CURRENT AND FUTURE ISSUES AND CHALLENGES FOR THE OLEOCHEMICAL INDUSTRY Presentation to PIPOC Oleochemicals Conference 2011 by Alan Brunskill, Senior Oleochemical Consultant, LMC International KL Conference Centre, 15th November 2011, Kuala Lumpur, Malaysia
Agenda Capacity Capacity ownership Market Growth Major Issues Biofuels, Taxes/Duties etc, Economy, Sustainability What s next?
Global Fatty Acid Capacity by Region 2010/11 capacity - ca 9.0 million tons SE Asia 40 China 22 India 7 ROA 3 Europe 13 N America 11 ROW 4
Global Fatty Alcohol Capacity by Region Total 2010/11 ca 3.7 million tons SE Asia 31 China 20 India 4 ROA 2 Europe 23 N America 15 ROW 5
Million Tonnes Historic and forecast fatty acid consumption volumes, by region (2000-2020) 9 8 7 6 5 4 3 2 1 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 North America Europe South East Asia Rest of Asia South America Rest of the World
Million Tonnes Historic and forecast fatty acid production volumes, by region (2005-2020) 9 8 7 6 5 4 3 2 1 0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 North America Europe South East Asia Rest of Asia South America Rest of the World
Million Tonnes Historic and forecast fatty alcohol consumption volumes, by region (2000-2020) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 North America Europe South East Asia Rest of Asia South America Rest of the World
Million Tonnes Historic and forecast fatty alcohol production volumes, by region (2005-2020) 4.0 3.5 3.0 2.5 2.0 1.5 1.0 0.5 0.0 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 North America Europe South East Asia Rest of Asia South America Rest of the World
Capacity Ownership % Capacity owned by raw material producers Fatty acids 60 Fatty alcohols - 25 (50)
Problems affecting Oleochemicals The economy Biofuels - Oil Price effect Biofuels - Disappearing feedstock Biofuels - Glycerine Export/Import taxes/anti-dumping tax Sustainability
The Economy Bankers one way risks only: they get the bonuses, tax payers/investors pay the penalty Politicians no business experience. Yet we elect them to run our countries Economists only have hindsight Auditors/Ratings Agencies never spot the big problems Is it any wonder we are in a mess?
Biodiesel effects Oils and fats prices Glycerine price/availablility Raw material availability
Biodiesel Growth 2000-2020 By 2020 conventional biodiesel will have grown to 40-50 Mt Glycerine generation will grown to ca 6 Mt glycerine, (2011 ca 3 million) Other types of biodiesel will consume additional fats and oils, e.g. Neste process Total oils and fats consumption for fuel will be above 50 Mt
Million Tonnes Biodiesel production volumes (1995-2010) 26 24 22 20 18 16 14 12 10 8 6 4 2 0 1995 1998 2001 2004 2007 2010 North America Europe South East Asia China India Other Asia South America Rest of the World
Until 2006, year-on-year changes in CPO prices used to be fairly easily explained in terms of MPOB stock changes. Year-on-Year Price Change, M$/tonne Year-on-Year Stock Change, '000 mt 750 625 600 500 450 375 300 250 150 125 0 0-150 -125-300 -250-450 -375-600 -500 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Price Change Stock Change
Year-on-Year Price Change, M$/tonne Year-on-Year Stock Change, '000 tonnes The relationship has broken down since mid-2007 2,000 1,600 1,200 800 400 0-400 -800-1,200-1,600-2,000 Jan-01 Jan-03 Jan-05 Jan-07 Jan-09 Jan-11 Price Change Stock Change 1,000 800 600 400 200 0-200 -400-600 -800-1,000
US$ per tonne Brent nominal crude prices plotted against ethylene, US$ per tonne 1,750 100 1,500 85 1,250 70 1,000 55 750 40 500 25 250 10 0 1990 1992 1994 1996 1998 2000 2002 2004 2006 2008 2010-5 Ethylene Brent crude
Biodiesel use in Germany and the US, reacts quickly to swings in the biodiesel premium over diesel. This links biodiesel to diesel prices. Monthly Biodiesel Demand, '000 tonnes Premium, US$ per tonne 500 300 460 250 420 200 380 150 340 100 300 50 260 0 220-50 180 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 US + German Demand Average US & German Biodiesel Premium -100
