Surfactants Monthly
July 2022
We’re a bit late with the July blog and so, if you are so inclined you can get in touch and we will gladly refund the price of your subscription. You’re welcome! That’s funny because, you know, there is no subscription price..
There’s a whiff of recession in the air with prices edging back ever-so-slightly in the wholesale market and demand off a bit as folks cut back a bit and trade down in the face of consumer goods inflation. Once your stimulus money runs out and your rebound from the lockdown has finished, you realize just how much eating out costs and how much that basket of your favorite brands will put you back vs the store-brands – which are pretty much as good right?. So now what?
By the way, a friend of mine was getting so much incoming financial COVID-associated support that he temporarily gave up his self-employed professional avocation to make lamps – for fun – then started selling them – for real money- while spouse continued to bring home paycheck bacon. Heckuvva stimulus party that. I’m even feeling a headache and didn't even sample the punchbowl.
Anyhow - I’m not a forecaster and this is not one of those blogs that predicted the 2009 crash and that the English women’s football team would defeat Germany and bring the European cup home. No, we just read and think and opine.
By the way, this whiff of recession is like the smell that was in the air toward the end of 2008 when things just seemed a little bit ....off, you know? The Wall Street Journal says it best with a delightful headline on August 1st that reads Dollar-Store Dinners and Vats of Shampoo Help Families Cope with Inflation. It’s the “vats of shampoo” that gets me. A huge boiling cauldron of shampoo tended by a coven of recession witches into which is tossed, well, anything really; the family dog, little Timmy’s goldfish, Annabelle’s collection of Barbies – I mean there’s a recession on isn’t there? And this huge vat of shampoo will at least keep us looking good in the face of it.
The actual article wasn't as interesting as my imagination had it but was fairly informative. Energy prices are up 41.6% year on year and groceries up 12.2%. So folks are going to the Dollar Store and hence, average spending on grocery products at discount chains increased 71% from October 2021 to June 2022. OK that’s a lot. The article then goes on to declaim a bunch of first-world problems faced by US consumers such as eating canned chicken and peanut butter instead of whatever they were eating before. Look I get it and honestly I don't expect to change my eating habits at all. But some people in the rest of the world will actually starve. To death. If they’re not shot or worse in one of the struggles over resources that are breaking out. But look, this isn’t that type of blog either. We’re privileged (me and you dear reader) and let’s leave it at that.
The article goes on to note one shopper’s concern that the food at Family Dollar is cheap but it’s full of sugar. And that to me is a public health concern as masses of people, fresh from sitting around during COVID, now fall upon sugar and carbs as a money saver -for them maybe; a shorter life and cheaper food means lower aggregate expenses; but not for the public health system (it’s basically public in this case). But I’m off in the weeds again. The article goes on with some content actually relevant to surfactants and that’s the following: Consumer-products giant P&G just posted its largest sales gain in 16 years. Still, the company is predicting its lowest growth in years as consumers cut back on household staples like the company’s Tide detergent and buyer cheaper, more dilute private label alternatives.
And there it is – as in 2009 when private label detergent sales moved more water than the Niagara Falls, consumers are again buying less detergent active and this will doubtless ripple back through the supply chain – for a while. Again – this is not a prediction, just looking at patterns and joining the dots. That whiff is in the air. Let’s see..
Now to the regular news:
A lot of interesting Bio-based news this month. Two big items in particular caught the eye with headlines that were quite a bit more exciting than the actual news but still significant for our industry.
First up Ineos – and going straight to the source, their 7/27/22 press release announces that “INEOS Launches new Bio-Attributed Ethylene Oxide, Completely Substitutes Fossil Feedstock With Renewable Biomass” – [I’ve not personally come across the term “Bio-Attributed” before and it doesn’t have a “TM” next to it so – I dunno – has anyone else seen this? A quick google of the term shows it’s use in the styrene and PVC world by companies like Vynova, Dupont, Trinseo and others. There are links with INEOS, including a family-tree connection with Vynova who got 5 plants from Ineos in 2015. Anyhow “Bio-Attributed” means bio-mass-balance as far as I can tell. So that’s cool, I guess. The Press Release goes on to read (in it’s entirety, but I’ve un-bolded where they have bolded, because it messes up my formatting, sorry.) :
INEOS Launches new Bio-Attributed Ethylene Oxide, Completely Substitutes Fossil Feedstock With Renewable Biomass
- The Bio-attributed Ethylene Oxide delivers 100% substitution of fossil feedstock on a mass balance basis, as certified by RSB and ISCC+.
