OUTLOOK '18 US fatty alcohols could see supply pinch

05 January 2018 21:00 Source:ICIS News

HOUSTON (ICIS)--The US fatty alcohol market in 2018 could see supply pose as much a driver as feedstocks, a shift from the upstream feedstock volatility that dominated 2017.

The US is a net-importer of natural (vegetable-based) fatty alcohols, with C12-14 and C16-18 alcohols produced in and exported by Asia.

Palm kernel oil (PKO) is the primary feedstock for natural alcohols, which are typically even-chained as C12-14 or C16-18 blended alcohols and straight cuts of C12, C14, C16 and C18.

The mid-cut, detergent range, C12-14 cut is the main alcohol sought by US buyers because it is the stem alcohol for surfactants, which are the main end-use for these fatty alcohols.

In the natural mid-cuts, PKO is almost always the primary price driver. PKO prices were exceptionally volatile in 2017, pushing mid-cut fatty alcohol contract prices up and then sharply down on changes in the feedstock market.

However, entering Q1 2018 and with fatty alcohol contracts for that quarter not settled at the time of publication, it is alcohol supply that is driving the price levels.

Additionally, the US has significant synthetic alcohol production by Shell and Sasol, using ethylene and natural gas routes, respectively, to make the fatty alcohols.

ICIS addresses this by using a C12-15 chain for the mid-cut alcohols, seeking to include the synthetic prices in the assessment range.

Both natural and synthetics are displaying a potential supply pinch going into 2018.

Synthetic alcohols are in a sold-out position almost every quarter, an issue pushing the market to expect both Shell and Sasol to consider expansions. Sasol’s work on expansions at Lake Charles, Louisiana include a number of alcohol derivatives but no clarity on potential mid-cut fatty alcohol production. Shell’s position on potential production changes regarding alcohols is also unclear.

Any alcohol changes to take place at Sasol are targeted for 2020.

Fatty alcohol buyers of both natural and synthetics said that the synthetic alcohol is more readily sought after in today’s market than it was several years ago, driven by price and logistics as much as application prospects.

Synthetic mid-cuts made a sharp market incursion based mainly on price between 2016 and 2017, putting the natural side on the alert.

Synthetic producers operate on a different production model utilising ethylene and natural gas – both attractively priced in the US Gulf coast region. In addition to ethylene and natural gas as feedstocks, synthetic producers’ operating costs can be lower because of the attractive price of natural gas to run facilities. These factors have margin impact.

This caused several natural alcohol suppliers to pull out of the US market, shortening the import supply to this region.

That situation has not broadly rectified going into 2018. Additionally, suppliers still actively importing to the US said Asian alcohol inventories are short going into Q1 2018.

Asian alcohol inventories are short because of some smaller plants ceasing production, but also because alcohol plants are often adjacent to fatty acid production. These producers have the choice to make alcohols or not. With strong demand for fatty acid downstream mid-chain triglycerides (MCTs) to go into diet bar food applications and narrow margins for natural alcohols, some producers either cut back on alcohol production or decided not to make alcohols in favour of more MCT production.

US fatty alcohol demand appears to be strong going into 2018, bolstered by good demand in the huge surfactant end-use sector for the mid-cut alcohols.

Good demand and shorter supply in Asia suggest suppliers are likely to push for higher prices in 2018.

The following graph shows the price direction in 2017 for mid-cut C12-15 and for the C16-18 blend.

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By Judith Taylor