production in recent years.
This in turn has affected pricing, but these applications are largely dependent on crude oil prices and whether it will make cost-effective sense to make the switch.