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Section 2 : Special Focus on the US:
The Development of the Oleochemical Market in the U.S.
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By: Mr. Martin Herrington
Martin Herrington is based in Cincinnati, Ohio, and has been responsible for North American operations for IP Specialities since 2012. IP Specialities is a global trading company with locations in Cincinnati, Hamburg, Singapore and Guangzhou, specializing in glycerine, fatty acids, alcohols and esters.
In over 30 years in the industry, Martin’s roles have included Managing Director of P&G Chemicals, Asia, and Managing Director of FPG Oleochemicals Sdn. Bhd., Associate Director of Logistics Purchases for P&G North America and Western Europe, Martin has lived and worked in London, Osaka, Cincinnati, Singapore and Brussels. VIEW PROFILE
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OVERVIEW
1/ Quick overview of the US oleochemical industry and supply chain.
2/ The impact of 2020
a/ Covid-19 and restrictions
b/ Weather events
3/ Some longer-term trends and concerns
1/ US OLEOCHEMICAL INDUSTRY OVERVIEW
Four primary fatty acid producers:
• Emery Oleochemicals, Cincinnati, Ohio
• PMC Biogenix, Memphis, Tennessee
• Twin Rivers Technologies, Quincy, Massachusetts
• Vantage Oleochemicals, Chicago, Illinois
All are able to use multiple feedstocks, but all use domestic beef tallow as a primary feedstock
TRT and Vantage sell most of their product as fatty acid
Emery and PMC also produce derivatives such as esters.
One primary oleochemical methyl ester / fatty alcohol producer:
• Procter & Gamble, Sacramento, California
Primary feedstocks are coconut and palm kernel oils
P&G supply a portion of their product internally to the consumer product business, and sell a portion externally.
All five oleochemical producers refine their own crude glycerine. (P&G’s refinery is at Cincinnati, not Sacramento).
Bulk imports come in via three main locations:
• Houston, Texas
• New Orleans, Louisiana
• Newark, New Jersey
Primary logistics modes:
• Large loads / long distances: bulk by rail
• Smaller loads / shorter distances: bulk by truck
Two big related industries:
• Two major synthetic (petrochemical) fatty alcohol producers:
o Sasol, Lake Charles, Louisiana.
o Shell, Geismar, Louisiana
• Large biodiesel industry supported by:
o Tax credit $1/gallon ($290/ton approx.)
o Mandate 2.4 billion gallons (7.5 million tons approx.)
2/ IMPACTS OF 2020 ON THE OLEOCHEMICAL INDUSTRY
1/ Transportation slowed down massively beginning March 2020
70% reduction in US truck freight demand
Huge reduction in airline travel
March 1: 22,500 scheduled flights
April 2: 16,600 scheduled flights – and 6,400 cancellations
Effects:
• Huge reduction in fuel demand. Biodiesel production reduced, leading to reduced crude glycerine supply.
• Spike in glycerine prices worldwide in March / April 2020 – they doubled in some markets. US crude glycerine was slow to follow, creating export opportunities for US producers.
• Drop in demands for lubricants – especially aviation lubricants, leading to crash in demand for light cut fatty acids for synthetic lubricants.
2/ Slaughterhouses and meatpacking plants were a major centre of Covid infection
Reduced availability of tallow led to sharp increase in fatty acid prices.
3/ Massive disruption to logistics
Container traffic:
• China shutdown in early 2020 led to containers being “stuck” in places where they weren’t needed.
• Reduced demand drive carriers to pull vessels out of service and institute “blank sailings” – i.e.: vessels not stopping at ports.
• Covid-related restrictions and driver shortages reduced throughput capacity at major ports.
Trucking within the USA
Rates fell during the first half of 2020. Since then, they have surged because of reduced availability due to:
• Shortage of drivers due to Covid
• Diversion of trucks to the Gulf during hurricane emergencies in 2020 and extreme winter weather in early 2021.
4/ Mixed effect of demand changes
• Personal care (soaps, surfactants)– strong demand
• Laundry products (surfactants) – strong due to reduced dry cleaning by people not going to the office.
