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Glycerin's Role in 2009

Glycerin markets are expected to remain volatile throughout 2009. Factors such as the global economic crisis and falling commodity prices are expected to have an impact on pricing, supply and demand for crude and refined glycerin. In addition, crude glycerin imports from Southeast Asia, Europe and Argentina may continue to pressure prices.
By Erin Voegele | November 13, 2008
U.S. glycerin production remained relatively stable from the late 1990s through 2003. Since then, biodiesel production has drastically increased domestic crude glycerin supplies.

According to BBI International's engineering and consulting team, in 2007 biodiesel manufacturers created 187,000 tons of crude glycerin. When added to the 150,000 tons of crude glycerin produced through other processes, glycerin produced through biodiesel manufacturing more than doubled market supplies of the product.

According to John Urbanchuk, an LECG LLC analyst who tracks biofuels industries, it is important to note that there are two different glycerin markets: crude and refined. "The market for crude glycerin has been relatively depressed because of a larger supply of crude than the ability to turn it into refined product," Urbanchuk says. "The market for refined glycerin has been, until now, reasonably good."

Crude glycerin can be produced through a variety of processes, including soap and fatty acid production, and by transesterification during biodiesel production. Crude glycerin is generally about 80 percent pure. However, depending on specific manufacturing processes, some biodiesel plants produce crude glycerin of a much higher purity. The process of refining glycerin involves removing residual organic nonglycerin matter, water, salt and odors. Refined glycerin is used by many industries, including the food, cosmetic and pharmaceutical industries.

The Market
Urbanchuk says slow growth rates in the United States and the world economies are beginning to concern him. Slower economic growth rates may reduce demand for the products glycerin is used to produce. "It could be a factor working to trim demand for and prices of crude glycerin and refined glycerin," he says.

Furthermore, the recent decrease in the price of biodiesel feedstocks, will likely increase biodiesel production, leading to a larger supply of crude glycerin. "There are a number of factors that are working to remove financial pressure from the production side of biodiesel," Urbanchuk says. "That basically means there is going to be even more crude glycerin on the markets to hold those markets down."

Urbanchuk says he sees two trends developing right now. "You've got improvements in the commodity prices that are working to improve the profitability of biodiesel production," he says. "On the other hand, you've got a slowing economy, and that is going to potentially slow growth in demand for the products glycerin is made of." The combination will probably soften prices through 2009.

The economic downturn is a factor that will affect the markets for the next year or 18 months, Urbanchuk says. "I think the slower growth in demand is going to be a fact of life, and that it is going to reduce price pressure," he says. "That means that if we continue to get increases in supply, it is going to hold prices down."

Emergent Industrial Solutions Inc., which buys and sells glycerin products, expects to see significant volatility in the 2009 glycerin markets. "Everything hinges on biodiesel production," says Todd Pencarinha, EIS's vice president. "Demand for crude glycerin is reasonably constant and growing at a healthy rate." However, he says, when biodiesel economics are strong, the biodiesel industry creates much more crude glycerin than the refined glycerin market needs. This leads to crashing prices.

Although not all crude glycerin is produced by the biodiesel industry, Pencarinha says upswings in the market are a result of those refining glycerin from biodiesel production. "When the biodiesel economics are strong, there is so much crude glycerin out there that everybody is producing refined glycerin to make money," he says. The result is an excess in refined glycerin that reduces market prices. "I think-as far as the glycerin market is concerned-volatility is going to be the rule," Pencarinha says. "A stable glycerin market would be extremely unusual and not foreseeable for quite a number of years."

Global Factors
The United States and European Union currently dominate the biodiesel and glycerin markets, according to Urbanchuk. However, significant growth is underway in China. "I think the market in China is going to continue to expand," he says. He also notes that the United States currently has a relative advantage over the EU because of the difference in exchange rates. "I think that's one area that is a bright spot in the overall market," Urbanchuk says.

Jerry Patak, director of commodities for Massachusetts-based World Energy Solutions Inc., says the U.S. crude glycerin market is being inundated with imports. Southeast Asia and Europe are exporting glycerin to the United States in large volumes at low prices. "The market is depressed as a result of that," he says. Patak expects those depressed prices to continue through the end of 2008, and possibly into 2009. "It depends totally on how much biodiesel production continues in Southeast Asia, Europe and Argentina," he says. "This is a peculiar year in that we are being inundated with so many imports. Usually, that's not the case."

The market is also experiencing reduced demand from Asia. Dave Elsenbast, Renewable Energy Group Inc.'s vice president of procurement, says his company has exported glycerin to Asia in the past. "The Asian demand that we were selling into seems to have dramatically slowed," he says. "They may have started buying more of their supplies out of the Argentinean biodiesel market as that market has developed."

Biodiesel Producers
REG produced an estimated 100 million pounds of crude glycerin in 2007, and expects to produce approximately 130 million pounds of the product in 2008. "We do think the output for us is going to increase into 2009," Elsenbast says. "We take the marketing and production of glycerin very seriously so we can maximize the revenue stream that we can achieve from this coproduct. It is not something that we-from a marketing standpoint-look to dispose of. We look to make a quality product and sell it to a high-value returning market."

Rob Keeling, REG's purchasing manager, says his company has identified the value in supplying a high-quality glycerin. "Consistency is the building block around any new or existing end-use process utilizing glycerin," he says. "We have taken great strides and have a large amount of success in supplying our current customers with that type of crude glycerin."

Instead of selling their crude glycerin on the open market, a few biodiesel manufacturers refine it. Glycerin refiner World Energy at one time produced biodiesel. However, its biodiesel operations shut down last year in response to economics and high feedstock prices. "Since we shut the plant down, we've been buying crude on the open market-vegetable-based kosher crude-and refining it at the plant," Patak says. "The refinery has not missed a beat."

Texas-based GreenHunter Energy Inc. has a distillation tower for refining glycerin. Although the facility is currently shut down due to damage from Hurricane Ike, once biodiesel production begins, the company will refine crude glycerin. According to a GreenHunter spokeswoman, the distillation tower will have the capacity to refine more glycerin than the biodisel refinery produces.

Delta Biofuels Inc. has been selling its crude glycerin to a variety of markets, including Asia. According to Clint Vegas, president of Delta Biofuels, the crude glycerin his company produces is 90 percent to 94 percent pure. "If our production would crank up to where it needs to be we would probably go ahead and refine our glycerin closer to 100 percent," Vegas says. Feedstock prices would have to drop in order to increase production to a level where refining the glycerin would be feasible.

Louis Dreyfus Agricultural Industries produces about 65 million pounds of crude glycerin annually with a purity rate of 80 percent. According to senior merchandiser John Meyer, the company is selling the majority of its crude glycerin into the industrial market.

Erin Voegele is a Biodiesel Magazine staff writer. Reach her at evoegele@bbiinternational.com or (701) 373-8040.
 

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