FATS AND OILS: Trends and opportunities in the industrial and chemical markets

FATS AND OILS: Trends and opportunities in the industrial and chemical markets

International Castor Oil Association

General Meeting

San Diego, May 18, 2005

By

Doris de Guzman

Associate Editor

Oils, Fats & Waxes/Consumer Specialties

Changes are on the horizon… Changes are on the horizon…

Costs of crude oil and fuel remain high Continued price increase in petrochemical-derived

ingredients Manufacturers looking for alternative raw materials Growing importance [and use] of biotechnology Consumer preference for “naturals” Growing trend in green chemistry

Rising price of crude oil expected to continue

Rising price of crude oil expected to continue

Source: USDA Agricultural Baseline Projections 2006

Paraffin Wax

25

30

35

40

45

50

2002 2003 2004 2005 2006

Cent

s pe

r pou

nd

MELT POINT 125F (52C) TO140F (60C) In US Gulf SPOTFOB USG

Prices of petro-based chemicals still at high levels

Prices of petro-based chemicals still at high levels

Ethylene Price

20

25

30

35

40

45

50

55

60

2000 2001 2002 2003 2004 2005 2006

Cent

s per

pou

nd

US Gulf, contract, dlvd.

Source: ICIS Pricing

Vegetable oil based-materials are becoming more competitive

Vegetable oil based-materials are becoming more competitive

Polyols

55

65

75

85

95

105

115

2000 2001 2002 2003 2004 2005 2006

Ce

nts

pe

r p

ou

nd

Flexible foam, USGulf, spot slabstock

Source: ICIS Pricing

Vegetable oils: Growing source as an alternative feedstock

Vegetable oils: Growing source as an alternative feedstock

Renewable raw materialsExpanding global oilseed productionGovernment subsidies and incentivesIncreasing regulation for

synthetic/petrochemical-based ingredientsIncrease in R&D for vegetable oil-based

industrial products and fuelIncrease interest from traditional petro-

based manufacturers

US fats and oils consumption in inedible products

US fats and oils consumption in inedible products

5.9

6.1 6.1

6.4 6.3

5.6

5.7

5.8

5.9

6.0

6.1

6.2

6.3

6.4

Billio

n p

ou

nd

s

2001 2002 2003 2004 2005

Year

Source: US Census Bureau

Lubricants2%

Fatty acids38%

Feed42%

Other inedible products

9%

Soap5%

Resins and plastics

2%

Paint and varnish

2%

Source: US Census Bureau

Total : 6.34 billion pounds

US inedible use of selected fats and oils, 2005

US inedible use of selected fats and oils, 2005

Biodiesel will fuel vegetable oil consumption

Biodiesel will fuel vegetable oil consumption

Source: National Biodiesel Board

Soybean oil, canola, yellow grease, tallow and recycled

cooking oil are the preferred feedstock for biodiesel in the US Soybean oil, canola, yellow grease, tallow and recycled

cooking oil are the preferred feedstock for biodiesel in the US

Source: National Biodiesel Board

Rapeseed oil demand for biodiesel skyrockets in Europe

Rapeseed oil demand for biodiesel skyrockets in Europe

“More than 90% of the recent growth in the EU-25 demand for fats and oils is for biofuels”

-Oil World (February 2006)

Biodiesel will drive stronger use of palm oil

Biodiesel will drive stronger use of palm oil

“Malaysia’s industrial use of palm oil in 2005/06 is forecast at 1.9 million tons, up 8% from the previous year, supported by the country’s ongoing efforts to promote palm oil as an alternative fuel source.”-Foreign Agricultural Service(USDA-FAS)

Rising biodiesel projects in MalaysiaRising biodiesel projects in Malaysia

Malaysia Biodiesel InitiativesCompanies Capacity (tpa) Details

Golden Hope Plantations

Carotino Sdn Bhd

IOI Corp.

Kumpulan Fima/MPOB

Kulim Bhd

FELDA

IJM Plantations

Zoop Sdn Bhd (private equity)

Vance Bioenergy

Mission Biofuels

150,000

60,000

150,000

60,000

100,000

na

na

100,000

na

100,000

4 new biodiesel plants, operational by 2007

Operational in mid-2006

Details being worked out

Operational in 2007

JV with German company, start-up in 2007

Undertaking feasibility studies

No details. Planning to invest RM50m

In Selangor, has multifeedstock capability

In Pasir Gudang, to commence in 2006

Kuantan Port. Operational in October 2007

Source: Citigroup Research (1/4/06) and various news sources

Brazil joins the biodiesel raceBrazil joins the biodiesel race

BRAZIL BIODIESEL PROGRAMFederal Law # 11.097, 1-13-05Federal Law # 11.097, 1-13-05: Authorization of a voluntary : Authorization of a voluntary 2% blend of biodiesel (B2) until 2008, when B2 will be 2% blend of biodiesel (B2) until 2008, when B2 will be mandatory. The blend will increased up to 5% until 2013.mandatory. The blend will increased up to 5% until 2013.