EU Prices, US$ per tonne Edible oil prices vs crude oil 2006-2011 2,250 2,000 1,750 1,500 1,250 1,000 750 500 250 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Brent Crude Palm Oil Soy Oil Rapeseed Oil PKO Coconut Oil
US$ per tonne Other oils vs crude oil 1,400 1,200 1,000 800 600 400 200 0 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Brent Crude Olein Tallow Stearin PFAD
Biodiesel Effect on Oils and Fats Availability US position tallow rated better than vegetable oils on greenhouse gas emissions. European position tallow gets a double tax benefit for biofuels in some countries Neste type technology can use any oil as feedstock (TO, PFAD, PS, Tallow, Soya, Rape) Net effect - In addition to the vast quantities of fats and oils taken from traditional uses, the price advantage of the cheaper feedstocks favoured by oleochemicals will be prejudiced and some may just disappear
US$/tonne In the EU biodiesel market, used cooking oil methyl ester is now by far the most expensive, with tallow ME just ahead of rapeseed ME. 1,800 1,600 1,400 1,200 1,000 800 Sep-09 Mar-10 Sep-10 Mar-11 Sep-11 FAME 0 RME (B100) PME (B99-100) Tallow ME UCOME
Glycerine Price - Biodiesel effect Long term low prices due to massive volumes from biodiesel New uses only stop this being an absolute disaster Too high prices turn off new uses Rapid price cycling as non-traditional uses come on and off due to price fluctuation
Million Tonnes Historic glycerine production volumes, by sector, 1980-2010 9 8 7 6 5 4 3 2 1 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2020 North America Europe South East Asia Rest of Asia South America Rest of the World
EU Crude Glycerine, $ per tonne The biodiesel production growth has kept crude glycerine prices in check, when other commodity prices have been strong. 1,400 1,200 1,000 800 600 400 200 0 1996 1998 2000 2002 2004 2006 2008 2010 EU Crude Glycerine EU CPO
EU Crude Glycerine, $ per tonne Refined glycerine has settled at a premium of over $400 above crude glycerine prices, and have now fallen well below CPO prices. 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 0 1996 1998 2000 2002 2004 2006 2008 2010 EU Crude Glycerine EU CPO EU Refined Kosher Glycerine
Indonesian Export taxes Keeps a cost advantage for domestic industry Disadvantages the rest of the world Will there be retaliation? (Import duties, anti-dumping taxes, quotas) Unnecessary capacity may be built in Indonesia causing spare capacity elsewhere (on a global basis)
The new Indonesian export tax system has reduced the export taxes on RBD palm stearin by approximately half Export tax rate, % 25% 20% 15% 10% 5% 0% <700 750-800 850-900 950-1000 1050-1100 1150-1200 >1250 New tax structure Previous export tax structure
At the same time, the Indonesian government has introduced relatively high export taxes on PFAD, after a long period with no such taxes Export tax rate, % 25% 20% 15% 10% 5% 0% <700 750-800 850-900 950-1000 1050-1100 1150-1200 >1250 New tax structure Previous export tax structure
Anti Dumping Duties on Alcohols Formal complaint by two European producers EU puts variable anti-dumping tariffs on Malaysian, Indonesian and Indian producers A number of the affected producers claim not to have shipped alcohol to the EU in the period in question One complainant has now withdrawn Users are upset, producers are upset
Sustainability Issues Land use, Raw materials, Pipeline, Storage, Traceability, etc. But does the ultimate consumer really want it? NO, the ultimate consumer wants no more deforestation and safe raw materials, doesn t care about the rest and certainly doesn t want to pay for it For oleochemicals the danger is being hijacked by the edible/biofuel industry problems
What s next? Geographic expansion? - Indonesia, China, India, South America Contraction? US, Europe Downstream activities? - surfactants, consumer products. Green chemistry - new ways of making chemicals from natural sources.
An explosion of new names, along with some familiar players
Thank you for your kind attention Acknowledgements: LMC International, Oleoline/HBI, Industry Players; Biofuels Digest; BIO; Biorefining Week; Benson Ford Research Center; & ICIS