Dec2012_462181

Glycerine Market Report December 2012 3

GLYCERINE MARKET REPORT

Background Note: Oleoline

® is a registered trademark which belongs to HB International SAS (HBI). HBI is a

brokerage house specialized in oleochemicals with offices in Europe, China, India, North America and South America: www.hbint.com HBI is an acknowledged specialist of the global glycerine market. HBI has organized and chaired several World Glycerine Conferences in the past. As brokers, HBI sold over 300,000 mt of glycerine worldwide in 2009, including important volumes in both China and the USA. This wide operational reach is unique in the glycerine market and provides a fundamental understanding of the mechanics of this global commodity. These credentials enable HBI to present a comprehensive, objective and knowledgeable analysis of the global glycerine market. The "Oleoline

® Glycerine Market Report" has been

published since 1986. This Report is subscribed to and recognized as an industry reference by most of the major market players in the glycerine market.

HB International SAS 26 bis rue de l'Ermitage

95160 Montmorency – France Tel: +33 1 39 34 66 00 Fax: +33 1 34 12 49 60 email: [email protected]

Important notices:

Violation of copyright is an offence. Any distribution, copying or other unauthorised use of any part of the report without Oleoline

®'s express agreement is a copyright violation.

Infringers will be prosecuted.

The information contained in this report is a result of our knowledge of the market as well as being obtained from sources considered to be reliable. Every care has been taken to ensure its accuracy.

We cannot accept responsibility for the information contained in this report, nor for our prognoses and opinions.

ISSN: 1168-1160.

Glycerine Market Report 4 December 2012

CONTENTS

1 Introduction ................................................................................................................... 6

2 World Supply of Glycerine, 2008-2014 ..…...…………………......... 2.1 Saponification ……………..…...................................………….……………………… 2.2 Fatty Acid Production …………………..…...........…..………………………………. 2.3 Biodiesel Production …………………..…..…………………………….….................

2.4 Natural Fatty Alcohol Production …..…..…….…………………….……................

2.5 Others ……………………………………………………………………………………….

2.6 Summary …………………………………………………………………………………..

2.7 Methodology and Sources …………………………………………………………….

7

7

8

8

11

12

12

13

3 World Demand for Glycerine, 2008-2014 ……………….......……

3.1 Recent Growth in Demand for Glycerine, 2008-2012 ………………………… 3.1.1 The European Glycerine Market ………...............………….……………………… 3.1.2 The Chinese Glycerine Market …………………..…...........…..………….………. 3.1.3 The US Glycerine Market …………….…..…………………………..….................

3.2 Estimate for Growth in Refined Glycerine Demand, 2012-2014 …………… 3.2.1 Organic Rate of Growth for Refined Glycerine ……………………………………. 3.2.2 “New Uses” for Glycerine …………………...……………………………………….. 3.2.3 Summary of Total Global Demand for Glycerine, 2011-2014 ………………….

13

13 13

14 16 17 18 22 22

4 Theoretic Supply/ Demand Balance, 2011-2014 ………….. 23

5 Price Forecast for of Glycerine, 2012-2014 …………………… 23

Mike HEMING 15 December 2012

N°99 / December 2012

Dear Reader,

It is two years since Oleoline published its last supply/demand model for the global glycerine market. Reading through issue N°90 dated 15

th December

2010, it is gratifying to note the model used showed a tightening market in 2012 with demand exceeding supply of refinable glycerine by the end of 2013. This led to a forecasted price level for the end of 2012 for pharmaceutical quality glycerine with kosher certification at €700 pmt in Europe and 50 c/lb in the USA, both in bulk delivered customer.

In this issue of Oleoline’s Glycerine Market Report the same model as was used in 2010 is applied to arrive at a supply/demand balance for glycerine until the end of 2014. Our price forecasts up to then results from this balance.

Best wishes for a lively and prosperous 2013


TABLES, CHARTS AND GRAPHS

1 Introduction

Table I : Kosher Pharmaceutical Quality, Refined Glycerine Spot Prices in Europe,

China and the USA, 2008-2012 ..........................................................................

6

2 World Supply of Glycerine, 2008-2014

Table II : World Production of Glycerine by Industry Source, 2008-2011 .......................... 7 Graph I : Comparison of the Price of Biodiesel and Petro-Diesel, 2009-2012 .................. 8 Chart I : Estimated Biodiesel Product to Europe, 2008-2011 …………………………….. 9 Chart II : Estimated Biodiesel Production Outside Europe, 2008-2011 ............................. 10 Table III : Estimated World Production Glycerine by Industry Sources, 2011-2014 ........... 12

3 World Demand for Glycerine, 2008-2014

Chart III : European Glycerine Demand, 2008-2012 ………………................................... 14 Graph III : Chinese Imports and Consumption of Glycerine, 2006-2012 ............................ 15 Chart IV : USA Glycerine Demand, 2008-2012 ………………………………………............ 16 Chart V : Estimated Growth for Traditional Applications of Refined Glycerine,

2011-2014 ……………………………………………………………………………

18 Graph III : USA and European Spot Prices for 99.7% Kosher Glycerine Delivered

Customer in Bulk, 1995-2012 ………………………………………………………

19 Table IV : New Uses for Glycerine ECH, 2011-2014 .......................................................... 20 Table V : Estimate of Potential “New Uses” Applications for Glycerine, 2011-2014 .......... 21 Chart VI : Summary of New Uses, 2011-2014 ……………………………..………............... 21