- The material delivers a Greenhouse Gas saving of over 100% compared to conventionally produced EO
- Tobias Hannemann, CEO: “Our new EO delivers identical performance to traditional feedstocks - the fundamental performance of the product is not changed, but it comes with huge savings in fossil fuel usage and Greenhouse Gas emissions.”
INEOS OXIDE has launched new Bio-Attributed Ethylene Oxide (EO), based on certified bio-based sources which do not compete with food production.
First sales of this Bio-Attributed EO have already been made.
This new product reaffirms INEOS’ commitment to developing more sustainable ways to produce the materials we use and rely on every day. INEOS Oxide is developing a suite of solutions to deliver carbon neutrality by 2050, of which this new product is one.
Both RSB (Roundtable on Sustainable Biomaterials) and ISCC+ (International Sustainability & Carbon Certification Plus) have certified that the new product is 100% renewable on a mass balance basis and delivers a Greenhouse Gas saving of over 100% compared to conventionally produced EO.
This allows INEOS customers to significantly reduce their carbon footprint and offer innovative solutions to serve their ever more demanding markets for sustainable solutions.
EO is an important building block for a wide variety of derivative products, which are used in the production of detergents, thickeners, solvents, and plastics. EO is consumed internally by INEOS Oxide in the production of intermediates such as glycols, ethanolamines, glycol ethers and ethoxylates.
Mass balance is an essential tool used to reduce the reliance on fossil fuel materials as feedstock across a wide range of industries. In practice, it allows the mixing of renewable and recycled materials with traditional feedstock to create a lower-carbon product. It is recognized as a necessary step in arriving at a fully circular economy.
INEOS’sBio-Attributed EO is the culmination of three years of work to develop a low carbon ethylene oxide product.
Tobias Hannemann, CEO of INEOS Oxide, says: “In developing our Bio-Attributed Ethylene Oxide, INEOS is once again leading the way in developing sustainable solutions for products essential to our everyday lives.”
End of Press Release. Start of my comment and so-forth. :
OK – so, first up – who are RSB and ISCC+. Not heard of them so, let’s ask the interwebz. RSB is the Roundtable on Sustainable Biomaterials (RSB). Their headquartered in Switzerland and you can read about them here https://rsb.org/ . ISCC+ is a certification sponsored by these guys https://www.iscc-system.org/about/objectives/ one of whose objectives is “Contributing to the implementation of environmentally, socially and economically sustainable production and use of all kinds of biomass in global supply chains” . Apparently entities like SGS can certify operations according to this ISCC+ standard.
This all seems clear. A key question for me is: Does this bi-attributed EO in any way muddy the bio-EO waters. To date, we have had Croda in the US, India Glycols (now JV’ing with Clariant) and that company in Taiwan (Greencol) that was working with Toyota Tsusho. Will Croda’s Bio-EO be a little bit less special now that there’s a new Bio (albeit mass balance) option available? Will folks start to mentrally register the “attributed” part of bio-attributed in a small font size (regardless of how it’s written). I think that regardless, the only way that the large CPG’s like Uniliever and P&G are going to meet their overall sustainability goals by 2030 is to use some form of mass balance scheme between now and then.
IN other bio news and with an even more exciting heardline, CEPSA announced the following on July 20th. “Cepsa Química supplies Unilever with the world’s first renewable LAS surfactant, paving the way for circular chemistry” Renewable LAS eh? Wow – that is exciting. I’ll skip to the punchline however. It’s bio-mass balance again. Sorry. Did the headline mislead me or did I willingly mislead myself? Don't know. But – if you read on into the actual text of the press release – all becomes a bit clearer. Heres’ the entire text of the press release:
- NextLab linear alkylbenzene (LAB) is the first LAB surfactant to be both renewable and biodegradable, as an alternative to the traditional fossil LAB, a surfactant used widely for cleaning and laundry products
- Unilever is the world’s first user of NextLab linear alkylbenzene (LAB) from renewable sources in cleaning and laundry products
- Both Cepsa Química and Unilever will continue to collaborate in exploring and incorporating sustainable solutions to their brands
Cepsa Química has supplied consumer goods leader Unilever with NextLab linear alkylbenzene (LAB), a new range of sustainable products which include renewable and recycled raw materials. This sets a new milestone for circular chemistry, as NextLab linear alkybenzene (LAB) is made using “green carbon” derived from biomass instead of the fossil fuels the industry has employed until now to make cleaning and laundry products.
