The European glycerine market and its future

ICIS-LOR World Oleochemicals Conference13th October 2003, Amsterdam

Victoria Vandeputte

Category Manager Glycerine

GLOBAL VIEW ON GLYCERINE

• Biodiesel disturbs the global volume balance

• The effect on glycerine prices is global

• The import/export dynamics are changing

A history of global balance now disturbed

North America, Europe & Asia

0

200

400

600

800

1000

1991 1993 1995 1997 1999 2001 2003est.

k tes

0%

5%

10%

15%

20%

ProductionConsumption% excess production

Data: Industry Source

The price history over the same period shows a structural decrease!

Historical trend in contract prices

0

650

1300

1950

2600

1991 1993 1995 1997 1999 2001 2003

USD / te

North AmericaSouth East AsiaEurope

Courtesy of ICIS LOR

Biodiesel in Europe hits the glycerine prices globally!

Recent trend in spot prices

0

500

1000

1500

2000

2002 Q1 2002 Q3 2003 Q1 2003 Q3

USD / te

North AmericaSouth East AsiaEurope

Courtesy of ICIS LOR

The price impact is significant

Major impact on price

• 25 - 50% decrease in global spot prices

• Prices in Europe lower than in Asia

2003

20-30 k tes more glycerine=

15% of the Biodiesel capacity

35 - 40% of the timethe Biodiesel capacity is

not utilized !

Biodiesel changes the dynamics of import and export

Net export in 2002 (k tes)

+100

North America Europe Asia

x

Data: Industry Source

Net export in 2002 (k tes)

-5-95

+120

North America Europe Asia

ZOOMING IN ON EUROPE

• Biodiesel drives growth in glycerine production

• Biodiesel will grow further

• Three major questions:

1. Who will refine extra glycerine ?

2. Who will consume extra glycerine ?

3. Who will pay for the revenue loss ?

Biodiesel drives the growth in glycerine production in Europe !

0

100

200

300

400

1991 2003

k tes 100 % Biodiesel capacity

Biodiesel production

Fatty Acid

Fatty Alcohol

Soap

Synthetic

Glycerine Sources

Data: Industry Source

The actual production varies with the Biodiesel economics!

45 to 70% occupancy depending on:

Revenue

1. Mineral diesel price

2. Glycerine price

Variable cost

1. Raw material price

2. National fuel tax

Revenue Variable Cost

Gross Margin

Despite variable profit, significant further growth is expected!

1.8 2.2

3.4

1 1.3

3.43.8 4.1

0

3

6

M tes

2002 2003 2005 2007 2010

Estimated Biodiesel production

Biodiesel production capacity

Data: Industry Source

Growth estimates based onraw material availability

Biodiesel will not be made from Rapeseed Oil only!

Growth estimates based on availability of

“cheap” raw materials

If produced from Rapeseed Oil Biodiesel requires 2.5 M

hectares more

60% of today’s plantings

Question 1. Who will refine the surge in glycerine?

0

200

400

600

1991 2002 2003 2005 2007 2010

k tes

Biodiesel crudeTraditional crudeInvestment in refiningRefining capacity Data: Industry Source

+ 150 k tes

Oleochemical producers will grow refining capacity !

Oleochemical Industryowns 85%

of the refining capacity

De-bottlenecking

is the cheapest source of refining

capacity!

Differentiating factors

• Refining Knowhow• Marketing expertise• Global sales force

Oleochemical Industrywill expand

refining capacity !

Question 2.Who will use this glycerine glut?

0

200

400

600

1991

2003

Est

.20

10

k tes

Production

Consumption

Data: Industry Source

+ 280 k tes

Glycerine is used in a big number of very diverse applications

2%3%4%7%

10%

11%

16%

16%

18%

0%

25%

50%

75%

100%

2003 Estimated

Personal CarePolyolsPharmaceuticalsEstersFoodTobaccoAlkyd ResinsCellophaneExplosivesOther uses

Data: Industry Source

Glycerine will find its way in the substitution of other polyols!

Substitution volumes

0

20

40

60

80

100

120

140

Sorbitol MPG MEG TMP

k tes Personal Care

Oral Care

Food & Animal FoodTobacco

Alkyd Resins

Cellophane

Liquid DetergentsFunctional Fluids

The glycerine price level is an opportunity for purchasers!

0 500 1000 1500

EUR / te

Penta

TMP

MEG*

MPG*

Sorbitol 100%

Glycerine*

* Courtesy of ICIS LOR

Glycerine price level will be lower !

This is not a temporary price decrease

Glycerine demand

is price-elastic

300 k tes more

Biodiesel glycerine

expected

+ 60-130 k tes glycerine p.a. from Biodiesel

since 1997

- 300 USD / te

Europe will be looking for export regions

-45

-30

-15

0

15

30

45

60

1991 1995 1999 2003 est.

k tes

ImportExportNet import

Data Source: CEH Product Review

Question 3.Who will pay for the revenue loss?

Earnings on Fatty Acids & Fatty Alcohols

must increase !

- 22.5 Million EUR !!

Impact of 300 EUR/te* decreasein contract prices

between Q2 and Q3 2003

Profitability of Oleochemical Industry is unsustainably low !

*Courtesy of ICIS LOR

The oleochemical industry cannot absorb the value loss of glycerine

- 675 EUR / te*

+ 75 EUR / te

-800

-600

-400

-200

0

200

Value loss on 10%Glycerine

To recover on 90%co-product

EUR / te

*Courtesy of ICIS LOR

The glycerine future in a crystal ball

Glycerine market in turmoil

1. Adequate refining capacity!

2. Increased outlets for glycerine!• Economic • Safe & Versatile

3. Higher prices for co-products!