4 Theoretic Supply/ Demand Balance, 2010-2013

Table VI : Summary of Total Demand for Glycerine, 2011-2014 ………………................ 22 Table VII : Theoretic Supply/Demand Balance for Glycerine, 2011-2014 ............................ 23

5 Price Forecast for of Glycerine, 2010-2013

Table VIII : Short, Medium and Longer Term Forecasts for Glycerine Prices, 2012-2014 ... 24


1 Introduction Glycerine prices have risen rather steeply during the last 12 months. This trend has come as no surprise to subscribers of this Oleoline Glycerine Market Report, which has consistently forecast this increase in price. Nevertheless a number of subscribers have specifically requested an update of the supply/demand balance model published two years’ ago. This is what will be presented in this Report. It is should be mentioned now that the supply/demand model which follows is only one of a number of possible scenarios. The one presented here is considered the most plausable. In order to give context to the model which follows, the price development of best quality refined glycerine is shown in Table I below for the world’s three main markets since the end of 2008:

Table I Kosher Pharmaceutical Quality, Refined Glycerine

Spot Prices in Europe, China and the USA

2008-2012

PRODUCT Europe in €/t

Bulk delivered

China in $/t In drums

CIF Chinese main ports

USA in c/lb Bulk delivered

End 2008 400 400 40

End 2009 320 500 32

End 2010 500 1000 39

End 2011 550 675 48

End 2012 770 820 50

Source: HBI


2 World Supply of Glycerine 2008-2014 With the exception of an irrelevant production of synthetic glycerine by Dow Chemical in Germany, all glycerine today is produced as a by-product resulting from splitting triglycerides for various consumer and industrial applications. The consequence of this is that glycerine is one of the worlds’ few supply-driven commodities. It is for this reason that an analysis of the global glycerine market begins with the supply side of the glycerine market. Table II below shows the world production of glycerine by industry source from 2008-2011 (for the methodology employed to arrive at these statistics, please see the note on page 13).

Table II World Production of Glycerine by Industry Source In ‘000 mt, 2008-2011 (expressed as 100% purity)

2008 2009 2010 2011

Saponification 130 110 105 101

Fatty Acids 490 510 660 687

Biodiesel 1258 1471 1724 1872

Fatty Alcohols 180 200 224 196

Synthetic 3 3 3 3

Others - 15 20 23

TOTAL 2061 2309 2736 2882

INDEX 71 80 95 100

Source HBI

2.1 Saponification

The manufacture of soap by the traditional saponification route has been in decline for the past 30 years, bowing to the preference for shower gels in the developed world and soap made from fatty acids in the developing world. In addition to this, the large multinational soap producers now leave the glycerine in the soap when they do saponify – a technology pioneered by Unilever and given the acronym SWING (Soap With INcluded Glycerine).

Finally, new developments in soap technology have resulted in semi-synthetic products such as

“DOVE”, which contain lower TFM (Total Fatty Matter) levels than traditional soap bars. This means that when saponification does occur, less glycerine is produced as a by-product.

We estimate that the process of declining glycerine arisings from the saponification of soaps will

continue in future (see Table III on page 12).


2.2 Fatty Acid Production

The fatty acid industry, in common with much of the rest of the chemical industry worldwide experienced a horrific 12 month decline in demand during the 2008-2009 economic crisis. Production during both years was at around five million mt per annum. Since then there has been a significant improvement in the consumption of fatty acids globally, led by China, where large new capacities have been installed during the last five years to support an expansion in the market to above 1.7 ml mt in 2011. We estimate that about 6.9 mil mt of fatty acids were produced globally in 2011, 4.4 mil mt in Asia alone. Fatty acid demand is traditionally linked with GDP growth because of the multitude of applications in which they are used. As a result, we have assumed that fatty acid demand will increase globally by 3% in 2013 and 4% in 2014 (see Table III on page 13).

2.3 Biodiesel Production In 2011, very nearly two-third of glycerine arisings were from biodiesel production. Any understanding or prognosis as to how the glycerine market will develop thus depends on knowing what is happening in the biodiesel industry. This is a challenge indeed because essentially the biodiesel industry exists only as a result of political imperatives which have led to the mandatory blending of biodiesel with petro-diesel. Without this legally binding obligation to use biodiesel, the industry would not exist as is demonstrated in Graph I below where the price of Ultra Sulfur Diesel (ULSD) is compared with the price of a typical quality biodiesel defined as Fatty Acid Methyl Ester with a solidification point of 0°C (FAME 0).

Graph I Comparison of the Price of Biodiesel

and Petro-diesel, 2009-2012

0

500

1000

1500

2000

2500

3000

09

/01

/09

09

/04

/09

09

/07

/09

09

/10

/09

09

/01

/10

09

/04

/10

09

/07

/10

09

/10

/10

09

/01

/11

09

/04

/11

09

/07

/11

09

/10

/11

09

/01

/12

09

/04

/12

09

/07

/12

09

/10

/12

ULSD 10 ppm FOB Rotterdam - USD/pmt Fame 0 FOB ARA - USD/pmt

Source: Oleoline Biodiesel Report


The problem for an analyst of the biodiesel market is that the politicians themselves do not understand the business, nor the consequences of what has been achieved by their own vigorous promotion of the industry. The fundamental weakness of the business is that it is largely based on vegetable oils which are otherwise used for human consumption. With the global production of all natural oils and fats approaching 200 mil mt pa and biodiesel consuming about 10% of this total, it is obviously impossible to maintain that biodiesel is not responsible for the inflation of food prices. Furthermore indirect land usage (ILUC), greenhouse gas emission and indeed simple economic consideration are all starting to play against political support for first generation biodiesel production. Europe has been at the forefront of the biodiesel industry since its inception in the early 1990’s. Up until 2010 production of biodiesel in Europe grew almost exponentially to reach 10 mil mt, but since then it has become clear that the EU Commission is no longer backing first generation biodiesel production. The arguments expressed in the previous pragraph has led to a rethinking of the philosophy behind biofuel usage with two fundamental changes occurring during the last couple of years which have led to declining production:

