The global oleochemicals market has seen high oils and fats feedstock prices, logistics hit by COVID restrictions and severe weather, with strong demand expected ahead, the 13th ICIS World Oleochemicals Conference heard on 23-24 June.
Major feedstocks for oleochemicals are palm oil, lauric oils (palm kernel oil and coconut oil), soyabean oil and tallow.
In terms of palm oil production, LMC International head of Southeast Asia Julian McGill said that while droughts in 2019 would continue to have an effect in 2021, 2022 should see high palm oil output if there were no weather shocks.
Weaker production had helped keep prices high, with world crude palm oil (CPO) prices rising from US$800 in November 2020 to as high as US$1,200 now.
Indonesian biodiesel demand has been crucial in mopping up a lot of the country’s palm oil production but the export tax used to fund the biodiesel programme has also meant much lower prices in the world’s largest palm oil producing country, according to McGill.
Export taxes had also altered processing margins by giving huge incentives to refine, changing relative prices (palm olein was now often US$60/tonne cheaper than CPO) and encouraging more processing of fatty alcohol and split fatty acids, he said.
“The export taxes also give incentives to export fatty acids, rather than CPO or crude palm kernel oil (CPKO).”
In terms of the fatty acids market, prices in Europe shot up significantly between fourth quarter 2020 to second quarter 2021, with oleic acid prices seeing the biggest hike, and both tallow and palm oil fractions shooting up in value by €655/tonne on average, Samantha Wright, senior editor manager at ICIS said.
Palm oil-based fatty acid supply was hit by vessel delays from Asia, caused by a lack of ships and workers resulting from COVID-19 and extreme hikes in freight costs. Demand for palm-based fatty acids also increased as a result of severe shortages in the tallow fatty acid market.
The US fatty acid market also saw vessel delays and high freight costs from Asia. Soyabean oil supply was low and there was tight rail and truck availability.
In Asia, fatty acids prices saw some increase this year but because any available palm oil went to the domestic market before being exported to Europe and the USA, there was less impact and only caprylic acids saw significant price increases.
“Looking forward into third quarter 2021, continued vessel delays are expected and it is unclear when this will ease and imports return to normal. As result, palm-based fatty acid availability is expected to remain tight.”
Raw tallow production may not increase as soon as expected despite restaurants re-opening, due to a backlog of frozen meat resulting in less new meat production and resulting tallow, according to Wright.
“As biodiesel demand for raw tallow has been rising steadily and shows no signs of abating and as hydrotreated vegetable oil (HVO) gains traction in Europe, we may see snug supply become the norm for tallow-based fatty acids.”
In the USA, limited vessel/truck/rail availability was expected to continue into third quarter 2021 with the market set to remain short and demand likely to remain firm or increase as economic recovery continued, she said.
In Asia, another spike in COVID cases in some countries was expected to dampen production, with lockdowns expected to hit palm oil output due to labour constraints.
In terms of fatty alcohols, Lucas Hall, markets editor, ICIS, said the market would face pressure from bullish feedstocks and strong demand.
Vegetable oil stock levels were at multi-year lows and production had not yet begun to come back at a rate to replenish these.
Martin Herrington, president, North America, IP Specialities, said there had also been a steady and relentless increase in lauric oil prices since the second quarter of last year.
“To make a tonne of C12-14 alcohols, you need 1.7 tonnes of PKO. So that increase in price from US$700 to $1,500/tonne of PKO is actually even more extreme when translated into the cost of making fatty alcohol.”
Hall said HVO production was keeping feedstock demand extremely firm.
Global HVO capacity is expected to nearly double in the next two years, according to Hall. US policies were behind 85% of capacity additions globally. Outside of the USA, new projects would expand capacity by 12% from 2020-2022 in Europe and 32% in the Asia/Pacific region.
“At full capacity, HVO capacities will account for 11% of global biofuels production in 2022, more than doubling the 2019 HVO share.”
North American HVO production would grow to 9.5bn litres/year in 2022 from 1.9bn litres/year in 2020.
Hall said the fatty alcohol market had also experienced a tight shipping market which was particularly pronounced in the USA because its production was located furthest from feedstock to plant.
There is only one US producer of fatty alcohols, located on the West Coast, but its feedstock has to be imported by sea, according to Herrington. Remaining fatty alcohol demand is met by imports coming into New York and New Jersey and a few ports on the Gulf of Mexico. Also on the Gulf were several petrochemical alcohol plants located at Louisiana.
Hurricanes last summer struck the Gulf of Mexico coast, hitting synthetic alcohol plants, fatty alcohol ethoxylate production and the ports bringing in half of the USA’s fatty alcohol and oleochemicals supply.
In February, severe cold weather hit Texas, impacting the surfactants supply chain and disrupting road and rail shipping.
Hall said synthetic alcohol producers Sasol and Shell were still in force majeure following last year’s hurricanes and the country was now coming up against the Atlantic hurricane season, which could impact production.
With demand from the industrial sector and cleaning back in full swing and lagging imports, upward pressure in the third and fourth quarter this year was likely.
In the glycerine market, crude glycerine prices had nearly doubled from around US$300/tonne in early January to US$600/tonne in June, Helen Yan, senior editor at ICIS, said.
Glycerine is a by-product of biodiesel and oleochemical production, with output typically about 10% of the capacity of both processes.
Yan said that more than 60% of crude glycerine came from biodiesel production, 30% from fatty acids and the remainder from fatty alcohol.
Brazil was a major exporter of crude glycerine and its biodiesel blending mandate was crucial in determining glycerine supply. The government’s slashing of the mandate from 30% to 10% in April meant less glycerine supply for the year.
Downstream demand for glycerine from the home and personal care sector was expected to remain stable. The market would also see strong demand from the epichlorohydrin (ECH) sector, due to outages in China, the EU and USA hitting production of ECH and liquid epoxy resin (LER), the main application for ECH. Outages included US Olin’s force majeure in Texas in mid-February affecting ECH and LER output; Hexion’s LER force majeure in Netherlands at the end of April; China’s Kukdo Chemical (Kunshan)’s LER unit closure since the end of October 2020; Inovyn’s ECH April maintenance in France; and US Olin’s second force majeure at the end of May.
Two speakers from Cremer Oleo also said that strong competition from the HVO sector for feedstocks would also limit the growth of biodiesel and glycerine output as a result, as HVO did not produce glycerine as a by-product.
Dominik von Borstel, business manager, glycerine; and Tobias Thiel, senior product manager, said global glycerine demand was expected to grow by 4-8%/year on average, depending on the region and application.
Africa, the Middle East and Asia would be the main regions driving consumption.
Food, pharma and cosmetics glycerine demand would show moderate growth while green alternatives to petrochemicals, such as bio-propanol, bio-monoethylene glycol, bio-plastics and polymers would focus on glycerine as a feedstock.
ECH would be a substantial consumer of glycerine in the future. ECH was traditionally produced from propylene, a petrochemical feedstock, but with increased focus on sustainability, a vegetable-based feedstock would be preferred.