Cepsa Química uses a Mass Balance approach to create NextLab. Through Mass Balance, traditional black carbon sources are blended and co-processed with those from plant-based sources, known as green carbon. Afterwards, they are tracked throughout the entire production process to ensure that an appropriate volume of the green carbon content is in the final LAS surfactant.
This way of manufacturing surfactants is not only the most viable, short-term alternative to purely fossil-carbon derived products, but it also constitutes a vital steppingstone in the shift from petrochemical to renewable feedstocks.
Unilever is the worlds’ first user of NextLab linear alkylbenzene (LAB), which incorporates biomass of certified origin, resulting in an LAB surfactant identical in properties and performance to traditional surfactants. The company will use NextLab to make Linear Alkylbenzene Sulfonate (LAS), the world's largest-volume synthetic surfactant and its key raw material for brands such as Persil, Cif and Sunlight.
Surfactants are crucial in the making of cleaning products. However, all LAS surfactant is made nowadays from black carbon and fossil fuels. Using a LAB made from renewable biomass to produce LAS is not only a more sustainable way to produce this raw material but also helps lower the carbon footprint of the final products.
The path to a circular chemistry
As of today, 85% of the overall carbon demand in chemical and derived materials sector is still met using fossil fuels. By offering renewable and recycled alternatives, Cepsa Química is setting the path to a circular chemistry industry while directly impacting on the planet, both in its own production process and in that of its buyers.
Unilever’s Home Care business announced last year that it will source 100% of the carbon derived from black sources in its cleaning and laundry formulations with renewable or recycled carbon – a strategy illustrated in its Carbon Rainbow model.
With the chemicals used in Unilever’s cleaning and laundry products making up the greatest proportion of their carbon footprint (46%) across their lifecycle, pioneering the use of innovative new chemicals made with renewable feedstocks will enable the company to unlock new ways of reducing the carbon footprint of its products. As an upstream innovation, inclusion of NextLab within formulations will result in no change to the performance of the products that consumers know and trust.
With NextLab, Cepsa Química reinforces its commitment to go along with its customers in the development of increasingly sustainable and environmentally friendly products.
End of press release. You know, now that I read it again, I really have to focus. It definitely does say “Mass Balance” right there. So it must be mass balance, but some of the other wording – interesting. It says “the first LAB surfactant to be both renewable and biodegradable” Of course, those who know LAB know that it has always been biodegradable and so it’s the renewable piece that has been added to the picture. I guess that by using this NextLAB, the user has caused some vegetable oil (e.g. Palm) to be put through a refining process and then those palm trees will be replanted at some point, therefore “renewing” the carbon in the supply chain that was used up by the LAB. It makes no difference whether or not those palm originated carbons end up in the LAB itself. OK so – like the EO example, this is going to be the way that companies like Unilever move the needle on surfactant carbon between now and 2030.
In yet more bio news, Evonik was reported by HAPPI to be celebrating the start of the construction of the world’s first commercial rhamnolipid production facility with a groundbreaking ceremony recently. The new biosurfactant plant is a triple-digit million-euro investment in Evonik’s biotech hub in Slovakia. This will establish Evonik as a pioneer of high-quality, sustainable biosurfactants on a commercial scale and further strengthen the site in Slovenská Ľupča as a strategic center for biotechnology. Rhamnolipids are biosurfactants and are essential constituents of cleaning and personal care products. Evonik’s rhamnolipids are 100 % bio-based and 100 % biodegradable. The original announcement of the investment was made in January and so – let’s keep an eye on this as it progresses.
In other Evonik news, it was noted that Kensing, LLC, a leading manufacturer of natural vitamin E, plant sterols, specialty esters and high-purity anionic surfactants, and a portfolio company of One Rock Capital Partners, LLC (One Rock) [remember this the old BASF Chicago are plant spun out to private equity], announced that it has entered into a definitive agreement to acquire the Hopewell, Virginia amphoteric surfactants and specialty esters manufacturing operations (Business) from Evonik Corporation.
