Glycerine Market Report

December 2012 3




GLYCERINE MARKET REPORT






Background Note:


Oleoline

is a registered trademark which belongs to HB International SAS (HBI). HBI is a

brokerage house specialized in oleochemicals with offices in Europe, China, India, North America
and South America: www.hbint.com

HBI is an acknowledged specialist of the global glycerine market. HBI has organized and
chaired several World Glycerine Conferences in the past. As brokers, HBI sold over 300,000 mt
of glycerine worldwide in 2009, including important volumes in both China and the USA. This
wide operational reach is unique in the glycerine market and provides a fundamental
understanding of the mechanics of this global commodity.

These credentials enable HBI to present a comprehensive, objective and knowledgeable
analysis of the global glycerine market. The "Oleoline

Glycerine Market Report" has been

published since 1986. This Report is subscribed to and recognized as an industry reference by
most of the major market players in the glycerine market.


HB International SAS
26 bis rue de l'Ermitage
95160 Montmorency France
Tel: +33 1 39 34 66 00
Fax: +33 1 34 12 49 60
email: hbi@hbint.com



Important notices:

Violation of copyright is an offence. Any distribution, copying or other unauthorised use
of any part of the report without Oleoline

's express agreement is a copyright violation.

Infringers will be prosecuted.

The information contained in this report is a result of our knowledge of the market as well as being
obtained from sources considered to be reliable. Every care has been taken to ensure its accuracy.
We cannot accept responsibility for the information contained in this report,
nor for our prognoses and opinions.

ISSN: 1168-1160.

Glycerine Market Report
4 December 2012


















CONTENTS



1 Introduction ...................................................................................................................
6



2 World Supply of Glycerine, 2008-2014 ..............
2.1 Saponification ......................................
2.2 Fatty Acid Production ................
2.3 Biodiesel Production ......................
2.4 Natural Fatty Alcohol Production ......................
2.5 Others .
2.6 Summary ..
2.7 Methodology and Sources .
7
7
8
8
11
12
12
13

3 World Demand for Glycerine, 2008-2014 .......
3.1 Recent Growth in Demand for Glycerine, 2008-2012
3.1.1 The European Glycerine Market ................
3.1.2 The Chinese Glycerine Market .................
3.1.3 The US Glycerine Market ......................
3.2 Estimate for Growth in Refined Glycerine Demand, 2012-2014
3.2.1 Organic Rate of Growth for Refined Glycerine .
3.2.2 New Uses for Glycerine .....
3.2.3 Summary of Total Global Demand for Glycerine, 2011-2014 .
13
13
13
14
16
17
18
22
22

4 Theoretic Supply/ Demand Balance, 2011-2014 ..
23



5 Price Forecast for of Glycerine, 2012-2014 23

Mike HEMING
15 December 2012
N99 / December 2012
Dear Reader,

It is two years since Oleoline published its last supply/demand model for the
global glycerine market. Reading through issue N90 dated 15
th
December
2010, it is gratifying to note the model used showed a tightening market in
2012 with demand exceeding supply of refinable glycerine by the end of
2013. This led to a forecasted price level for the end of 2012 for
pharmaceutical quality glycerine with kosher certification at 700 pmt in
Europe and 50 c/lb in the USA, both in bulk delivered customer.
In this issue of Oleolines Glycerine Market Report the same model as was
used in 2010 is applied to arrive at a supply/demand balance for glycerine
until the end of 2014. Our price forecasts up to then results from this
balance.

Best wishes for a lively and prosperous 2013
Glycerine Market Report
December 2012 5




TABLES, CHARTS AND GRAPHS


1 Introduction

Table I : Kosher Pharmaceutical Quality, Refined Glycerine Spot Prices in Europe,
China and the USA, 2008-2012 ..........................................................................

6


2 World Supply of Glycerine, 2008-2014

Table II : World Production of Glycerine by Industry Source, 2008-2011 .......................... 7
Graph I : Comparison of the Price of Biodiesel and Petro-Diesel, 2009-2012 .................. 8
Chart I : Estimated Biodiesel Product to Europe, 2008-2011 .. 9
Chart II : Estimated Biodiesel Production Outside Europe, 2008-2011 ............................. 10
Table III : Estimated World Production Glycerine by Industry Sources, 2011-2014 ........... 12

3 World Demand for Glycerine, 2008-2014

Chart III : European Glycerine Demand, 2008-2012 ................................... 14
Graph III : Chinese Imports and Consumption of Glycerine, 2006-2012 ............................ 15
Chart IV : USA Glycerine Demand, 2008-2012 ............ 16
Chart V : Estimated Growth for Traditional Applications of Refined Glycerine,
2011-2014

18
Graph III : USA and European Spot Prices for 99.7% Kosher Glycerine Delivered
Customer in Bulk, 1995-2012

19
Table IV : New Uses for Glycerine ECH, 2011-2014 .......................................................... 20
Table V : Estimate of Potential New Uses Applications for Glycerine, 2011-2014 .......... 21
Chart VI : Summary of New Uses, 2011-2014 ................. 21

