26/6/2006 (soyatech.com)   - A glut of glycerinon world markets has caused prices of this versatile chemical to take a nosedive over the past year. The present oversupply of glycerin is mostly due to surging biodiesel fuel programs in Western Europe, which generate glycerin as a byproduct. Another factor is the rapid growth of the plant-derived oleochemicals industry in Southeast Asia, which also churns out excess glycerin.

Meanwhile, glycerin from U.S. biodiesel fuel efforts, now only a trickle, could turn into a flood as planned biodiesel programs come on-stream over the next few years. While all these trends will put downward pressure on glycerin tags, new markets will probably boost demand for the chemical and check further price erosion.

Spillover from Europe is one of the biggest factors impacting supply. "The tremendous growth of biodiesel in Europe has significantly impacted the U.S. glycerin market," says Amy Bollinger, product market manager for glycerin at Uniqema in New Castle, Del. In 2005, she notes, biodiesel production caused Europe to have a glycerin surplus of more than 100 million lbs, much of which was exported to the U.S.

Biodiesel production doubled in the U.S. during 2005, but its impact on domestic glycerin supplies was small in comparison to the effect of European imports, says Bollinger. U.S. biodiesel production should double again in 2006, Bollinger predicts, and with new glycerin refineries due to start up this year, the result could be a 15% increase in domestic glycerin supplies.

Glycerin is typically derived from fats and oils, usually as a byproduct of the production of fatty acids, fatty alcohols and soap. Biodiesel fuel is a renewable resource made by converting rapeseed or soybean oils into a diesel fuel. About 1 lb of glycerin is produced for each pound of biodiesel fuel.

Leading glycerin producers include Procter & Gamble, Uniqema, Cognis, Vitusa Products, Dow Chemical, and Dial. Dow exited domestic glycerin production earlier this year, but still has a glycerin plant in Germany.

Countries such as Malaysia and Indonesia are also major producers of glycerin, mostly derived from palm oil. While U.S. customers have frequently imported this Asian glycerin, recent run-ups in the cost of freight from Asia "are becoming an issue" for U.S. glycerin purchasers, says Bob Drennan, vice president at Vitusa Products in Berkeley Heights, N.J.

In any case, he notes, Malaysia and Indonesia sell most of their glycerin to China, where demand for the chemical is burgeoning. But when China holds back its glycerin buying, says Drennan, much of the extra glycerin from Southeast Asia finds its way to the U.S. and is available "at very attractive prices."
Demand: Search for outlets

Annual consumption of glycerin in the U.S. has been in the range of 400-450 million lbs from 2003 to the present, according to the U.S. Bureau of the Census. The largest markets for glycerin are personal care, food, oral care, tobacco and polyurethane production. For existing markets, says Bollinger, personal care and oral care applications have been growing due to increased consumer spending on anti-aging and teeth whitening products.

Among newer applications, she adds, niche antifreeze products have exhibited "significant growth." Emulsion explosives are a newly opened market for glycerin in the U.S. ever since Dow, which formerly supplied that sector, stopped its U.S. glycerin production earlier this year.

With the world awash in cheap glycerin, chemical companies are looking to find new markets for the chemical. For example, Drennan notes that many years ago, relatively inexpensive propylene glycol, a petroleum-derived chemical, edged out glycerin as a humectant (a substance that promotes moisture retention) for use in tobacco, cosmetics and certain flavors and fragrances. But with glycerin now less expensive than propylene glycol, says Drennan, "a lot of people are taking another look" at glycerin as a humectant.

Technology is also being enlisted in the search for new glycerin outlets. Agribusiness giant Archer Daniels Midland plans to build a plant that uses advanced catalysts to convert glycerin into polyols such as propylene glycol and ethylene glycol. This will open up a broad range of downstream markets for glycerin. Beyond its humectant applications, propylene glycol is used to make paints, coatings and plastic resins. Ethylene glycol is used as antifreeze and a building block for polyesters.

Meanwhile, Solvay is building a plant in France that will use the company's proprietary process to convert biodiesel-derived glycerin into epichlorohydrin, a chemical intermediate usually obtained from propylene and used in the production of epoxy resins, paper reinforcement and water purification.

For the rest of this year, glycerin demand is likely to be "strong and stable from the current application base," says Bollinger. She also expects demand to grow due to polyol substitution and new applications coming online during the fourth quarter.

Pricing for glycerin is at Historic lows and has recently been in the freefall mode. From the 1970s through early 2005, tags of the chemical generally hovered around 60-80¢/lb, occasionally going higher or lower than this range for brief periods. But since the first quarter of 2005, steady erosion has occurred, so that glycerin now sells for 30-55¢/lb, depending on the grade.

To keep up their margins, glycerin makers are using various strategies. At Vitusa "we're watching our costs and trying to be more efficient," says Drennan. "We're also trying to align ourselves with suppliers that have very good economics," he adds. As a hedge against falling prices, Bollinger says that Uniqema is "actively working to develop new applications" for refined glycerin and its derivatives.

Buyers can expect U.S. glycerin prices to decline by 1-3¢/lb through the third quarter of this year, mainly due to increased material coming onto the market from domestic biodiesel glycerin refineries, says Bollinger. She predicts that tags for glycerin will stabilize by the fourth quarter of 2006 as increased demand from new glycerin applications begins to kick in.

Overall, however, "I think you'll continue to see downward pressure on pricing" of glycerin, at least for the next few years, says Drennan. The relentless expansion of biodiesel programs in Europe and eventually the U.S. are the main reasons for this, he notes. Drennan too expects new glycerin products and applications to prop up prices, but only over the "long-term."