i. The Renewable Energy Directive (RED) which set out the direction for transport energy in the EU until 2020 has been amended. The objective of 10% “renewable” use in transport fuels has fallen by the wayside. Although a revised policy has not yet been finalised (as with all EU directives there is still furious lobbying occurring from all interested parties), the probability is that the use of food products will be reduced to 5% of the blending mandate.

ii. The RED has stipulated that agricultural waste products can count double against mandated use of biofuels. As a result since 2011, Europe has seen a significant increase in the use of Used Cooking Oils (UCO) and in some countries tallow, as a double-counted feedstock in biodiesel production. The effect of this has been two-fold. Firstly double-counting has reduced biodiesel consumption in Europe by over 1 mil mt. Secondly, the quality of the glycerine produced from UCO is poor. The crude glycerine is often polymerized which means it is mostly impossible to manufacture pharmaceutical grade product from it. Chart I below shows the decline of biodiesel production in Europe in 2011. What it does not show is the overall decline in the production of top quality refined glycerine arising from biodiesel production since 2011

Chart I Estimated European Biodiesel Production

In ‘000 mt, 2008-2011

2008:

7,810,000 mt

2009:

8,939,000 mt

2010:

10,000,000 mt

2011

8,600,000 mt NB: Glycerine arisings are about 10% of biodiesel production Sources: HBI, EBB

A further reason for the decline of biodiesel production in Europe has been the rise, fall and subsequent resurrection of biodiesel imports into the continent from overseas. Chart 2 on the next page shows an estimate of biodiesel production outside Europe between 2008-2011.

Rest of

Europe 4444

Germany 2455

France 2040

Germany 2665

France 2181

Rest of

Europe 4167

Germany 2770

France 1663

Rest of

Europe 3270

Germany 2700

France 1840

Rest of

Europe 5154


Chart II Estimated Biodiesel Production Outside Europe

In ‘000 mt, 2008-2011

USA

2275

Brazil

500

Argen

-tina

900

As ia

650

ROW

200

USA

1697

Brazil

1500

Argen

-tina

1573

As ia

800

ROW

200

USA

1100

Brazil

2160Argen

-tina

1700

As ia

1960

ROW

374

USA

3710

Brazil

2400

Argen

-tina

2400

As ia

1830

ROW

380

2008:

4,525,000 mt 2009:

5,770,000 mt 2010:

7,294,000 mt 2011:

10,720,000 mt

NB: we estimate 25-30% of Brazilian glycerine production went to drain in 2010 and 2011 (50% in the previous years). Sources: HBI, NBB, EPA EMTS Data

In 2008 and part of 2009, much of the US biodiesel production was exported to Europe via the infamous “splash and dash” concept where blenders took advantage of a US federal subsidy, since abolished, which amounted to around $300 pmt when 99% biodiesel was blended with 1% diesel. The biodiesel was then exported to Europe. This practise ceased in April 2009 when the EU applied anti-dumping penalties to the companies involved. However since then, Argentina and Indonesia have subsidised biodiesel exports by means of preferential export taxes for biodiesel over vegetable oil. Until recently this meant that exporters paid about 24% less tax in Argentina and currently about 10% less tax in Indonesia compared to exporting soyabean and palm oil respectively. In both cases this has resulted in biodiesel being imported into Europe at prices sometimes cheaper than the vegetable oil shipped from the same origin. Once again the EU has started an anti-dumping investigation related to these practises consequent upon the fact that 2.5 mil mt of biodiesel were imported from these two countries into Europe in 2011. Because of the retro-active nature of the anti-dumping legislation, this volume will probably decline slightly in 2012. In the meantime, the Argentine government has been fiddling around with their export tax policy so that biodiesel is advantaged by “only” 12%. Since 2011 the US government has imposed the mandated use of biodiesel via the Environmental Protection Agency (EPA) by means of an Act called the Renewable Fuel Standard (second version) to the extent of 1 billion gallons in 2012, rising to 1.28 billion gallons from 2013. This equates to approximately 2% of diesel use in the States. The effect of this can be seen in Chart 2. It should however, be mentioned that there was significant over-production of biodiesel at the end of 2011 by around 700,000 mt above the mandated volumes, as producers sought to take advantage of the blenders credit subsidy, which was not renewed at the end of 2011. The biodiesel mandate in Brazil is 5%. It is clear that ex-President Lula’s objective of increasing employment in the north-eastern Brazilian states by subsidizing small-scale biodiesel projects increasingly seems to be the pipedream many observers always thought it would be. The Brazilian national petroleum company Petrobras has been forced to buy out some of the most efficient producers which are increasingly being located in the more prosperous soya growing areas of Brazil. Moreover, Petrobras has been publishing losses on the nationally operated biodiesel business since 2009, a situation which is complicated by the difficult financial strictures which the company finds itself in at present. As far as glycerine is concerned, it is tacitly acknowledged that some of the smaller players put this glycerine to drain in Brazil. For obvious reasons it is difficult to obtain figures for this, but we have estimated that around 25% of Brazil’s glycerine from biodiesel arisings are put to drain.


