Post on 13-May-2018
6 GREEN CHEMICAL Jan.. / 2014 Tel 03-6382-6580
SPECIALREPORT
Glycerine market explodes
The Chinese glycerine market is set to expand to almost one million tonnes in 2014,
fuelled by exports to China of good quality crude glycerine from global sources,
chiefly Argentina and Indonesia. Jonathan Hemming, CEO of HBI, writes
Much has been written about the effect that
biodiesel production has had on glycerine prices,
but there has been limited mention of the
influence that China has had in absorbing much
of the additional glycerine produced by the
biodiesel industry during the last decade.
Exports to China of unexpected and good
quality crude glycerine is rapidly expanding the
7 GREEN CHEMICAL Jan.. / 2014 Tel 03-6382-6580
Chinese market. A detailed picture of the state
of imports can be seen in Table 2 (below), based
on data from Chinese customs.
The table shows crude glycerine volumes
converted to 100% concentration with estimates
for 2014 constructed by a linear extrapolation of
the imports for the January to July period until
the end of the year. By this measure, 2014
imports of glycerine into China look likely to
increase by about 30% compared to 2013.
On the other hand, domestic production of
glycerine in China is not increasing on the same
scale. Several papers have been published
debating the viability of biodiesel production in
China, including an October Global Agricultural
Information Network (GAIN) report issued in
October, which provides an informative
assessment of agricultural markets for the US
federal government. The report notes that the
consumption of diesel in China in 2012 was 200
billion litres. With a growth of six percent / year
expected, this would imply a present market
size of diesel of about 200 million tonnes / year.
Should the Chinese government go ahead with
its B5 mandate, which was published as a
standard in 2010, it would open a
mind-boggling 10 million tonnes/year market,
with one million additional tonnes of glycerine
required. B5 standard provides guidance only
However, such calculations are based only on
speculation. The B5 standard was intended as
guidance for automobile constructors and
nothing indicates that the government intends
to enforce it as a mandate. Moreover, as was
discussed at the 11th Oleochem Outlook 2014
conference, held 2-3 July 2014 in Qingdao,
China, Chinese administrative support in terms
of biofuels is strictly limited to non-food
feedstocks. Biodiesel producers will struggle to
utilise the existing supply chains of used
cooking oil (UCO) unless biodiesel is offered at a
premium above existing applications (and
European double counted producers). There are
just five small biodiesel operations running in
China and HBI estimates that no more than
100,000 tonnes of domestically-produced
biodiesel will be available in 2014. In addition,
large volumes of biodiesel are being shipped
from China to Indonesia.
Reserve stocks may play role
Dorab Mistry, director of Godrej International
and a respected vegetable oil price forecaster,
points out that the Chinese Reserve has been
holding several million tonnes of rapeseed oil.
This determination to hold enormous reserves
of edible oil shows that biodiesel has no role to
play in the minds of the planners of China's
economy. Paradoxically, if the Reserve holds on
to its stock for too long, the quality will
deteriorate and biodiesel may become the only
possible application for the oil reserves.
Domestic production of fatty acid, fatty alcohol
and methyl ester sulphonate is similarly capped
by the structural disadvantage that China has
no abundant raw material available for
oleochemical production that could compete
8 GREEN CHEMICAL Jan.. / 2014 Tel 03-6382-6580
with the price of crude palm oil (CPO). HBI’s
estimates for domestic production of glycerine
for 2014 are shown in Table 3 (above).
The 2014 consumption in China of glycerine at
918,000 tons is remarkable in the sense that all
the glycerine used is refined glycerine. Around
40% of the world's refined glycerine is now
consumed in China, suggesting that Chinese
end-users of refined glycerine have widened the
geographical reach of their marketing. For
instance, one can now find Chinese triacetin
producers offering product to a first-class
European tobacco producer, which is one of the
most difficult accounts to crack.
Likewise, epoxy resin made from
epichlorohydrin (ECH) manufactured from
glycerine is finding its way into Europe in
increasing volumes. ECH is more than ever a
key downstream application for glycerine and
market conditions finally look more enticing.
Cheap refined glycerine now coincides with
better ECH prices. Epoxy resin, the main
application for ECH, is in demand again.
Demand should pick up in earnest over the next
few months and producers of ECH derived from
glycerine have announced that they soon expect
to reach 50% of capacity utilisation, which is
over 200,000 tons / year. These levels of
production have never before materialised.
Glycerine prices decrease
Meanwhile, prices for all grades of glycerine
have been decreasing for a year. As can be seen
in Table 1 (previous page), the downward trend
of this price cycle has not stretched on for so
long since 2007, which explains why many
Chinese trading houses are tempted to
speculate that prices could soon increase.
However, everything is currently pointing
towards further price devaluation. Nevertheless,
it is important to point out that Chinese trading
houses have the capacity, simply based on
speculation, to take out very large volumes of
glycerine from the market. As can be expected
in a market where margins are very thin and
prices fast decreasing, there have been many
unfortunate episodes of defaults by Chinese
customers. Oleoline is part of the HBI Group
that also comprises HBI China. HBI China has
hada remarkable performance during this cycle
and has limited customer defaults to a handful
of cases. In addition, a Herculean performance
to convince customers to accept 95% of
discrepancies on documents was successful. By
HBI's reckoning, such discrepancies occur in
about 30% of letters of credits and are now the
usual source of contract defaults.
9 GREEN CHEMICAL Jan.. / 2014 Tel 03-6382-6580
The best quality vegetable 80% minimum crude
glycerine price has decreased from US$450 / ton
CIF Chinese main ports in October 2013 to US$240
/ ton CIF Chinese main ports in October 2014.
Refined glycerine prices have decreased in parallel.
The best quality Malaysian refined glycerine is sold
below US$650 / ton CIF Chinese main ports in
drums today, with many sellers happy to agree
deals at lower values before prices decrease further.
HBI pegs the average price level of purchases of
pharma quality refined glycerine by the Chinese in
September 2014 ataround US$670 / tonne CIF
Chinese main ports in drums. As vegetable oil
prices are set to remain relatively cheap in the
medium term, discretionary blending of biodiesel
globally will result in ongoing price erosion in all
glycerine markets including China. Nevertheless,
with very difficult trading conditions in China,
defaults will continue to be a major risk.
● Jonathan Heming is the CEO of HBI, an
international brokerage company that moves over
300,000 tonnes / year of glycerine