• Industrial uses (oil field, metal working) very weak in mid-2020
• Transportation (synthetic lubricants etc.) very weak in 2020. This led to sudden and drastic weakening of the light-cut (C-8, C-10) fatty acid market.
5/ Extreme weather conditions
• Major hurricane season in 2020
o Shutdowns and forces majeures across the petrochemical industry, including synthetic fatty alcohol.
o Short-term disruption of logistics.
o Also impacted importers of oleochemicals into the US Gulf.
• Extreme winter in Texas in early 2021
o Loss of power and water in large areas
o Further shutdowns
o Shortage of trucks as they were diverted to Texas.
3/ TRENDS FOR THE FUTURE THAT IMPACT OLEOCHEMICALS
1/ The Weather
• Trend to increased frequency of extreme storms and hurricanes, especially in US Gulf of Mexico area.
• This region houses the majority of the country’s oil refining and petrochemicals infrastructure. Also the largest ports for importation of oleochemicals.
• Risk of continued disruptions to supply.
2/ Environmental Concerns
• New York has announced a limit for 1-4 dioxane in drinking water
• 1-4 dioxane is a small-quantity by-product of production of ether sulphates – the main surfactants made from fatty alcohol.
• Industry is looking for alternative surfactants – this could be a major shift in demand away from fatty alcohols, especially in personal care.
3/ The Fuels Industry
• National biofuels mandate did not distinguish between fuels made from different feedstocks
• California Low Carbon Fuel Standard favours by-prop ducts on the basis of lower carbon footprint of production
• Leading to structural increase in process of tallow, used cooking oil, yellow grease etc.
4/ Palm Oil Industry
• Two major Malaysian palm oil plantation groups are at the moment under Withhold To Release orders, preventing import of products into the USA.
• Unclear how this will play out for palm as a possible alternative for tallow and other domestic oleochemical feedstocks.
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| Archives |
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MITIGATING THE NEXT WAVE OF MARKET UNCERTAINTIES
Nov 14, '22 ~ Nov 18, '22 |
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ASSESSING 2022: MANAGING OPPORTUNITIES AND RISKS
Mar 28, '22 ~ Apr 01, '22 |
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Section 2: Opportunities for Palm Oil in Asian Market
Oct 18, '21 ~ Oct 24, '21 |
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Section 1: Oils & Fats Supply, Demand and Outlook
Oct 18, '21 ~ Oct 24, '21 |
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Section 1: Price Direction
Apr 05, '21 ~ Apr 11, '21 |
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Section 2 : Special Focus on the US
Apr 05, '21 ~ Apr 11, '21 |
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POINTERS ON THE PRICE TRENDS
Jun 22, '20 ~ Jun 28, '20 |
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Section 1 : CPO Price Trend
Feb 24, '20 ~ Mar 01, '20 |
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Section 2: Global Palm Oil Market Opportunities
Feb 24, '20 ~ Mar 01, '20 |
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Section 2: Special Focus
Aug 19, '19 ~ Aug 25, '19 |
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Section 1 : CPO Price Trend
Aug 19, '19 ~ Aug 25, '19 |
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Special Focus - India
Feb 25, '19 ~ Feb 24, '19 |
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Section 1: CPO Price Trend
Feb 18, '19 ~ Feb 24, '19 |
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Section 2: Global Palm Oil Market Focus
Aug 06, '18 ~ Aug 12, '18 |
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Section 1: CPO Price Trend
Aug 06, '18 ~ Aug 12, '18 |
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Section 2 : Global Palm Oil Market Focus
Jan 29, '18 ~ Feb 04, '18 |
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Section 1: CPO Price Trend
Jan 29, '18 ~ Feb 04, '18 |
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Section 2: Regional Focus : CIS Countries
Aug 21, '17 ~ Aug 27, '17 |
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Section 1: Palm Oil Price Fundamentals
Aug 21, '17 ~ Aug 27, '17 |
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Section 2: Market Challenges and Opportunities
Feb 20, '17 ~ Feb 26, '17 |
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Section 1: Price Directions
Feb 20, '17 ~ Feb 26, '17 |
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Section 1 : Palm Oil Price Fundamentals