Located in Hopewell, Virginia, the Business primarily serves the personal care market, with a focus on skin care, hair care and oral care applications. The Business is known for product quality and technical leadership, with over 50 years of experience in betaines chemistry and ships products to leading personal care and home care customers in North America.
"The amphoteric surfactants and specialty esters manufacturing operations that Kensing will acquire as a result of this transaction are complementary to our existing product portfolio derived from plant-based feedstocks," said Serge Rogasik, Chief Executive Officer of Kensing. "Building on our leadership position in high-purity anionic surfactants, by acquiring the Business, we are expanding Kensing's presence in personal care and home care ingredients to provide our customers with an expanded range of low-detergency product and service offerings."
Rohan Narayan, Partner at One Rock added, "We are excited to support Kensing in its second add-on acquisition. The Business manufactures innovative, high-quality, natural raw material based products and is a great fit for Kensing. We continue to actively support Kensing's pursuit of acquisition opportunities aimed at further strengthening its position as a leading, global manufacturer of plant-based ingredients." The transaction is subject to regulatory approvals and customary closing conditions and is expected to close in the third quarter of 2022.
That’s quite a few relevant press releases for July.
The great Lucas Hall of ICIS, produced a great end of month review of the picture for detergent range alcohols in the US. We herewith excerpt some highlights : Oh and of course as always, the comments in these things [..] are mine alone.
The supply-demand balance for both fatty acids and fatty alcohols in the US is expected to improve over Q3 as a major downtrend in feedstock costs alongside lacklustre demand in the key China market prompts a major rise in exports to the US.
Dampening consumer sentiment as economic concerns mount will add to the pressure. [sounds a bit like recession right?]
FEEDSTOCKS
Feedstock costs across the oil palm complex entered a major downward correction in early May as supply began to outpace demand, improving downstream fatty acid and fatty alcohols production margins.
Supply began to lengthen as inventories rose during the peak summer harvest season against the backdrop of weak demand from China, as the country continues to tackle the coronavirus against the backdrop of growing economic concerns globally.
Malaysia's palm oil inventories are largely balanced while Indonesia's inventories are long. Indonesia recently waived the $200/tonne export levy on crude palm oil (CPO) from 15 July - 31 August to encourage more exports, which could further weigh on the market.
Palm fruits are susceptible to going rancid if left unprocessed for a long period of time, so incentives to increase CPO exports help avoid material losses from the harvest.
Indonesia is also looking to export more palm oil to incentivise higher biodiesel blending mandates in the country amid ongoing diesel shortages globally, with the country planning to raise the ratio of biodiesel in the blendpool from 30% (B30) to 35% (B35) from end-July. Palm kernel oil (PKO) costs have plateaued in recent weeks, as the kernels are less susceptible to going rancid and can thus sit for longer periods of time before having to be processed into oil.
Source: Matthes & Porton
Indonesia has grappled with palm oil policy throughout 2022 as it tackles high inflation alongside ongoing diesel shortages globally. This effort will remain a major challenge in the coming months as subsidising the mandate becomes increasingly challenging with the waived export levies and mounting economic pressures globally.
FATTY ACIDS
US contract survey fatty acids continue to face mixed feedstock and supply-demand fundamentals. While tallow-based acids and tall oil fatty acids (TOFA) largely remain on a need-to basis, increasing availability of competitively priced palm-based material from southeast Asia is weighing on the forward supply-demand outlook. A sustained increase in imports in the coming months could help alleviate ongoing tightness in tallow-based and TOFA markets, especially as economic concerns mount.
Source: ITC
Some buyers are looking to qualify vegetable-based material and/or adopting a wait-and-see stance against the backdrop of rising economic concerns globally.
Others are only buying as much volume as needed, given the growing economic concerns. In tallow-based markets, the market continues to face pressure from historically high feedstock bleachable fancy tallow (BFT) costs and tight supply-demand fundamentals.
