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