This complex chapter on the biodiesel industry and its relevance to the glycerine market is summarized by quoting what was written in December 2010’s edition of Oleoline Glycerine Market Report. It is just as relevant as it was then: “The winds of change are already in the air with political support in Europe and the USA for “first generation” biodiesel not being as healthy as it was several years ago. Subsidies for biodiesel are declining, for example in the USA and France, and legislation such as the RED and the RFS2 are putting up constraints and barriers to the progression of the biodiesel industry. At the same time initial enthusiasm for “second generation” solutions such as the use of non-food raw materials has dampened (jatropha oil is increasingly being exposed for the scam it always was, and algae oil is fraught with technical difficulties and at best is 8-10 years from being commercially exploitable). Nevertheless we believe that “first generation” biodiesel will continue to expand globally during the next three years, albeit at a slower rate than the almost exponential growth experienced during the past decade. There is little doubt that biodiesel produced in the right circumstances is beneficial to the environment, farmer and politician as well as powerful vested interests such as the multinational vegetable oil crushers (possibly in the inverse order).” In re-reading the above paragraph, it is interesting to note that no mention is made of the benefit to the consumer of biodiesel. Indeed biofuel policy was implemented in most countries without due democratic discussion. This lack of transparency is now rebounding on the industry with lobby groups hostile to biodiesel able to claim the moral high ground. An objective analysis of the benefits of the industry has been the major casualty of this process. With biodiesel now on the back foot, we foresee no real increase in global production in 2012. In Europe consumption will decline for the following reasons:

i. the double-counting process ii. the pressure from biodiesel imports mentioned on page 10, iii. Neste’s hydrocracking process which will take a significant share from glycerine-yielding

biodiesel production, estimated at about 1.5 mil mt in 2012. iv. Consumption of diesel fuel in Europe is receding owing to improved engine efficiencies and the

recession. Less biodiesel produced in Europe will be made good by a 28% increase in the mandated use of biodiesel in the USA. Thereafter, we consider that the biodiesel industry globally will maintain production roughly at current levels below 20 million mt pa (see Table III on the next page).

2.4 Natural Fatty Alcohol Production The global detergent alcohol market is growing rapidly, especially in Asia and more particularly in China. Global capacity is 4.3 mil mt at the end of 2012 of which 75% is natural alcohol capacity, with material produced in very large part from lauric vegetable oils with a glycerine yield of around 13%. Detergent alcohol is also produced synthetically, via ethylene. The cost of ethylene at around $1350 pmt globally bears no comparison with the price in the USA where cheap shale gas is proving to be a game-changer. Both Shell and SASOL have indicated that they intend to invest in additional synthetic alcohol capacities but the timing is beyond the frame of this study. In the meantime there is substantial investment in the pipeline in new detergent alcohol capacity, with 12 new plants due on stream by the end of 2013, most of world-scale capacity in Asia and most designed to use lauric oil feedstock. While it is clear that capacity expansion by no means relates to additional production, it is generally accepted that detergent alcohol growth will be strong. Moreover it is very likely that lauric oil prices will decline to a level around the price of palm oil during the next three years. This will continue the trend experienced recently of natural fatty alcohol taking share from synthetic fatty alcohol manufacture. An increase in demand for natural fatty alcohol globally of 6% per annum is factored into our glycerine supply scenario (see Table III on the next page).


2.5 Others This is mostly methyl ester of various kinds and includes in particular methyl ester sulphonate (MES). MES is an alternative to the leading laundry surfactant, Linear Alkyd Benzine Sulphonate (LAB/LAS). LAB plants are very expensive to construct ($200 mil/100 Kt pa) and there has been recent interest in building far cheaper MES capacity ($20 mil/50 Kt pa). Capacities for MES have developed as follows: End 2009: 145 Kt End 2010: 200 Kt End 2011: 230 Kt End 2012: 380 Kt. Actual production is following capacity investment slowly. We estimate this trend will continue as current technical problems are overcome and demand for LAB/LAS and/or MES continue to grow. Also included here is refined glycerine used for the re-esterification of acid oils in Europe to produce a triglyceride for biodiesel manufacture. This same process is used in India illegally to manufacture triglycerides for human consumption.

2.6 Summary In summary, it is estimated that supply of glycerine will grow from 2,8 million mt in 2011 to 3 million mt by the end of 2014. This is a growth rate of 2.5% per annum. The breakdown per industry segment for 2011-2014 is given in Table III below.

Table III Estimated World Production of Glycerine by Industry Source in ‘000 mt, 2011-2014

2011

2012 est

2013 est

2014 est

Saponification 101 95 90 85

Fatty Acids 687 710 730 759

Biodiesel 1872 1885 1900 1900

Fatty Alcohols 196 210 225 238

Synthetic 3 3 3 3

Others 23 30 50 55

TOTAL 2822 2933 2998 3040

Index (base 100 in 2009)

100 104 106 108

Source: HBI

It is to be noted in this scenario that glycerine arisings from the biodiesel industry remain at above 60% of total production. In view of the fact that biodiesel will continue to consume close to 10% of global vegetable oil and fat production each year with a renewed “food for fuel” crisis clearly possible within the time scale of this study, it is clear that this is a major element of debate in this supply/demand model for glycerine.