Average monthly fats and greases costs (cents/lb)
| JAN | FEB | MAR | APR | MAY | JUN | |
| BFT | 66.00 | 71.00 | 74.00 | 74.75 | 80.50 | 81.25 |
| CWG | 59.25 | 68.00 | 70.50 | 77.17 | 74.50 | 80.00 |
Source: WSJ Cash Markets
BFT costs remain historically high because of tight supply and increased demand into renewable fuels markets associated with increasing renewable diesel capacity nationwide. Packaged material has been structurally tighter since January following the fire at PMC Biogenix's Memphis, Tennessee, packaging facility.
PMC is using third-party manufacturers to toll product produced at the site as it looks to restart mothballed assets and eventually rebuild the packaging facility during the next couple years. Many formula-based buyers use the BFT average from the previous month and an adder number as a key component for the monthly contract calculation. An addition of lower-priced choice white grease (CWG) is sometimes used in the feedstock mix.
In palm-based markets, the market continues to face downward pressure from a major downtrend in feedstock costs across the oil palm complex and lengthening supply in Asia.
Source: CME Group, Matthes & Porton, WSJ Cash Markets
Freight costs have also come off earlier highs, adding to the downward pressure.
TOFA markets continue to face pressure from tight supply and strong demand, including for competitive tallow-based C18 oleic acid. Feedstock crude tall oil (CTO) is also structurally tighter following the closure of a Panama City, Florida, paper mill in June.
Price increase announcements (separately announced)
| Producer | Product | Proposed Increase | Targeted Date |
| Kraton | CTO refinery products, derivatives | Up to 20% | 1 July |
| Ingevity | Pine chemical-based products | Varied by market, region | 1 July |
This is the seventh consecutive quarter with a price increase announcement on the table.
Derived from animal fats and greases like tallow or vegetable oils like palm and coconut, fatty acids are mainly used in cosmetics and toiletries, as well as for the production of lubricants and plasticizers in rubber and polymer processing.
FATTY ALCOHOLS
US fatty alcohols continue to face mixed feedstock and supply-demand fundamentals, with mid-cut alcohols long and long chain alcohols snug to tight, depending on the cut. Demand in consumer cleaning markets is seasonally slower during the summer vacation period. Demand in other end-markets remains overall strong, but increasing availability of competitively priced palm-based material from southeast Asia is causing some buyers to adopt a wait-and-see stance against the backdrop of rising economic concerns globally. Others are only buying as much volume as needed, given the growing economic concerns. A sustained increase in imports in the coming months could further lengthen mid-cut markets and alleviate ongoing tightness in C18 and C16-18 markets in the months ahead of Q4 quarterly contract negotiations, especially as economic concerns mount.
In mid-cut alcohols markets, supply is long and demand seasonally lower against the backdrop of a major downtrend in feedstock PKO and mid-cut prices in southeast Asia. Increasing availability of competitively priced imports in the spot market is weighing on the wider market. Spot mid-cut alcohols have been heard at a major discount to their Q3 settlements, pressuring Q4 negotiations. Some players are looking to renegotiate Q3 mid-cut alcohols contracts because of the major downward pressure in the market, with varied success, depending on their supply agreement. C18 alcohols remain tight because of lingering supply-chain constraints from Q2 stemming from noncompetitive PKO and soaring freight costs. PKO is now competitive to alternative feedstock coconut oil (CNO) and container freight costs have come off their earlier highs. This combination of factors will begin to exert some downward pressure on the market in the coming weeks as more competitively priced imports begin to arrive and supply constraints begin to ease. Improving C18 production in turn is causing C16 alcohols to lengthen, discouraging players from splitting their C16-18 alcohols to prevent further C16 length and offsetting the supply recovery in the C18 market.
Q3 contract ranges*
| Product | Price (cents/lb) | INCO | Location |
| C12-C15 | 123-138 | DEL | USG |
| C16 | 190-200 | DEL | USG |
| C18 | largely around mid-250s or higher | DEL | USG |
| C16-18 | 210-240 | DEL | USG |
*The prices in the table represent a range of settlements for standard balance material heard throughout the quarter for the majority of market participants. Prices above and below those listed in the table were heard throughout the quarter but were excluded as they were not viewed as representative of the wider market.
As of mid-July, Sasol remains on allocation for C12 and C18 alcohols production ahead of planned maintenance at their Lake Charles, Louisiana, site this autumn.
In Asia , ICIS’ Helen Yan reported that demand for mid-cut fatty alcohols in Asia has picked up for September and October shipments due to firming costs of feedstock palm kernel oil (PKO).
