OUTLOOK ’18: Asia’s fatty acids face feedstock and demand uncertainty

05 January 2018 08:08 Source:ICIS News

SINGAPORE (ICIS)--Fatty acid prices in Asia continue to face uncertainty pertaining to feedstock palm oil price trend and downstream demand.

Uncertain raw material price outlook will continue to affect both buying and selling sentiment in 2018.

With palm oil prices remaining volatile throughout 2017 and at times, moving against seasonal patterns and market expectations, buyers have been particularly cautious with restocking activities and operated mostly hand-to-mouth.

On the other hand, some producers, especially those without their own palm oil supply, mitigated risks by running their plants based on orders.

After palm oil production was severely affected by the El Nino in 2016, many had expected 2017 to be a year of recovery, but data showed that while production volume in 2017 was better than 2016, it still fell short of 2015 levels.

In terms of supply, the issue of chronic overcapacity persists and most producers have been countering it by reducing their output to protect their margins.

There were also concerns about whether demand will remain sluggish in 2018 after some fatty acids underperformed in 2017.

Demand for short chain fatty acids, products which producers could conventionally fall back on, declined in 2017, particularly for C10 capric acids and C8-10 caprylic-acapric acids.

And as stock continues to accumulate and with constant talks of competitively-priced cargoes floating in the market, prices of these two fatty acids cuts will face downward pressure, at least for the near future.

Despite the winter months being a peak season for C16 palmitic acids, demand in the last quarter of 2017 failed to live up to expectations and producers saw great buying resistance to higher offers.

For the main products such as C12 lauric acids and C18 triple pressed stearic acids (TPSA), demand remained relatively soft throughout 2017 as well.

At the moment, there were few signs to suggest any significant demand improvement in 2018.

Fatty acid prices have mostly moved in line with feedstock prices in 2017 and that would likely continue in 2018 with the exception of C14 myristic acids.

Lower utilisation rate of palm kernel oil (PKO) based production lines saw the shortening of C14 myristic acid supply, which may shelter it from the effects of raw material price movement in the future.

Outlook article by Jackie Wong

By Jackie Wong