Prices of crude and refined glycerin often move along parallel tracks, but this year they have headed off in radically different directions. A robust domestic demand for refined glycerin, coupled with limited domestic refining capacity has caused U.S. prices of the refined product to shoot up dramatically since the start of 2008 (see chart). Meanwhile, Chinese demand for U.S.-made crude glycerin has recently dried up, causing the crude material to pile up in the U.S. and sending prices downward.

Both situations are likely to be temporary, however, as a cooling U.S. economy, the credit crunch and declining commodity prices should help put a cap on runaway refined glycerin prices during the next year, say analysts. As for crude glycerin, demand in the next year will be buoyed by two factors: a likely resumption in Chinese buying, and the start-up of huge new plants in the U.S. that will convert the crude glycerin into industrial chemicals. Both developments may boost prices for the crude material.

In July, buyers of refined glycerin were paying some 69% more for the product than one year earlier, according to Purchasingdata.com. There are two likely causes for this trend, according to John Urbanchuk, an analyst with LECG in Wayne, Pa., who tracks the biofuels industry. One of them, he says, is a "spectacular" increase in all chemical commodity prices over the past 18 months or so, including soybean oil and other feedstocks for glycerin.

Also pushing up prices, he adds, is the fact that "we don't have as much capacity to refine glycerin as we have crude glycerin to be refined." At the same time, demand for refined glycerin remains relatively strong, according to Urbanchuk. One reason new refineries are not being built to meet this demand, he adds, is that "banks are loathe to lend money these days," whether for home mortgages or large industrial projects. (This is especially a hurdle for new glycerin refineries, which cost upwards of $20 million apiece.)

While refined glycerin prices may be up, there is no overall shortage of the chemical. When it comes to the refined product, supply and demand "are roughly in balance" in the U.S., says Bob Drennan, chairman of the board at H.I.G. Chemicals, owner of Uniqema Americas, a large Chicago-based producer of oleochemicals, including glycerin. Any shortfalls in domestic production of the refined material, he adds, have been made up by imports. However, certain imported types of vegetable oil-sourced glycerin—both general and kosher grades—have been "extremely tight" since around the first quarter of 2007, says Drennan.

Trends in crude glycerin are in marked contrast to the refined product. Prices of crude glycerin have dropped up to 50% over the past year. One reason for this is an oversupply of crude glycerin, according to Dave Elsenbast, vice president for procurement at the Renewable Energy Group, an Ames, Iowa-based owner and operator of biodiesel fuel plants, which produce glycerin as a byproduct. About a year ago, Elsenbast recalls, "we were at the beginning of a nice strengthening demand period" for U.S.-produced crude glycerin.

But since about the second quarter of this year, things have soured. One of the biggest reasons for this, says Elsenbast, is that China cut back its purchasing of U.S. crude glycerin around that time. He says that Chinese buyers, anticipating disruptions in the supply chain caused by the Summer Olympics in Beijing, seem to have stocked up on U.S. glycerin in advance, and then suspended purchases for at least the duration of the Olympics. Drennan agrees that the Olympics had a lot to do with a "significant fall-off" in Chinese purchases of U.S. glycerin this year. He also blames the recent earthquakes in China for this trend.

Curtailed Chinese buying has not only made domestically produced crude glycerin in the U.S. cheaper, it has also averted a supply crunch for the refined product. As Drennan explains it, since China cut back its glycerin purchases, Southeast Asian glycerin producers who used to sell to China are now selling their products in the U.S., increasing supplies of all types of glycerin, including the otherwise scarce refined material.

Meanwhile, says Drennan, Europe's ambitious biodiesel fuels program has produced excess glycerin, some of which used to go to China, and is now finding its way to the U.S., where it is alleviating shortages of refined product. (The weak dollar against the Euro, however, is making European exports to the U.S. lower than they might otherwise be.) According to Drennan, the influx of glycerin from Southeast Asia and Europe has prevented what would have been an "extremely, extremely short supply situation in the U.S." for refined glycerin.

Since Asian and European producers began shifting more of their glycerin sales to the U.S. a few months ago, there has been "downward pressure" on prices of the refined product, says Jerry Petak, director of commodities and risk management at World Energy, a Boston-based biodiesel fuels producer that also sells byproduct glycerin. Drennan says that glycerin prices have dropped due to the imports, "but not in a big way." Most industry sources believe that any downward movement in refined glycerin will quickly change direction as soon as Chinese buying resumes.

Whatever temporary price relief may be in the cards, the soaring tags of the past year have been a challenge to buyers. At one manufacturer of specialty chemicals, Custom Synthesis, purchasing manager Brett Webb, reports an "extreme" rise in the glycerin prices his Anderson, S.C. firm has had to pay since mid-2007. Webb says his company has passed along its higher prices for glycerin and related products such as vegetable-based fatty acids.

"We have been fortunate," he adds "in that we could use tallow-derived glycerin instead of vegetable-based."

(The tallow-based material, which comes from animal fats, is usually less expensive than vegetable-based product, though both grades have increased sharply in price over the past year.) He also encourages his customers accept tallow-based formulations if possible. Webb says that "hopefully the economy can continue to absorb" the higher glycerin costs his firm has been passing along.

But for buyers there is some hope that the big jump in refined glycerin prices may be coming to an end. Over the next 12–18 months, says Urbanchuk, "we're likely to see some weakening in commodity prices," including those for soybean oil, a major feedstock for glycerin. The recent drop in crude oil may be a harbinger of such commodity declines, he adds. Cheaper soybean oil, says Urbanchuk, "may stem some of the increases we've seen in refined glycerin prices." Urbanchuk also anticipates that the slowdown in banking, the credit squeeze and retrenchments in consumer spending will continue in the U.S. for at least another year, which will depress spending on many of the downstream end-products of glycerin. Less demand should also put the brakes on glycerin prices, he believes. Overall, though, Urbanchuk sees a plateau in refined glycerin prices for the next 12 months, rather than any wholesale drops.

One thing that may keep prices from falling fast or far is a resumption of Chinese buying. Once the Olympics are over, says Elsenbast, the Chinese "will probably start working through their [glycerin] inventories and then get back into the market." Such a scenario, say analysts, will mean less exports to the U.S. from Southeast Asia and Europe, making refined glycerin in the U.S. tighter and keeping prices from deflating, even if demand drops.

At the same time, vast new markets for crude glycerin are expected to open up in the next year or two. Major industry heavyweights, including Dow Chemical, Cargill and Archer Daniels Midland, are building mammoth facilities to convert crude glycerin into propylene glycol, a commodity chemical used in everything from deicing fluids to toothpaste, food and cosmetics. Dow and Solvay are also building plants that will turn glycerin into epichlorohydrin, a monomer for epoxy plastics. These new facilities are expected to absorb much of the glycerin byproduct from the burgeoning biodiesel fuels program in the U.S. In addition, once China resumes buying glycerin, "that's a whole new market that will come back" for U.S. produced crude glycerin, says Elsenbast.

All of which suggests less slackness in the crude glycerin market going into 2009, and perhaps higher prices. But Drennan says that the specific supply, demand and pricing picture for crude glycerin in 2009 is still "a big, big question."