4 Theoretic Supply/ Demand Balance, 2010-2013

Table VI : Summary of Total Demand for Glycerine, 2011-2014 ................ 22
Table VII : Theoretic Supply/Demand Balance for Glycerine, 2011-2014 ............................ 23

5 Price Forecast for of Glycerine, 2010-2013

Table VIII : Short, Medium and Longer Term Forecasts for Glycerine Prices, 2012-2014 ... 24


Glycerine Market Report
6 December 2012




1 Introduction





Glycerine prices have risen rather steeply during the last 12 months. This trend has come as no
surprise to subscribers of this Oleoline Glycerine Market Report, which has consistently forecast this
increase in price. Nevertheless a number of subscribers have specifically requested an update of the
supply/demand balance model published two years ago. This is what will be presented in this Report.

It is should be mentioned now that the supply/demand model which follows is only one of a number of
possible scenarios. The one presented here is considered the most plausable.

In order to give context to the model which follows, the price development of best quality refined
glycerine is shown in Table I below for the worlds three main markets since the end of 2008:


Table I
Kosher Pharmaceutical Quality, Refined Glycerine
Spot Prices in Europe, China and the USA
2008-2012


PRODUCT
Europe in /t
Bulk delivered
China in $/t
In drums
CIF Chinese
main ports
USA in c/lb
Bulk delivered
End 2008 400 400 40
End 2009 320 500 32
End 2010 500 1000 39
End 2011 550 675 48
End 2012 770 820 50

Source: HBI






Glycerine Market Report
December 2012 7

2 World Supply of Glycerine 2008-2014



With the exception of an irrelevant production of synthetic glycerine by Dow Chemical in Germany, all
glycerine today is produced as a by-product resulting from splitting triglycerides for various consumer and
industrial applications. The consequence of this is that glycerine is one of the worlds few supply-driven
commodities. It is for this reason that an analysis of the global glycerine market begins with the supply side
of the glycerine market.

Table II below shows the world production of glycerine by industry source from 2008-2011 (for the
methodology employed to arrive at these statistics, please see the note on page 13).



Table II
World Production of Glycerine by Industry Source
In 000 mt, 2008-2011 (expressed as 100% purity)



2008 2009 2010 2011
Saponification 130 110 105 101
Fatty Acids 490 510 660 687
Biodiesel 1258 1471 1724 1872
Fatty Alcohols 180 200 224 196
Synthetic 3 3 3 3
Others - 15 20 23
TOTAL 2061 2309 2736 2882
INDEX 71 80 95 100

Source HBI



2.1 Saponification


The manufacture of soap by the traditional saponification route has been in decline for the past 30
years, bowing to the preference for shower gels in the developed world and soap made from fatty acids in
the developing world. In addition to this, the large multinational soap producers now leave the glycerine in
the soap when they do saponify a technology pioneered by Unilever and given the acronym SWING (Soap
With INcluded Glycerine).

Finally, new developments in soap technology have resulted in semi-synthetic products such as
DOVE, which contain lower TFM (Total Fatty Matter) levels than traditional soap bars. This means that
when saponification does occur, less glycerine is produced as a by-product.

We estimate that the process of declining glycerine arisings from the saponification of soaps will
continue in future (see Table III on page 12).


Glycerine Market Report
8 December 2012

2.2 Fatty Acid Production



The fatty acid industry, in common with much of the rest of the chemical industry worldwide
experienced a horrific 12 month decline in demand during the 2008-2009 economic crisis. Production during
both years was at around five million mt per annum. Since then there has been a significant improvement in
the consumption of fatty acids globally, led by China, where large new capacities have been installed during
the last five years to support an expansion in the market to above 1.7 ml mt in 2011. We estimate that about
6.9 mil mt of fatty acids were produced globally in 2011, 4.4 mil mt in Asia alone.

Fatty acid demand is traditionally linked with GDP growth because of the multitude of applications in
which they are used. As a result, we have assumed that fatty acid demand will increase globally by 3% in
2013 and 4% in 2014 (see Table III on page 13).



2.3 Biodiesel Production


In 2011, very nearly two-third of glycerine arisings were from biodiesel production. Any understanding
or prognosis as to how the glycerine market will develop thus depends on knowing what is happening in the
biodiesel industry. This is a challenge indeed because essentially the biodiesel industry exists only as a
result of political imperatives which have led to the mandatory blending of biodiesel with petro-diesel.
Without this legally binding obligation to use biodiesel, the industry would not exist as is demonstrated in
Graph I below where the price of Ultra Sulfur Diesel (ULSD) is compared with the price of a typical quality
biodiesel defined as Fatty Acid Methyl Ester with a solidification point of 0C (FAME 0).


