Seasonal Bull Run of Palm Oil Puts Pressure on Fatty Acid Prices in US and China
16/10/2024 (Chemanalyst) - Fatty Acid prices in both China and the US witnessed an upward trend in September. The rise in Fatty Acid prices was primarily attributed to the growing demand for palm oil in the global market.
Despite a modest decrease in crude palm oil (CPO) production, Malaysia's CPO exports increased in September. However, the country's CPO inventories have surged, indicating a possible surplus. Malaysia's oleochemical exports decreased, while palm kernel oil exports increased significantly. Malaysia's crude palm oil output declined 3.8%, but exports increased by 9.3%, from 1.53 million tonnes in August to 1.54 million tonnes in September. Crude palm oil stocks increased by 10.91%, from 953,145 tonnes in August to 1.06 million tonnes in September. Palm oil stockpiles increased by 6.93 percent, from 1.88 million tonnes in August to 2.01 million tonnes in September. Oleochemical exports including Fatty Acid fell 5.72% in September, while palm kernel oil exports rose 45.06% to 126,446 tons.
Indonesia raised the CPO reference price for October from USD 839.53 per ton to USD 893.64. This will likely impact production costs for Fatty Acid manufacturers, influencing their pricing strategies and market dynamics.
The consistent demand for Fatty Acid from the personal care industry played a crucial role in pushing up prices. India's strong demand for palm oil, driven by domestic consumption and restocking ahead of the festive season, further supported the price increase in Fatty Acid.
Considering freight, Ocean freight continued to face various problems, including industrial unrest and capacity issues in important locations. Demand for ocean freight has decreased, but port congestion, equipment shortages, and rerouting around the Cape of Good Hope continued to limit supply. Asia and the Americas continue to drive much of the demand, with volumes putting pressure on pricing. Freight rates have largely stabilised, but they were still significantly higher than pre-pandemic levels. Seasonal rate reductions ahead of China's Golden Week, as well as planned port strikes, might have an impact on price, with rate increases possible in Q4 due to peak season demand. Companies have been forced to reroute or suspend operations at the Cape of Good Hope due to cargo shipwrecks, resulting in significantly longer lead times and higher transportation costs. The Houthi threats may have an indirect impact on the Fatty Acid industry if the situation worsens and freight costs rise. Higher transportation expenses may result in greater manufacturing costs for Fatty Acid makers, pushing up pricing.
Looking ahead, the prices of Fatty Acid are expected to rise both in the USA and China. The ongoing northeast monsoon season and potential production decline in Malaysia and Indonesia have created concerns among market investors. As the production cycle slows, market participants fear that October may mark the output peak, leading to even higher prices for palm oil and Fatty Acid