Federal Law # 11.116, 5-18-05Federal Law # 11.116, 5-18-05: Authorizes tax exemption : Authorizes tax exemption and incentives for biodiesel based on the kind of feedstock, and incentives for biodiesel based on the kind of feedstock, size of producer and location of feedstock region.size of producer and location of feedstock region.

““Brazil can become a major world producer Brazil can become a major world producer of biodiesel with its vast amount of arable of biodiesel with its vast amount of arable land for oilseed feedstocks such as castor, land for oilseed feedstocks such as castor, sunflower, soybean, palm and cotton”sunflower, soybean, palm and cotton”

““Brazil can become a major world producer Brazil can become a major world producer of biodiesel with its vast amount of arable of biodiesel with its vast amount of arable land for oilseed feedstocks such as castor, land for oilseed feedstocks such as castor, sunflower, soybean, palm and cotton”sunflower, soybean, palm and cotton”

- ABIOVE (Oct. ’05)

Brazil is projected to consume over 2 billion liters of biodiesel by 2013

Brazil is projected to consume over 2 billion liters of biodiesel by 2013

B r a z i l : B io d ie s e l C o n s u m p t io n a n dM a r k e t F o r e c a s t

B r a z i lB r a z i l : : B io d ie s e lB io d ie s e l C o n s u m p t io nC o n s u m p t io n a n da n dM a r k e tM a r k e t F o r e c a s tF o r e c a s t

0

340

680

1.020

1.360

1.700

2.040

2.380

2004 2005 2006 2007 2008 2009 2010 2011 2012 2013

Litros

0

210

420

630

840

1.050

1.260

1.470

US$

Consumo: Milhões de Litros

Mercado: US$ Milhões

L it r e U S $

C o n s u m p t io n : M i l l i o n l i t r e s

M a r k e t : U S $ M i l l i o n

Source: Biodiesel Federal Program,

Ministry of Science and Technology-Brazil

Other potential growth marketsOther potential growth markets

• Plastics: – Soy polyols market to reach 650m lbs by 2010

depending on rapid investment in production capacity—Omni Tech

– Cargill and ADM have entered the market. Other soy polyol producers include Arkema, Urethane Soy System, Biobased Technologies, Pelron

• Lubricants:– Current biolubes market in the EU is around 100KT

(200m lbs) and can reach 1.7m tonnes (36% share) by 2010—NNFCC

– Soy-based lubes in the US was estimated at 10m lbs in 2004—Omni Tech

– Like Europe, growing regulatory impacts on lubricants should result in more use of biolubes in the US in the next 5-10 years

Other potential growth marketsOther potential growth markets

• Solvents: – Demand for green solvents in the US is expected to outpace

conventional solvents and will capture 20% of market value by 2010—Freedonia Group

– Methyl soyate, ethyl lactate (from corn) and d-limonene are some of the biobased solvents available in the market.

– Use of methyl soyate as an industrial solvent was estimated at around 20m lbs in 2004 and is commercially available from more than 10 producers in the US—Omnitech

– Current renewable solvents in the EU: 60KT; Potential by 2010: 235KT (12.5% share)--NNFCC

• Surfactants: – R&D for new oleo surfactants are ongoing especially coming

from major oleochemical companies such as P&G, Uniqema, Cognis, Croda and Akzo Nobel.

– In the EU, renewable surfactants are around 460 KT and has the potential to reach 920 KT (40% share) by 2010--NNFCC

Other potential growth marketsOther potential growth markets

• Adhesives: – Marcus Oil & Chemical has a patent for vegetable oil-

based wax for hot-melt adhesive applications.– Other raw materials used for bio-based adhesives

include tall oil rosin, corn starch and soy flour.

• Cosmetics/Personal Care: – Growing consumer preference for natural

ingredients/products– Specialty oils, butters, and natural waxes are

increasingly becoming popular as cosmetic ingredients.