- More enquiries for mid-cut C12-14 Sept-Oct shipments
- Firming PKO costs squeeze margins
- Buyers resist higher prices on recession fears
Enquiries from China, India and the Middle East have picked up for September and October shipments, according to several regional producers.
“We are getting more enquiries for the mid-cut C12-14 blend as the feedstock PKO has firmed to around $1,070/tonne yesterday [28 July] compared with $1,050/tonne earlier this week,” a regional producer said. Since mid-July, spot prices of mid-cut C12-14 have held steady at $1,280-1,350/tonne FOB (free on board) southeast (SE) Asia, after falling by 58% from early March, ICIS data showed.
Spot availability is also expected to be constrained due to an upcoming 20-day maintenance at a regional 100,000 tonne/year fatty alcohols plant from mid-September to early October. Buyers are expected to put up a stiff resistance to any sharp price increases given weak market conditions and a looming recession. “Demand is really bad, and recession is going to be a real problem in the second half of this year,” a buyer said. Buyers have been adopting a cautious stance on the market and are mostly buying smaller lots on a need-to-basis. They were unwilling to lock in large forward spot shipments, given inflationary pressures and recession fears. The International Monetary Fund (IMF) has cut global GDP growth forecast to 3.2% in 2022 from an earlier forecast of 3.6% issued in April. “The risks to the outlook are overwhelmingly tilted to the downside,” the global financial stability watchdog said in the July update of its World Economic Outlook (WEO) report.
A little further downstream, Helen also reported that Asia’s fatty alcohol ethoxylates (FAE) demand is expected to remain soft in the near term due to prevailing weak market conditions and a sluggish Chinese economy.
- Feedstock fatty alcohols C12-14 prices falling
- Inflation woes, recession fears fuel uncertainty
- Strong US dollar weighs on sentiment
The downward price trajectory of the feedstock fatty alcohols C1214 and a sluggish Chinese economy has weighed on demand as buyers adopted a cautious stance and were unwilling to lock in large forward spot shipments. Spot FAE 7,9 mols prices had fallen by about 17% since early March to $1,550-1,700/tonnne CIF (cost, insurance and freight) China on 14 July, ICIS data showed. In southeast Asia, spot FAE 7,9 mols prices declined by about 15% over the same period to $1,700-1,800/tonne CIF.
Market players have stayed on the sidelines given the uncertain outlook. The economic fallout of the Russia-Ukraine conflict and sanctions on Russia - such as strong inflationary pressures following the surge in commodities prices, growing recession risks, a strong US dollar - has continued to dampen sentiment and suppress spot interest in the FAE markets. “Currently, there are few enquiries as buyers are cautious due to the decline in the feedstock costs and sluggish Chinese economy,” a regional supplier said. Meanwhile, feedstock fatty alcohol C12-14 prices have fallen by about 58% since early March to an average of $1,315/tonne FOB (free on board) SE (southeast) Asia on 14 July, ICIS data showed. “We expect the Chinese economy to rebound in late August or early September and market activities to pick up then to boost the regional trades,” another supplier said. Economic data released on Friday showed a marginal improvement in June, with overall second-quarter GDP growth sluggish.
China’s industrial output in June increased by 3.9% year on year, rising for the second consecutive month, official data showed. In the first half of 2022, industrial output grew 3.4% year on year, slightly faster than the 3.3% in January-May period. China’s GDP growth in the second quarter slowed to 0.4% year on year, the lowest quarterly increase posted since the first quarter of 2020, when COVID-19 began its spread. The world’s second biggest economy logged a first-half 2022 average growth of 2.5%. “Increasingly complicated and gloomy international situations, coupled with more sporadic outbreaks of the pandemic, have posed severe impact on the economy and left significant downward pressure,” according to the National Bureau of Statistics (NBS). A series of measures were implemented to counter the economic headwinds, helping key indicators to rebound in June following sharp declines in the previous months, it added.
In LAB markets, ICIS reported in east and south Asia they are at a crossroad with the path ahead mired in uncertainty. With outlook increasingly clouded, participants found decision-making an onerous task.
