Balanced market hums along, prices are stagnant
Gordon Graff -- Purchasing, 9/2/2004 2:00:00 AM
Market prices for glycerin are lower now than in January, and industry observers aren't sure if producer attempts to boost tags will succeed this autumn. Supply and demand are more or less in balance, so price tags are likely to remain stable or retreat slightly for the rest of the year. North American glycerin producers say that business is good, driven by a strong economy in the U.S. The surging popularity of low-fat and low-carbohydrate foods is also giving a lift to glycerin, which is an ingredient in such products.
SUPPLY: Regional differences
Most glycerin is derived from natural fats and oils and is a byproduct of the production of fatty acids, fatty alcohols and soap. Glycerin is also a byproduct of the manufacture of biodiesel fuel, a renewable resource that is derived largely from rapeseed and soybean oils. Some producers, most notably Dow Chemical, also produce glycerin synthetically from epichlorohydrin, a petrochemical that also serves as a feedstock for epoxy plastics.
Procter & Gamble is the largest glycerin producer in North America. Other leading players in the market are Dow, Uniqema, Cognis, Vitusa Products and Dial.
World supplies of glycerin are strongly influenced by China's buying patterns. Typically, China purchases glycerin and other chemical commodities "in chunks," says Don Ciancio, vice president of oleochemicals at Uniqema. In fact, it is not unheard of for China to buy nearly a year's worth of glycerin in a single quarter, says Bob Drennan, vice president at Vitusa Products Inc., a major reseller of glycerin based in Berkeley Heights, N.J. When this spurt of buying takes place, often early in the year, he notes, the result is tightness and rising prices in the Asian market.
Meanwhile, notes Drennan, less biodiesel is made during the winter in Europe, where the fuel is popular. As a result, he says, less glycerin is available in that region early in the year and glycerin prices there tend to drift upward.
DEMAND: On track
Glycerin consumption in the U.S. is driven by the strength of the economy, says Drennan. And as the economy has picked up steam this year, he adds, it has sparked a potent demand for glycerin in such traditional outlets as plastics, automobiles, paints and coatings. It's hard to predict how glycerin demand will fare for the rest of the year, says Ciancio, "but our expectation is that it will stay at least at the level of the first half of the year." Future growth should be about 3%-5%/year, he adds, which is close to the historical average.
A fast growing market for glycerin, says Drennan, is in foods, beverages, pharmaceuticals and nutraceuticals. In particular, he points out that glycerin is an important ingredient in low-carbohydrate and fat-free foods, which consumers are embracing in a big way.
PRICES: Seasonal patterns
Earlier this year, major glycerin suppliers announced increases in contract prices of about 10¢/lb, effective April 1. Industry sources say those increases stuck—but spot tags actually slipped 7¢. Another round of list price hikes of about the same magnitude were announced for August. That round had "mixed results," reports a glycerin producer. In any case, prices for this year "have probably topped out," says Drennan.
Drennan says that for the past two years glycerin tags have typically been stronger in he first half of the year than the second half. This pattern, he explains, relates to seasonal factors, both in contract negotiations and glycerin supply/demand.
Contract talks between glycerin buyers and sellers usually take place in the fourth quarter of the year, Drennan says. For the past two years, he adds, these negotiations have led to price hikes in the first quarter of the new year.
While supplies of glycerin in Asia are usually tight after China makes its huge purchases early in the year, says Drennan, things loosen up in later months as Asian glycerin producers—in places like Malaysia, Indonesia and the Philippines—have no other big local markets for their product and begin to export it to North America and Europe.
Ciancio anticipates that Asian imports will relieve tightness in North America and lead to some "softening" of glycerin prices late this year.
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