– Fats and oils demand in US C&T is projected to increase 33%by volume from 1.1bn lbs. in 2003 to 1.5bn lbs. in 2013 (42% by value from $225m to $320m)—Freedonia

Other potential growth marketsOther potential growth markets

• Paints/Coatings: – In the US, linseed oil is the more popular vegetable oil used

in paints, coatings and inks. Linseed oil use for oil-based coatings in 2004 was 81.2m lbs.—Omni Tech

– Soybean oil use in alkyd resins production were 130m lbs in 2004. Alkyd resin is a primary ingredient of oil-based or solvent-borne paints. Soy oil competes in this market mostly with linseed oil and tall oil—Omni Tech

• Inks: – Between 1KT and 2KT of rape oil are used in the UK in

printing inks– Potential maximum use of vegetable oils in European

printing inks is estimated at 84KT (equiv. 210 KT of rapeseed)—NNFCC

– 2004 US linseed oil consumption in inks was around 60.9m lbs.—Omni Tech

Biotechnology-a big key for more potential uses of fats and oils

Biotechnology-a big key for more potential uses of fats and oils

CASTOR BIOTECH TIDBITSVancouver-based Linnaeus Plant Sciences Inc. is working on castor genes to produce oilseed-based engine oils. The company is currently in multi-year partnership with Arkema.

Biochemists from Washington State University are working on an approach in identifying castor genes that will boost hydroxy fatty acid in an oilseed plant. (--Plant Journal 3/06)

The US Department of

Agriculture (USDA) is working

on developing transgenic castor

plants with reduced levels of

ricin toxin. Dow Chemical is

funding some of the

research.

CASTOR BIOTECH TIDBITSVancouver-based Linnaeus Plant Sciences Inc. is working on castor genes to produce oilseed-based engine oils. The company is currently in multi-year partnership with Arkema.

Biochemists from Washington State University are working on an approach in identifying castor genes that will boost hydroxy fatty acid in an oilseed plant. (--Plant Journal 3/06)

The US Department of

Agriculture (USDA) is working

on developing transgenic castor

plants with reduced levels of

ricin toxin. Dow Chemical is

funding some of the

research.

Agbiotech

Companies

Government

Research

Chemical

firms

Independent

Research firmsAgriculture

companies

Universities

Industry

organizations

Dow entered an Oilseed Engineering Alliance to develop raw materials to produce chemicals and industrial products from ag crops.

Dow entered an Oilseed Engineering Alliance to develop raw materials to produce chemicals and industrial products from ag crops.

Traditional petro players look at agriculture for future feedstockTraditional petro players look at agriculture for future feedstock

Degussa is investing Euro 50 million in the next 5 years to develop products from renewable materials

BASF is investing more than $320 million over the next 3 years to develop the next generation plant biotechnology products

BASF is investing more than $320 million over the next 3 years to develop the next generation plant biotechnology products

Huntsman forms Green Chemistry business unit. “We are especially anxious to build our position in this burgeoning field through the use of bio-based feedstocks such as glycerine, natural alcohols, methylesters, carbohydrates and sugars.” –Hunstman 2006

Huntsman forms Green Chemistry business unit. “We are especially anxious to build our position in this burgeoning field through the use of bio-based feedstocks such as glycerine, natural alcohols, methylesters, carbohydrates and sugars.” –Hunstman 2006

DuPont forms BioFuels business unit which will leverage the company’s capabilities in agbiotech, metabolic engineering, chemistry and process engineering.

DuPont forms BioFuels business unit which will leverage the company’s capabilities in agbiotech, metabolic engineering, chemistry and process engineering.

Chevron

Shell

Sasol

Green Chemistry is in!Green Chemistry is in!

• Regulations tighten for traditional chemicals

• Governments promoting green-based materials

• Environmental awareness continue to increase

• Consumer preference for natural-based products

• Chemical industry are [and will] continue to look for alternative feedstock

References and acknowledgementsReferences and acknowledgements

US Dept. of Agriculture ICIS Pricing US Census Bureau National Biodiesel Board European Biodiesel

Board Oil World Citigroup Research Freedonia Group

Brazilian Oilseed Processors Association (ABIOVE)

Brazil Ministry of Science and Technology

National Non-Food Crops Centre

Omni Tech International

Doris de GuzmanDoris de GuzmanAssociate Editor

ICIS – Chemical Market Reporter360 Park Avenue South, 12th Floor

New York, NY 10010

T: 212-791-4228E: Doris.de.Guzman@icis.com

Thank you for listening!Thank you for listening!