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By Emily Chow
KUALA LUMPUR Oct 5 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 deodorized (RBD) palm
stearin have soared by nearly 40 percent this year, according to
assessment prices by Thomson Reuters PSTR-MYRBD-M1. 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 (CPO) but
surpassed benchmark prices of the tropical oil in
June. Stearin's spread over CPO reached $87 a tonne in late
August, the widest since 2011.
Stearin prices were at $700 a tonne on Tuesday, while crude
palm oil values were at 2,587 ringgit ($625) a tonne at the
midday break on Wednesday.
Oleochemical manufacturers say it is not easy to pass on
higher stearin prices to price sensitive customers, resulting in
Palm stearin is widely used in Malaysia to make soap
noodles, a basic form of soap bought by manufacturers to make
their own branded 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 raised the minimum bio content for diesel fuel to
20 percent this year and aims to raise it to 30 percent in 2020.
Sahat Sinaga, the chairman of the Indonesian Vegetable Oils
Association, said 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
"But stearin's price increase will affect the industry as a
whole in terms of end product prices," he said.
($1 = 4.1395 ringgit)
(Additional reporting by Bernadette Christina Munthe in
JAKARTA; Editing by Christian Schmollinger)