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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!