Aug 22, '16 ~ Aug 28, '16 |
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Section 2 : Trade Issues and Market Prospects
Aug 22, '16 ~ Aug 28, '16 |
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2016 Market Direction - Twists and Turns of Palm Oil Prices
Feb 22, '16 ~ Feb 29, '16 |
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Second Half 2015 - Anticipating Market Price Direction
Aug 17, '15 ~ Aug 23, '15 |
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Special Focus: Indian Sub-Continent
Aug 17, '15 ~ Aug 23, '15 |
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Opportunities, Challenges And Trend In 2015 CPO Price
Feb 23, '15 ~ Mar 01, '15 |
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2nd Half 2014: Market Challenges, Predictions And Directions
Aug 25, '14 ~ Aug 31, '14 |
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Anticipating 2014 Palm Oil Price Direction
Feb 17, '14 ~ Feb 24, '14 |
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Prospects For Second Half Of 2013 - Managing Price Fluctuations
Jul 22, '13 ~ Jul 29, '13 |
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Mapping The Palm Oil Price - 2013 Market Perspective
Feb 18, '13 ~ Feb 27, '13 |
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Palm Oil : Challenges, Opportunities And Latest Market Directions
Aug 06, '12 ~ Aug 17, '12 |
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2012 Price Direction, Issues & Challenges
Feb 13, '12 ~ Feb 20, '12 |
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Challenges, Opportunities And Latest Price Trend
Aug 08, '11 ~ Aug 16, '11 |
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Challenges, Opportunities And Price Direction
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2010 Year End Prospects - What Lies Ahead?
Aug 02, '10 ~ Aug 08, '10 |
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Thank you for the question. I am not the expert on biofuel policy, but my understanding is that the RIN is generated when the material is produced. D4 Biomass-Based Diesel RIN on April 9 was $1.40 per gallon. One recognized source for market prices is The Jacobsen, a subscription-based market information service.
3 years ago
Thank you Farah for the question. I am not close to the palm oil trade, so I can not comment on balance between Indonesian and Malaysian palm oil in the USA. But it is certainly true that, if you want to market a bulk product such as palm oil in the USA, a rail car fleet would be a big advantage. For oleochemicals (but not for palm oil itself), Indonesian product has a small advantage because there is no import duty due to Indonesia being part of Generalized System of Preferences. Malaysia is not part of this, so we pay import duty on Malaysian oleochemicals.
3 years ago
Thank you for the question. USA Oleochemical makers are not using much palm oil as such. However, several Malaysian Oleochemical producers owned by the affected plantation groups, or with supply agreements with affected plantation groups have had their product withheld. So some users of products such as palm stearic acid have had to find new suppliers. I can not say how long this situation will continue.
3 years ago
Masui-San it is good to hear from you. I do remember visiting Kao’s offices all those years ago. I have very good memories of visiting and also living in Japan.
3 years ago
Thank you Amy for the very comprehensive question. 1/ Most of the fatty acid producers are in the Eastern half of the country for two reasons: (1) that is where most of the tallow is. (2) most of the customers are east of the Mississippi. There is not much consumption in the Western half of the country. 2/ I believe P&G built their alcohol plant on the West Coast because they planned to use Philippine Coconut Oil. 3/ Historically, tallow has been an abundant low-cost feedstock - usually much lower priced than palm oil delivered to the producer’s plant. And industrial specifications for many products such as Stearic acid and Oleic acid have been based on tallow. A customer who wants to switch to palm may have some reformulating to do. I do think palm will have an opportunity in future if the biofuels industry continues to place such high value on tallow. 4/ Soybean is almost always more expensive than tallow. Even today soybean oil is $50-100/ton above bleachable fancy tallow, the grade used by the fatty acid industry. Soybean oil is used where fatty acid users require a different set of properties than tallow can provide.
3 years ago