2.7 Methodology and sources As mentioned in the fly-page of this Report, HBI brokers very large volumes of glycerine on a global basis and as a result has a comprehensive data base of most of the soap producing factories in the world, as well as the fatty acids manufacturers. In order to understand better the rapidly changing fatty acid industry in China, liberal use was made of Dr Brian Rossal’s most recent “Survey of Fatty Acid Plants in China” published in April 2012 by Oleoline. HBI has a comprehensive data base of the biodiesel factories in Europe, 111 of which are currently in production as opposed to the 139 which were in production two years ago at the time of writing the previous supply/demand balance for glycerine. Outside Europe, statistics from the biodiesel organizations in the USA (NBB), Argentina (CARBIO) and Brazil (from Petrobras) have been used, with suitable precaution. The US Energy Information Administration is the source of the biodiesel production figures in the USA. With respect to natural fatty alcohol production and methyl ester sulphonate manufacture, reference is made again to Dr Brian Rossal’s excellent publications on these markets. Both reports are available via Oleoline.

3 World Demand for Glycerine, 2008-2014

3.1 Recent Growth in Demand for Glycerine, 2008-2012

The three major markets for glycerine, Europe, China and the USA alone consumed 2.25 million mt in 2012 representing 80% of global glycerine production. The recent volume development of these markets will be discussed briefly and individually. For an understanding of how the statistics leading to these volumes are put together as well as the sources, reference is made to the Oleoline Glycerine Market Report of September 2012. It should be mentioned that the estimates for 2012 are based on actual statistics for the first half of the year extrapolated for a full year according to criteria described in the September issue.

3.1.1 The European Glycerine Market The refined glycerine market in Europe was badly hit by the financial meltdown in 2008 as far as traditional applications such as polyols, foods and alkyd resins were concerned. Since then there has been a substantial recovery in demand from these applications. More especially there has been a significant increase in demand for technical quality refined glycerine for use in epichlorohydrin manufacture, in de-icing and anti-freeze applications. The latter use is new and mostly limited to Eastern European countries which are importing around 5,000 mt of glycerine per month for this purpose. In West European countries, anti-freeze standards as stipulated by the German DIN or the British BS for example, do not currently enable the use of glycerine, even though in environmental and safety terms it would result in a better product. There have however been trials conducted by a number of the major automobile manufacturers in Europe during the last two years and a breakthrough in the West European anti-freeze market is anticipated within the next few years. Finally, in 2012 Oleon commenced the production of mono-propylene glycol (MPG) from technical grade refined glycerine. Chart III on the next page shows that demand for refined glycerine in Europe rose from 406,000 mt in 2008 to 559,000 mt this year.


Despite this improvement in refined glycerine consumption, biodiesel mandates continued to increase in Europe and the production of glycerine rose during the same period from just below 900,000 mt to slightly above 1,1 million mt in 2012 before falling back to an estimated 979,000 mt in 2012. Nevertheless it has proved impossible yet again to dispose of total glycerine arisings without significant sales of crude glycerine to the animal feed, bio-gas and waste-water purification industries. As Chart III shows, 431,000 mt will be consumed at low cost by these processes in 2012, up from 276,000 mt in 2008. It should be mentioned that only nine years ago in 2003, there was no sale of crude glycerine in Europe into “disposal” applications, and all the crude glycerine produced was converted into refined glycerine. As has been mentioned on page 9 the increasing use of UCO as a raw material in biodiesel production has resulted in high volumes of crude glycerine which are difficult if not impossible to refine. The squeeze between declining glycerine arisings of refinable quality and increasing demand for refined glycerine particularly for industrial applications has seen

• a reduction in exports of glycerine from Europe to about 50,000 mt in 2012 (one-third of the level of three years ago)

• an increase in the price of glycerine as shown in Table I on page 6 above.

Chart III European Glycerine Demand

In ‘000 mt, 2008-2012

406510 510 564 559

276

345479 404 431

0

200

400

600

800

1000

1200

2008 2009 2010 2011 2012

Consumed as Crude

Glycerine

Consumed as

Refined Glycerine

TOTAL 681,000

mt

855,000

mt

989,000

mt

968,000

mt

990,000

mt

Source: HBI

3.1.2 The Chinese Glycerine Market China is by far the major consuming country of refined glycerine in the world. This year the Chinese market will show a demand for 755,000 mt. As Graph III on the next page indicates, this means an average annual growth of 34% for each of the last six years. China now consumes 35% more refined glycerine than all European countries combined and 2.3 times more than the USA. Other than developments in the biodiesel market, the Chinese demand for glycerine is the most important factor determining how the market will develop globally.


Graph III Chinese Imports and Consumption of Glycerine

In ‘000 mt, 2006-2012

60120

295

409 429

517

593

130

300

420

524

634

719755

0

100

200

300

400

500

600

700

800

2006 2007 2008 2009 2010 2011 2012 est

Imports of crude and refined glycerine

Approx. Consumption of refined glycerine

Source: HBI China, Chinese Customs’ Office Note: Changes in inventories have not been taken into account

How to explain this quite remarkable growth in refined glycerine consumption? The explanation is largely to do with the well-known business pragmatism of the Chinese entrepreneur:

• It is well-known that China has become “the factory of the world” with double-digit or near double-digit annual rates of GDP growth.

• While the developed world struggles with vested interests and overwhelming bureaucratic constraints, the Chinese simply exploit to the full any perceived opportunities. The disadvantages of this philosophy are well published with specific examples of tainted toothpaste purported to have used refined glycerine coming to mind. But there is also an upside. A good example of this in relation to glycerine is the anti-freeze market. With refined glycerine substantially cheaper than glycol, the Chinese have no hesitation in using glycerine in anti-freeze. China is now the largest car-market in the world, and we estimate that 130,000 mt of glycerine will be used in anti-freeze in 2012. It is perhaps pertinent to mention that glycerine is a non-toxic, biodegradable anti-freeze component, in contrast to the glycols used in Western Europe.

