A sharp rise in demand for oleochemicals is expected due to the coronavirus (COVID-19) pandemic and markets are bracing for potential shocks to the supply chain, according to the Malaysian Palm Oil Council (MPOC).
MPOC is basing its forecast on a report by Ingredients Commodity Intelligence Services (ICIS) on 20 March titled ‘Global oleo chems brace for shock amid uncertain supply chains’.
The rise in demand was due to an increased need for cleaning products, disinfectants and sanitisers.
The global glycerine market had already started to react, with prices increasing as supply chain uncertainty grew.
The MPOC report said glycerine was a by-product of biodiesel production, which was falling due to a decrease in demand for diesel in fuels as governments imposed restrictions on transit. Lower biodiesel output would result in lower production of glycerine, which was mainly used in personal and oral care products, as well as in food products.
Fatty acids and fatty alcohols – mainly produced from palm and coconut oils, as well as tallow - would be the next markets to face major disruption in in the global oleochemicals chain, as supply and demand started to outstrip declining feedstock costs in the negotiations for volumes, the report said.
Vessels shipping oleochemicals to both Europe and the USA had faced delays due to constraints caused by COVID-19.
The supply of fatty alcohols to both Europe and the USA was growing tight as both regions were dependent on southeast Asia for their supply of natural alcohols, while the USA also imported a significant amount of synthetic alcohols from Europe. In some cases, shipping and delivery costs had doubled.
Local supply constraints would further challenge the situation as increased travel restrictions delayed the transit of goods, especially in regions hard hit by the virus such as southern Europe.
Due to this, the global oleochemicals market was likely to face upward pressure in the face of increased shipping and logistics constraints as supply chain uncertainty grew alongside increased demand for goods to combat the spread of the virus, the MPOC report said.
The industry was likely to closely watch developments in southeast Asia and Europe, as disruptions in these markets typically triggered a trickle-down effect on markets in North and South America.