CEH Report

Table of Contents

Abstract

In recent years, the buildup of significant fatty acids production capacity has continued in Southeast Asia. Companies in these countries formed joint ventures with U.S., Western European and Japanese fatty acid producers, with production being exported to the parent companies in the United States, Western Europe and Japan. Recently, parent companies have shifted much of the production to these Southeast Asia sites, where overall production costs are often lower.

In recent years, there has been an increase in global fatty acid demand as a result of end-use consumption growth, as well as strong oleochemicals (fatty acids, fatty alcohol, glycerin, etc.) growth and competition, particularly in Asia. Whether used as such or in the form of various derivatives, fatty acids are ultimately consumed in a wide variety of end-use industries. The economic growth of many of these industries (e.g., rubber, plastics and detergents) is often a good indicator of the overall economic performance of a region. Not surprisingly, the historical growth in the consumption of fatty acids has tended to approximate the growth in the GDP of the region of their consumption.

The following pie chart shows world consumption of natural fatty acids:

Among the trends in the industry are the following:

• Use of oil and fat feedstocks in place of petroleum-based feedstocks to produce biofuels, plastics, etc. will create competition for fatty acids production/supply, and affect pricing. However, this use will largely be dependent on crude oil prices and whether switching costs make sense.
• New glycerin uses as chemical feedstock (for example, in the manufacture of propylene glycol and epichlorohydrin) and increased uses in industry will lead to less concern about its oversupply as a by-product of fatty acids production.
• Tax credits/subsidies or environmental legislation can create competitive advantage for biofuels over fatty acids production in terms of securing raw materials. For example, the soap and detergent industry competes with the biofuels industry for use of tallow as a raw material.