• A second example of Chinese pragmatism is the use of glycerine in the manufacture of epichlorohydrin (ECH), where 57,000 mt was used this year. This particular aspect will be discussed in more detail later (see page 20).

Needless to say, the Chinese have no biodiesel industry to speak of (there is limited capacity to

process UCO) nor do they use crude glycerine in disposal applications.


3.1.3 The US Glycerine Market Chart IV below shows the development of the glycerine market in the USA since 2008. Before comparing these statistics up to 2011 with those of Europe and China and using them as an indication of further decline of the US as an economic power, there are specific grounds which require explanation. Firstly, the collapse of the housing and automobile markets in 2008 is well documented and hit glycerine demand hard. The car industry in the USA is now in the process of recovering and the housing sector is showing the first small shoots of renewal. This is shown in the spectacular recovering of refined glycerine demand since 2011, which also includes ADM’s use of glycerine to manufacture green-MPG. Secondly, as in all developed economies, the transfer of production to cheaper locations is a fact which was touched on above when discussing China as the “world’s factory”. In Europe, many of the cheaper locations such as Poland, Turkey and Romania remain in the demand statistics. In the USA, cheaper locations such as Mexico and South America do not show in the figures. A further factor compared to Europe is that glycerine arisings from biodiesel production really only began to drive glycerine demand with the RFS2 mandate in 2011. As with Europe, the result is a large volume sale of crude glycerine in the US to disposal applications; mostly animal feed and anti-dust uses. The fact that the US is obliged to dispose of 327,000 mt of crude glycerine this year, while at the same time importing 133,000 mt of crude and refined glycerine, reflects the poor quality of glycerine produced by the US biodiesel industry whose glycerine is largely unrefinable. Furthermore, very little is kosher quality, which means that the majority of imports are for kosher certified refined glycerine from South-East Asia and Europe.

Chart IV USA Glycerine Demand In ‘000 mt, 2008-2012

216 193 201286

329

207210 180

285

327

0

100

200

300

400

500

600

700

2008 2009 2010 2011 2012 est

Consumed as

Crude Glycerine

Consumed as

Refined Glycerine

TOTAL 423,000

mt

403,000

mt

381,000

mt

571,000

mt

656,000

mt

Source: US Department of Commerce, US Bureau of the Census, NBB, EPA EMTS Data, HBI


3.1.4 Summary of Global Glycerine Demand in 2011

For 2011 in ‘000 mt expressed at 100% glycerine

Refined Glycerine Crude Glycerine TOTAL

Europe 564 404 968

China 719 - 719

USA 286 285 571

Japan 103 - 103

India 98 - 98

Rest of World 282 81 363

TOTALS 2052 770 2822

Notes: i) For the sake of simplicity, stock movements have not been taken into account in this model, so that global

arisings of glycerine as shown in Table III on page 12 equate to total global demand shown above.

ii) All figures are shown as 100% glycerine purity, so yield losses in glycerine refining for example, are

accounted for.

iii) “New uses” for refined glycerine, equating to 263,000 mt (see Chart VI on page 21) are included in the total

refined glycerine consumption of 2,052,000 mt in 2011.

iv) Crude glycerine use in the Rest of the World is for animal feed in South American countries predominantly

Brazil and Colombia. Glycerine put to drain in Brazil is not included in this total.

3.2 Estimate for Growth in Refined Glycerine Demand, 2012-2014 A scenario for the consumption side of this supply/demand analysis up to 2014 will be approached as follows:

• Firstly, an “organic growth” for refined glycerine’s traditional applications will be calculated. • Secondly, “new uses” for glycerine will be analysed, a judgement made of their chances of

succeeding and the volumes of refined glycerine likely to be consumed will be added to overall demand.

• Finally, the impact of the substitution of different polyols by glycerine will be considered and included.

3.2.1 Organic Rate of Growth for Traditional Applications for Refined Glycerine, 2012-2014

On the assumption that demand for traditional applications for refined glycerine will grow at the same rate as GDP, Chart V on the next page represents the growth per region in line with 2012/2013 GDP increases estimated by the IMF. The same rate has been used to extrapolate the incremental growth of refined glycerine demand up to 2014.


It is obvious that the assumptions behind this assessment for organic growth can be questioned, particularly with regard to China. As shown on page 15 of this Report, the growth of the refined glycerine market in China has averaged 34% for the past six years. In this scenario, we are using a rate of increase of only 8% per annum. However, as will be shown in developing the argument in the next pages, much of the new uses for refined glycerine as well as the substitution of different polyols by glycerine will occur in China. Nevertheless, since about 60% of refined glycerine consumption globally goes into personal care, foods and beverages, tobacco and pharmaceutical applications where growth is traditionally better than GDP, this can be considered to constitute a conservative element in our model.

Chart V Estimated Growth of Traditional Applications of

Refined Glycerine, in ‘000 mt, 2011-2014

0

500

1000

1500

2000

2500

2011 2012 2013 2014

564 608 657 710

486 486 488 490

282 293 308 323256 261

268275103 104

106108

98 103109

115India

Japan

USA

ROW

Europe

China

1,789,000 mt 1,855,000 mt 1,936,000 mt 2,021,000 mt

Source: The IMF, HBI Note: These volumes exclude “new uses” for glycerine defined in Tables IV and V on pages 20 and 21

In summary the use of refined glycerine in traditional applications will grow from 1.9 mil mt in 2010 to 2.2 mil mt in 2013, an increase of 5% per annum.

