The Glycerin Spread

Refined glycerin prices have remained solid since earlier this year, but biodiesel producers selling crude glycerin, while retrieving modestly higher returns for their byproduct compared to last year, are still entering a saturated crude market. In the meantime, alternative uses for crude glycerin and capacity to refine it are on the rise.
By Ron Kotrba | September 04, 2007
Glycerin prices dropped through the floor last year as biodiesel producers received market-bottom selling prices of 2 cents a pound or less for the crude byproduct. However, 2 cents a pound looks better on the balance sheets than writing a check to get rid of it. "We saw the bottom of the market late last summer," says Dave Elsenbast, vice president of procurement for Renewable Energy Group Inc. (REG), who markets glycerin for six biodiesel plants in its network. "Since then, we have seen a gradual, steady increase in market pricing coming from an increase in demand." REG is currently receiving between 6 and 10 cents a pound for unrefined glycerin. According to him, the pricing trend is continuing. "Glycerin prices are higher now than they were just a month ago," Elsenbast says. Matt Upmeyer, risk management consultant with FC Stone, says he saw glycerin prices tick up slightly in July between a half a penny and a penny per pound. "Everybody is aware of it," he says. "It helps, but by no means is it the saving grace."

Although high vegetable oil prices are curbing some of the enthusiasm from would-be biodiesel projects, analysts still expect steady growth from the U.S. biodiesel industry. Every million gallons of biodiesel produced pours roughly another hundred thousand gallons of crude glycerin into an already saturated market. "Most companies see the biodiesel industry as being in a growth mode," Elsenbast says. "There's a relatively small volume of glycerin coming from the biodiesel sector now compared with what's expected from it in the future." While raw glycerin returns are only slightly higher, some experts say it's the glycerin refiners who are turning a welcomed profit over the past several months, as prices for the purer varieties have held quite strong. John Urbanchuk, a director with the Pennsylvania-based consulting firm LECG, says refined glycerin is retrieving anywhere from 30 to 40 cents a pound, depending on quality, grade and purity. "The refined glycerin market is strong," Urbanchuk says. "The raw market, however, is still weak as we continue to see large supplies of unrefined glycerin heading for the market." It therefore becomes a question of what to do with all of the crude. Should it be refined in the more traditional sense for sale as technical, pharmaceutical or food grade glycerin, or can alternative uses for the low-priced raw product directly be found?

Domestic Refining Capacity, Foreign Influence
Cargill Inc. and Archer Daniels Midland Co. (ADM) are expanding their respective domestic refining capacities, but the smaller producers typically are not prepared to invest the necessary capital-a glycerin refinery can cost an average independent producer upwards of $20 million. When the financials are done on the economics of biodiesel production today, the ability to add value to the product streams is an important factor for the profitability of the business. "Biodiesel producers with raw glycerin need to pay attention and make the necessary investments to clean it up," Urbanchuk says. In Iowa Falls, Iowa, Cargill built a 30-million-pound per year glycerin refinery next to its 37.5 MMgy biodiesel plant. In Europe, those same majors-Cargill, ADM and others-have expanded their byproduct refining capacities over the past several years in large part to capitalize on excessive crude glycerin supplies coming from the booming European biodiesel industry. The creation of this additional handling capacity eventually led to a surplus of refined product in Europe. These European and Asian imports were helping to satisfy American companies' needs for dynamite grade, yellow distilled and chemically pure glycerin in commercial industrial applications, and USP- or food-grade glycerin. Scattered reports indicate that refined glycerin exporters from Europe's biodiesel boom and Southeast Asia's palm-based oleochemical enterprises were discouraged because of the low U.S. selling price of glycerin. These exporters purportedly sought closer and more lucrative outlets, notably in China-a country being scrutinized because of its use of unhealthy ingredients exported in products coupled with poor regulatory oversight from the Chinese government. "The situation in China has caught a lot of media attention lately," Upmeyer says. "It will lend a great deal of support to the U.S. glycerin markets." For U.S. biodiesel and raw glycerin producers, Elsenbast says there is growing interest in the export markets-especially Asia. Urbanchuk agrees that there are export opportunities in developing Asian countries. In any event, today's modest U.S. crude gains and even higher refined glycerin prices suggest to some that refined glycerin imports from those same European and southeast Asian processors may once again return, helping to balance price increases with more supplies in the style of classic market economics. At the same time, modest increases in domestic glycerin refining capacity and productive research and development efforts scouting out new commercial applications for crude are expected to create more demand in time for an increased supply of domestic unrefined glycerin.

New Applications Strengthen Crude Outlook
REG ships a lot of crude glycerin to domestic refiners, and to feed and industrial markets, Elsenbast says, adding that he expects to see an even greater spread between crude and refined glycerin prices in the future. Low prices and chemical versatility have created a plethora of research in an effort to find practical, alternative uses for the abundant biomaterial. From ambitious projects looking into the production of ethanol from crude glycerin to less dramatic but important work examining glycerin's nutritional value in livestock diets, crude glycerin is the subject of vast study. Many universities and extension services are studying how the sweet glycerin affects livestock diets as a replacement for high-priced corn. "When glycerin's market value was as low as it was last summer, it begets a lot of research and brain power looking to add value," Elsenbast says. "Now I think we're seeing the fruits of those efforts." Some of these research efforts are already in the planning stages to go commercial.

In May, Ashland Inc. and Cargill Inc. announced intentions to form a joint venture stand-alone company to develop and produce many different chemical products from renewable resources like glycerin. Manufacturing of biobased propylene glycol will be the first line of focus for the joint venture, beginning with a 65,000 metric ton per year plant in Europe with a specific location yet to be determined. In July, Ashland and Cargill announced a technology licensing agreement with Davy Process Technology Ltd., a Johnson Matthey Co., which owns a highly efficient vapor-phase hydrogenation technology for use in the manufacturing of propylene glycol from glycerin. Jim Millis, Cargill's technical director of industrial bioproducts, says the company's expertise in refining glycerin will complement and further improve the technology now under license. Urbanchuk believes these developments are illustrative of the kinds of work underway to find new uses-pushing greater demand and eventually more attractive prices-for the crude byproduct. "It's a positive step," he says, even though the initial plant is to be sited somewhere in Europe. The development of similar and more widespread commercial uses of crude glycerin are coming but it will take time, Urbanchuk predicts. "I think within two to three years we'll see substantial developments in feed and industrial applications." In the meantime, byproduct quality is of the essence for biodiesel producers, Upmeyer says. "The methanol content [and other impurities] must be very well managed," he says. "Biodiesel does not represent the normal glycerin production stream, so those not focused on quality will have difficulty in marketing their byproduct."

Ron Kotrba is a Biodiesel Magazine senior staff writer. Reach him at [email protected] or (701) 746-8385.
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