- Recession, inflation fears dampen sentiment
- Buyers stay cautious amid dim economic outlook
- Chinese supply tightens but raw material costs fall
The LAB market was weak from the second quarter when China entered a lockdown to combat the resurgence of COVID-19 in the country. Demand took a tumble in Asia and India, while the economic outlook turned gloomy on a potential global recession and runaway inflation. With demand in China in the doldrums, inventories in the mainland built up quickly, which resulted in Chinese suppliers aggressively targeting the export markets to reduce stock pressure. Consequently, competitively priced Chinese lots started to undercut regional suppliers with parcels being found across Asia, Africa, South Asia and even the Middle East. “We are unable to sell much in Asia as cheap Chinese material are available,” said a producer in Asia. With Asian suppliers diverting volumes to other regions with higher netbacks, these destinations also came under downward pressure. LAB is an organic compound used almost wholly as an intermediate in the production of surfactant linear alkylbenzene sulphonate (LAS), also known as linear alkylbenzene sulphonic acid (LABSA). LAB’s main end market is the biodegradable detergents and other cleaners. By the second quarter, however, with China having exited its lockdown, a recovery in domestic demand started to digest inland inventories. Coincidentally, a workers’ strike in Korea rendered the sole producer in the country shut at about the same time, spurring additional demand for Chinese cargoes as Korean users sought nearby sources in lieu of local cargoes.
“Buyers are starting to question higher offers, citing a steep reduction in upstream costs,” said another trader in Asia. Traders in India echoed the sentiment, but the onset of the monsoon season in late June is expected to slow trade and demand even more, as inclement weather impacts manufacturing, distribution and usage in the region. giving discounts on the basis on declining raw material costs.
As shown in the chart, the LAB market is struggling with keeping pace with costs. In the shaded area, from the beginning of May, spot deals have been done at a steeper discount to offers compared with the unshaded region. Buyers’ acceptance of successive offer price increases has been harder to come by, likely due to weaker economic outlook and a retreat in raw material costs. In conclusion, it is not a sure-fire thing that suppliers would be able to raise prices even though supply, especially the cheap Chinese cargoes, has started to tighten. Demand will likely be stagnant at best with global economic outlook staying gloomy on risk of a recession. The resultant weakness in upstream markets and raw material costs coupled with speculation that China could begin another round of lockdown as virus cases sprout recently could keep players in the LAB market confounded with decision-making staying extremely difficult.
And in Europe – recession conditions seem a little ahead of the US, as pricing in the alcohols market there make a more definitive story. ICIS reported that European fatty alcohols Q3 contract prices dropped by triple-digits following improved contractual supply and falling palm kernel oil (PKO) prices.
Q3 contracts were assessed at €2,250-2,350/tonne FD (free delivered) NWE (northwest Europe), a €550-750/tonne reduction from Q2. Some sellers opted to conclude monthly contracts rather than quarterly due to market volatility. Overall, there was significant buyer pushback on prices for Q3. Discussions saw downward pressure, largely led by falling PKO values and improved supply, both domestically and from Asia. Prices discussed earlier in June were seen at a higher level to offers heard in July. Sources suggested prices were falling to €2,100/tonne FD for those still looking for Q3 volume in mid-July. However, contract settlements at this level were not reported. Contractual demand is expected to be lower for Q3 in comparison to Q2. In some instances, players are looking ahead to Q4 with more buying interest than Q3 due to the expectation of falling prices. In the downstream ethoxylates market,demand is softer for Q3 and supply levels are rising. Downward pressure continues to be seen throughout the chain.
In other CEPSA news: ICIS reported a weaker Q2 for the company, although LAB remained very strong. Let’s see how long that lasts though.. Cepsa tracked declines but retained healthy margins for its chemicals business in the second quarter, despite solid margins in its surfactants segment, the Spanish energy firm said.
| In €m | Q2 2022 | Q2 2021 | % change |
| EBITDA* | 106 | 132 | -19.7% |
Strong demand in the home and personal care applications led to increased sales volumes for linear alkylbenzene (LAB) for Cepsa. In contrast, Cepsa’s intermediates segment – covering its phenol/acetone and solvents portfolio – fell compared to stronger demand a year prior and exacerbated by a turnaround at the Palos de la Frontera site and downstream shutdowns. Chemicals sales volumes fell 15% compared to the second quarter in 2021, and were down 14% on the previous quarter of 2022. After a strategic review of the chemicals division during Q2, shareholders decided that the segment should remain within the group on the back of a solid operational and financial performance.
