Palm stearin prices hit two-year highs
> Oleochemical firms face tighter margins, slower demand for their products
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.