It may come as a surprise to buyers of glycerin, accustomed to a glut of the product on the market and depressed or declining prices, but that trend has suddenly reversed itself in the U.S. Prices for refined glycerin went up on April 1 by 6–7¢/lb, depending on the grade. By all accounts these prices have held firm.

As recently as a month earlier, economists and market watchers saw no imminent change in glycerin's prices. But the recent shifts have been dramatic. A year ago, purchasers of vegetable-based refined glycerin could get contracts in the 38–42¢/lb range. Currently, they are paying in the high 40s for the same material. One producer of refined glycerin says the price he was able to get from customers went up by an "unprecedented" 6¢/lb in a six-week period in April and May of this year.

Not only are prices up, but supplies of refined glycerin are constricted in the extreme. "I can't tell you how many new [glycerin] customers we've had to turn away in the past few months," says one major glycerin supplier. "The fact is that we've got just enough of the stuff to supply our long-term customers, and not a bit more." The same shortages of refined glycerin are commonplace at other suppliers, the source adds.

How did refined glycerin supplies go from a flood to a drought in a few short months? To a large extent, it resulted from a U.S. market that saw prices fall so low that foreign producers of refined glycerin no longer had any incentive to sell their products in the U.S.

In the past few years, "there have been a lot of glycerin refineries put up in Europe and Asia to handle the increased amount of crude glycerin in those regions," says Bob Drennan, vice president at Vitusa Products, a Berkley Heights, N.J.-based glycerin producer. (Other key players in the market include Procter & Gamble, Uniqema, Cognis, Dow Chemical, and Dial.) In Europe, he notes, the excess crude glycerin is a byproduct from that continent's burgeoning biodiesel fuels program, which makes diesel fuel from vegetable oils. In Southeast Asia, meanwhile, the crude glycerin is a byproduct of the oleochemicals industry, which converts palm or coconut oils into chemical feedstocks. In both Europe and Asia, says Drennan, the purified glycerin pouring out of recently built refineries has been "far in excess" of demand, encouraging producers in those regions to sell their surpluses in the U.S.

In the U.S. meanwhile, crude glycerin, which is a byproduct of soap, fatty acid and fatty alcohol production, has been piling up to excess. According to Drennan, this excess is mostly a result of the country's nascent biodiesel fuels program, which converts soybean oil into diesel fuel.

"I doubt whether we have enough refinery capacity" to process the mounting crude glycerin into refined glycerin, says John Urbanchuk, an analyst with LECG in Wayne, Pa., who tracks the biodiesel fuels industry. (Refined glycerin, used in food, pharmaceuticals and personal care products, makes up the bulk of today's glycerin market.) Until early this year, however, it didn't matter if there was insufficient refinery capacity in the U.S. because any shortfalls of refined glycerin were made up by imports from Europe and Asia. But then the spigot of imported glycerin was turned off.

There were several causes for this situation, says Drennan. For one thing, refined glycerin tags in the U.S. tumbled so low that Southeast Asian producers of the chemical found they could make more money by exporting it to China, a geographically closer market with lower shipping costs. "China is starting to become a big absorber of the glycerin in Asia," says Drennan. A shortage of bulk liquid containers for long-distance shipping also hindered glycerin sales by Asian producers to U.S. customers, he adds.

High freight costs for shipping also became an issue for European glycerin exporters as refined U.S. glycerin rates continued to sag. Even more of a deterrent to trans-Atlantic sales, notes Drennan, was a steep drop in the value of the U.S. dollar against the Euro in the first few months of 2007, which made selling in the U.S. a money-losing proposition for many European-based glycerin producers.

In principle, the problem of supply shortages and soaring prices should be self-correcting, as higher U.S. glycerin rates lure Asians and Europeans back to the region. That may happen if prices go high enough, says Drennan, but the disincentives to U.S. sales still remain formidable. For Asian producers, he notes, the high costs of freight, shortages of shipping containers, and China's booming economy are not likely to change soon, he notes. And European producers will have to cope with the weak dollar "for quite some time," he says.

New U.S. refineries to process the mounting surfeit of biodiesel-based crude glycerin could alleviate the shortfall of refined product, but whether enough of them will get built is an open question. At an average cost of $20 million per unit, new glycerin refineries are a substantial investment, and are usually built as adjuncts to existing biodiesel production facilities. Meanwhile, new markets and applications are emerging for biodiesel-derived crude glycerin, notes Urbanchuk. Among them, he says, are conversion of glycerin into such chemical intermediates as propylene glycol, ethylene glycol and epichlorohydrin, and use of the glycerin in animal feed.

Demand for crude glycerin "looks good right now," says John Kellogg, a spokesman for World Energy, a large Chelsea, Mass.-based biodiesel fuel maker that also sells byproduct glycerin. He says companies like Dow, ADM and Huntsman have stepped up their purchases of crude glycerin in the past few months. But with a booming demand for crude, says Drennan, some U.S. producers of biodiesel fuel may decide it makes more sense to sell their crude glycerin directly into the new markets, rather than invest in new refinery capacity, where profits are by no means assured.

As for the future, crude glycerin will continue to be oversupplied. "We expect the rapid growth of biodiesel production worldwide to create a surplus of glycerin," says Dave Parkin, vice president of Huntsman Performance Intermediates in Woodlands, Texas. Still, Kellogg expects that prices of crude glycerin in the U.S. "will steadily increase" over the next few years because of all the new chemical and agricultural applications for the material. Refined glycerin, he predicts, will show more volatility, with prices rising and falling in response to constantly shifting supply and demand conditions.

For the next quarter, at least, refined glycerin is likely to get more expensive. One industry source says that refined glycerin producers are poised to ratchet up prices for their products again in July.