In keeping with Cepsa’s LAB business in Q2, Stepan also did well overall. ICIS reports that Stepan achieved record earnings in the second quarter, driven by strong performance across business units . Second quarter adjusted net income and sales both rose by 26%, as price increases were passed down to customers in line with higher raw material and logistics costs.
| ($ in thousands) | 2022 | 2021 | Change |
| Net sales | 751,633 | 595,511 | 26% |
| Adjusted net income | 53,009 | 42,218 | 26% |
“This improvement was driven by growth in our Functional Products business as a result of elevated crop and energy prices and continued growth in the construction industry” said Stepan CEO Scott Behrens. He added, “we believe demand across our business should remain healthy, but the Company will continue to be challenged by inflation, raw material and logistics constraints.”
There’s more to the story though. Stepan saw a 3% decline in global surfactants sales volume in Q2 2022 compared to Q2 2021. The decline was driven by global commodity laundry products associated with raw material and logistics constraints in North America and lower demand in Latin America. [oh oh – is this a preview of Q3?] Higher demand in the functional products, personal care and institutional cleaning end markets partially offset the above. Despite the decrease in global sales, Stepan's Q2 2022 surfactants operating income was $48.2m, up $2.3m from Q2 2021.
| ($ in millions) | Q2 2022 | Q2 2021 | Change |
| Net sales | $485.1 | $384.0 | 26% |
| Operating income | $48.2 | $45.9 | 5% |
Selling prices rose 32% primarily because of the pass-through of higher raw material and logistics costs as well as an improved product and customer mix. Good for them, but also somewhat reminiscent of 2009 when rising raws ultimately lifted all margin boats. Note that a foreign currency translation negatively impacted net sales by 3%.
Finally Stepan noted that the startup of Stepan's alkoxylation expansion in Pasadena, Texas, originally slated for late 2023, is now expected to start up in early 2024.Following the delay, the investment in the capacity expansion is expected to increase by approximately 10% to $245m. The new plant will provide “a flexible capacity” of 75,000 tonnes/year, capable of both ethoxylation and propoxylation, When operational it will bring Stepan's alkoxylation network to three plants and position the company with a footprint in the globally strategic US Gulf Coast, it added. Stepan said its alkoxylation business grew volumes in the strong double digits with healthy margins that are accretive to the company.
Finally, one of our great blog readers and good friend in our great industry, gave me a copy of the 1993 proceedings of the CESIO conference. What fantastic reading and very interesting to see many familiar names there as attendees and speakers. I really can’t do it justice this month. Next month however, I’ll talk about some of the topics discussed and what has changed and hasn't over the last ~30 years.
And in music, I’ve been listening to a lot of psychedelic, so-called, stoner-rock on Youtube this month – all by bands you’ve never heard of. All the songs seem to blend into each other. Or maybe you have to be stoned to truly appreciate the individual pieces of music. That’s not likely to happen though. But even straight and sober, the effect is quite pleasant. I’m just having trouble picking out what individual pieces to feature here. Let’s see next month.
Otherwise, I have to be brutally honest with you (and please keep this between us), I’ve been listening to a lot of Chic (yes that Chic). In fact I will admit that back in the late 70’s, I really admired this music. Of course, I would never admit this embarrassing fact to even my closest friends as we queued overnight to get front row tickets to see Rush in 1977 at Newcastle City Hall or faced no queues at all to see Iron Maiden and Def Leppard at St. John’s College, York in 1980. So, please do keep this confidential if you don't mind. Here’s a few classics from the great Chic. :
I want your love – 13.5 minutes of luscious groove
The much remixed Good Times
And the SugarHill Gang’s gorgeous mix thereof – in Rapper’s Delight
And who could forget Le Freak
Or Everybody Dance – These extended versions are outstanding no?
My Forbidden Lover The 12” mix. Check out those bass lines
And no, of course, I never did see them live. One got the impression that neither denim, nor leather nor hair, let alone all three together, were welcome at such events. But was that truly the case? Would it have been better to attend alone? in a group? with a girl? I’ll never know. Certain tribes moved in tightly proscribed circles in those days.
That’s it.
This tribe continues to move in surfactant circles, but our arms are open to welcome all. Thanks for joining us.