3.2.2 “New Uses” for Glycerine Graph III on the next page shows the development of the refined glycerine price in Europe and the USA since 1995. This shows that since the end of 2004 the price of best quality refined glycerine has averaged €587 pmt in Europe and 45 c/lb in the USA, half of the average of the previous nine years in Europe. At less than the price of bottled water this is exceptionally low for a chemical with the qualities and characteristics of glycerine.


Graph III USA and European Spot Prices for 99.7% Kosher Glycerine Delivered Customer in Bulk - 1995-2012

0

200

400

600

800

1000

1200

1400

1600

1800

0

20

40

60

80

100

120

De

c 9

5

Ma

r 9

7

Jun

98

Se

p 9

9

De

c 0

0

Ma

r 0

2

Jun

03

Se

pt

04

De

c 0

5

Ma

r 0

7

Jun

08

Se

p 0

9

Se

p 1

0

Se

p 1

1

De

c 1

2

EUR/t

European market

c/lb

USA market

c/lb €/t

Source: HBI

This has led to a plethora of projects designed to use glycerine in new applications. A non-exhaustive list of these projects based on glycerine as a feedstock is for the manufacture of:

• Epichlorohydrin (ECH) • Bio-methanol • Propylene glycol • Acrylic acid • 2-amino-1-propanol (2AP) • Glycerol-tert-butyl ethers (GTBE) • Glycerol carbonate • 1-3 Propane-diol (PDO) • Ethanol, isoprene, acetone, hydrogen, formate lactate and succinate • Glycolipid surfactants such as sophorolipids and rhamnolipids

In addition to this list of “new uses” there is the re-use of glycerine in anti-freeze and winterizing fluid

applications. Within the constraints then of a relatively limited global supply of glycerine, growing less rapidly than

in the past, and demand buoyed by the high price of substitutable polyols such as propylene glycol, the key question to be asked is which of any of the above projects is likely to be successful in consuming glycerine over the next two years.

In previous Oleoline Glycerine Market Reports, the merits and demerits of these “new uses” projects

have been discussed many times. Suffice it to say that in 2011 265,000 mt of glycerine went into various “new use” applications, and the figures for 2012 will almost double to 523,000 mt. Table IV on the next page shows the glycerine-to-epichlorohydrin projects currently and an estimate of what they will consume in 2013-2014.


Table IV New Uses for Glycerine

ECH in ‘000 mt, 2011-2014

2011 2012 2013 2014

Europe Solvay 17 17 20 20

Spolchemie 17 20 23 23

Polish Zachem - 2 2 2

Leuna Herz - 4 5 5

34 43 50 50

China Dongying Hebong - - - 20

Fujian Haobang 5 5 5 5

Hebei Jiao - 2 30 30

Jiangsu Yangnong 30 50 70 70

Wilmar - - 30 65

Ningbo Huanyang - - 10 10

Xangi Global Chem - - 10 10

Solvay - - - 10

35 57 155 220

Thailand Solvay - 80 100 100

TOTAL 69 180 305 370

Source: HBI

Table V on the next page shows a list of other new uses for glycerine including the substitution of glycol by glycerine in anti-freeze and winterizing fluid applications. We are aware of further projects for the manufacture of MPG in various parts of the world, for making ethanol and isopreine in Malaysia, acrolein in France and Japan and PDO in Malaysia and China. Rightly or wrongly it is our view that none of these will consume glycerine before the end of 2014.


Table V Estimate of Potential “New Uses” Applications

for Glycerine, in ‘000 mt, 2011-2014

2011 2012 2013 2014

MPG Oleon - 12 20 20

ADM 30 60 90 90

30 72 110 110

Anti-freeze and

winterizing fluids

(incl windscreen

washing)

E. Europe 35 50 60 65

W. Europe 7 15 30 35

China 120 130 150 155

USA - 20 40 45

India 2 3 5 5

164 218 285 305

Bio-methanol NL - 30 60 60

TOTAL 194 320 455 475 Source: HBI

Chart VI below summarizes the total consumption of refined glycerine in “new uses” between 2011-

2014.

Chart VI Summary of New Uses for Glycerine

in ‘000 mt, 2011-2014

0

100

200

300

400

500

600

700

800

900

2011 2012 2013 2014

69180

305370

164

218

285

305

30

72

110

110

30

60

60

Bio-methanol

MPG

Anti-freeze liquids

Epichlorohydrin

263,000 mt 500,000 mt 760,000 mt 845,000 mt

Source: HBI

This means that these “new uses” for glycerine have grown the refined glycerine market by half a

million mt in 2012 and are predicted to increase the size of the market by a further 345,000 mt by the end of 2014.


3.2.3 Summary of Total Global Demand for Glycerine, 2011-2014 Table VI below summarizes the volumes of refined glycerine which will be in demand globally between 2011 and 2014 based on the assumptions we have employed in the previous pages.

