Palm stearin prices hit two-year highs

> Oleo­chem­i­cal firms face tighter mar­gins, slower de­mand for their prod­ucts

The Sun (Malaysia) - - SUNBIZ -

KUALA LUMPUR: Prices of palm stearin have soared to a two-year high on sup­ply short­ages, caus­ing oleo­chem­i­cal man­u­fac­tur­ers – who use the in­gre­di­ent as a feed­stock to make soap – to face tight­en­ing mar­gins and slower de­mand for their prod­ucts.

Prices of re­fined, bleached and de­odorised (RBD) palm stearin have soared by nearly 40% this year, ac­cord­ing to assess­ment prices by Thom­son Reuters. Stearin is a solid fat pro­duced when re­fined palm oil is bro­ken down to ex­tract palm olein, or the liq­uid form of palm oil used for cook­ing and bak­ing.

It usu­ally trades at a dis­count to crude palm oil but sur­passed bench­mark prices of the trop­i­cal oil in June. Stearin’s spread over CPO reached US$87 (RM359.20) a tonne in late Au­gust, the widest since 2011.

Stearin prices were at US$700 a tonne on Tues­day, ver­sus crude palm oil at RM2,587 a tonne at the mid­day break yes­ter­day.

Oleo­chem­i­cal man­u­fac­tur­ers say it is not easy to pass on higher stearin prices to their price sen­si­tive cus­tomers, re­sult­ing in com­press mar­gins.

Palm stearin is widely used in Malaysia to make soap noo­dles, a ba­sic form of soap bought by man­u­fac­tur­ers who use it to pro­duce their own branded end prod­uct.

“De­mand is more sub­dued now, peo­ple are not com­mit­ting far in ad­vance and mostly go on a hand-to-mouth ba­sis,” said a Malaysian oleo­chem­i­cal man­u­fac­turer.

“We are also af­fected. We don’t have for­ward or­ders, we don’t dare to ramp up the plant to pro­duce ma­te­ri­als.”

Malaysia is the world’s sec­ond-largest palm oil pro­ducer af­ter In­done­sia, but out­put fell this year be­cause of the ef­fects of the El Nino weather pat­tern, which brings scorch­ing heat across Southeast Asia and im­pacts crop yields.

Lower pro­duc­tion re­sults in less avail­abil­ity of palm oil to process, said three traders and a biodiesel pro­ducer, while higher In­done­sian biodiesel man­dates means more palm stearin is con­sumed as a feed­stock.

In­done­sia has raised the min­i­mum bio con­tent for diesel fuel to 20% this year and 30% in 2020.

Sa­hat Si­naga, chair­man of the In­done­sian Veg­etable Oils As­so­ci­a­tion, coun­ters that the biodiesel man­date is not the sole rea­son for the in­crease in palm stearin, “be­cause In­done­sia’s biodiesel con­sump­tion this year wouldn’t be as high as tar­geted.”

He es­ti­mates that In­done­sia’s biodiesel con­sump­tion this year will be 1.8 mil­lion kilo­litres ver­sus a tar­geted 5 mil­lion kilo­litres. – Reuters

File photo shows palm fresh fruit bunches de­liv­ered to a mill in Jo­hor.

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