Table VI Summary of Total Demand for Glycerine

in ‘000 mt, 2011-2014

2011 2012 2013 2014

Traditional Applications for refined glycerine

1789 1855 1936 2021

New uses 263 500 760 845

TOTAL 2052 2355 2696 2866

So of the total supply of glycerine of slightly above 2.8 million mt in 2011 and an estimated 2.93 million mt this year, less than three-quarters have been converted into refined glycerine on 2011 and only 80% in 2012. The difference between crude glycerine used for refining and total supply of crude glycerine is of course, disposed of in the applications described in pages 14 and 16 above: animal feed, bio-gas, de-icing and water treatment. Logically, when the demand for refined glycerine outstrips supply of all crude glycerine, the market will tighten and prices rise. According to table VI above this would not occur within the timescale of this model, for as shown in Table III on page 12, crude glycerine arisings in 2013 are estimated to be at 3 mil mt and in 2014 at 3.04 mil mt. However, the situation is not that simple and this will be demonstrated in the following chapter.

4 Theoretic Supply/ Demand Balance for Glycerine,

2011-2014 In the second chapter of this Report, pages 7 to 13, we have presented a scenario where glycerine supply would increase by 3% pa from 2.82 mil mt in 2011 to 3.04 mil mt in 2014. The major deviation from the past development of glycerine supply in this model is our prediction that arisings of glycerine from the biodiesel industry will more or less stabilize over the coming two years (see Table III on page 12). In the third chapter which hopefully the Reader has consumed with some attention, we predict demand for refined glycerine rising from a current estimated level for 2012 of 2.35 mil mt to almost 2.9 mil mt by the end of 2014. This represents a growth of 10% per annum and is essentially driven by substantial investment in new, but proven technology to produce epichlorohydrin and MPG from glycerine, as well as the substitution of glycols by glycerine in anti-freeze applications. As implied in the last paragraph of the above chapter, the balance between supply of crude glycerine and demand for refined glycerine is sold at low prices to disposal applications. It has been mentioned in pages 14 and 16 of this model that considerable volumes of crude glycerine produced from biodiesel manufacture are unrefinable. In particular this is the result of biodiesel technology using sulphuric, phosphoric or acetic acids to neutralize the soaps formed during esterification. There are a small number of specialized refineries which are capable of refining blends of crude glycerine containing acetate and phosphate salts, but it is generally impossible to refine crude glycerine continuing sulphur salts. These salts form a very fine powder which simply blocks heat exchangers during distillation. Furthermore, as discussed


on page 9, the increasing use of UCO as a raw material for biodiesel production in Europe and the USA, can result in a heavily polymerized glycerine being produced which is difficult and sometimes impossible to refine correctly. The volumes of unrefinable crude glycerine being produced globally are known in Europe, but more difficult to define in Brazil (where cotton acid oils are used as biodiesel raw materials) and the USA. Our best estimates for unrefinable crude glycerine are as follows, increasing from 2012 onwards because of the double-counting of UCO in Europe:

2011 200,000 mt 2012 280,000 mt 2013 300,000 mt 2014 300,000 mt

These volumes have then been included in a theoretic supply/demand balance for glycerine from 2011-2014 shown in Table VII below.

Table VII Theoretic Supply/ Demand Balance for Glycerine

in ‘000 mt, 2011-2014

Actual 2011

Estimate 2012 2013 2014

Global Glycerine Supply: of which unrefinable Net supply of refinable glycerine

2822 (200) 2622

2933 (250) 2683

2998 (300) 2698

3040 (300) 2740

Demand for refined glycerine from traditional applications Demand for refined glycerine from “new uses” Total demand for refined glycerine

1789 263

2052

1855 500

2355

1936 760

2696

2021 845

2866

Balance Pm: crude glycerine used for disposal applications

570 770

328 578

2 302

(126) 300

Note: this model takes no account of inventory movements

This supply/demand balance shows that with the current potential of commercially viable new projects (predominantly the manufacture of ECH from glycerine) and the ongoing substitution of glycols by glycerine, glycerine will be in short supply during 2014. Obviously, price will be the tool which will regulate supply and demand.

5 Price Forecast for Glycerine, 2012-2014 As Table VII above shows, glycerine was in surplus throughout 2011 (570,000 mt had to be disposed of as crude glycerine) as well as 2012 when we estimate that 328,000 mt has to be disposed of. It is clear that while excess crude glycerine is available which cannot be consumed by conversion to refined glycerine, prices will stay relatively low, even though there have been solid price increases in all markets during 2012. Beyond 2012, we foresee glycerine prices falling slightly during the first part of next year as the market adjusts to the rapid price increases experienced during the latter part of this year and as difficult economic conditions continue to put a break on demand in the developed world. However during the second half of 2013, glycerine will become tighter as demonstrated in Table VII above. We foresee glycerine price rising rather rapidly at this stage. Once glycerine approaches the €1000 pmt level, it starts to price itself out of certain markets for example against propylene in ECH and anti-freeze applications. Thus we foresee


refined prices in the longer term until the end of 2014 rising to but not exceeding for any lengthy period, €900 pmt in bulk delivered in Europe and 65 c/lb in bulk delivered in the USA. Consequently, our short, medium and longer term forecasts for glycerine prices are shown in Table VIII below.

Table VIII Short, Medium and Longer Term Forecasts

for Glycerine Prices, 2012-2014

Country Dec 2012 Mid 2013 End 2013 End 2014

Europe 99.5% Kosher spot price 99.5% technical grade spot price 80% crude glycerine (weighted average of better quality material)

EUR 770 pmt EUR 725 pmt EUR 325 pmt




USA 99.5% Kosher spot price 99.5% tallow-based spot price

USD 0.50 c/lb USD 0.40 c/lb




All prices are delivered customer in bulk. All prices for pharmaceutical quality glycerine Assumes exchange rates at EUR 1 = USD 1.30

MH – 15.12.2012


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