Graph I
Comparison of the Price of Biodiesel
and Petro-diesel, 2009-2012


0
500
1000
1500
2000
2500
3000
0
9
/
0
1
/
0
9
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/
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1
2
0
9
/
1
0
/
1
2
ULSD 10 ppm FOB Rotterdam - USD/pmt Fame 0 FOB ARA - USD/pmt

Source: Oleoline Biodiesel Report




Glycerine Market Report
December 2012 9

The problem for an analyst of the biodiesel market is that the politicians themselves do not
understand the business, nor the consequences of what has been achieved by their own vigorous
promotion of the industry. The fundamental weakness of the business is that it is largely based on vegetable
oils which are otherwise used for human consumption. With the global production of all natural oils and fats
approaching 200 mil mt pa and biodiesel consuming about 10% of this total, it is obviously impossible to
maintain that biodiesel is not responsible for the inflation of food prices. Furthermore indirect land usage
(ILUC), greenhouse gas emission and indeed simple economic consideration are all starting to play against
political support for first generation biodiesel production.

Europe has been at the forefront of the biodiesel industry since its inception in the early 1990s. Up
until 2010 production of biodiesel in Europe grew almost exponentially to reach 10 mil mt, but since then it
has become clear that the EU Commission is no longer backing first generation biodiesel production. The
arguments expressed in the previous pragraph has led to a rethinking of the philosophy behind biofuel
usage with two fundamental changes occurring during the last couple of years which have led to declining
production:

i. The Renewable Energy Directive (RED) which set out the direction for transport energy in the EU until
2020 has been amended. The objective of 10% renewable use in transport fuels has fallen by the
wayside. Although a revised policy has not yet been finalised (as with all EU directives there is still
furious lobbying occurring from all interested parties), the probability is that the use of food products
will be reduced to 5% of the blending mandate.

ii. The RED has stipulated that agricultural waste products can count double against mandated use of
biofuels. As a result since 2011, Europe has seen a significant increase in the use of Used Cooking
Oils (UCO) and in some countries tallow, as a double-counted feedstock in biodiesel production.

The effect of this has been two-fold. Firstly double-counting has reduced biodiesel consumption in
Europe by over 1 mil mt. Secondly, the quality of the glycerine produced from UCO is poor. The
crude glycerine is often polymerized which means it is mostly impossible to manufacture
pharmaceutical grade product from it. Chart I below shows the decline of biodiesel production in
Europe in 2011. What it does not show is the overall decline in the production of top quality refined
glycerine arising from biodiesel production since 2011


Chart I
Estimated European Biodiesel Production
In 000 mt, 2008-2011



2008:
7,810,000 mt

2009:
8,939,000 mt

2010:
10,000,000 mt

2011
8,600,000 mt

NB: Glycerine arisings are about 10% of biodiesel production
Sources: HBI, EBB


A further reason for the decline of biodiesel production in Europe has been the rise, fall and
subsequent resurrection of biodiesel imports into the continent from overseas. Chart 2 on the next page
shows an estimate of biodiesel production outside Europe between 2008-2011.
Rest of
Europe
4444
Germany
2455
France
2040
Germany
2665
France
2181
Rest of
Europe
4167
Germany
2770
France
1663
Rest of
Europe
3270
Germany
2700
France
1840
Rest of
Europe
5154
Glycerine Market Report
10 December 2012

Chart II
Estimated Biodiesel Production Outside Europe
In 000 mt, 2008-2011



USA
2275
Brazil
500
Argen
-ti na
900
Asi a
650
ROW
200
USA
1697
Brazil
1500
Argen
-ti na
1573
Asi a
800
ROW
200
USA
1100
Brazil
2160 Argen
-ti na
1700
Asi a
1960
ROW
374
USA
3710
Brazil
2400
Argen
-ti na
2400
Asi a
1830
ROW
380

2008:
4,525,000 mt
2009:
5,770,000 mt
2010:
7,294,000 mt
2011:
10,720,000 mt

NB: we estimate 25-30% of Brazilian glycerine production went to drain in 2010 and 2011 (50% in the previous years).
Sources: HBI, NBB, EPA EMTS Data


In 2008 and part of 2009, much of the US biodiesel production was exported to Europe via the
infamous splash and dash concept where blenders took advantage of a US federal subsidy, since
abolished, which amounted to around $300 pmt when 99% biodiesel was blended with 1% diesel. The
biodiesel was then exported to Europe. This practise ceased in April 2009 when the EU applied anti-
dumping penalties to the companies involved. However since then, Argentina and Indonesia have
subsidised biodiesel exports by means of preferential export taxes for biodiesel over vegetable oil. Until
recently this meant that exporters paid about 24% less tax in Argentina and currently about 10% less tax in
Indonesia compared to exporting soyabean and palm oil respectively. In both cases this has resulted in
biodiesel being imported into Europe at prices sometimes cheaper than the vegetable oil shipped from the
same origin. Once again the EU has started an anti-dumping investigation related to these practises
consequent upon the fact that 2.5 mil mt of biodiesel were imported from these two countries into Europe in
2011. Because of the retro-active nature of the anti-dumping legislation, this volume will probably decline
slightly in 2012. In the meantime, the Argentine government has been fiddling around with their export tax
policy so that biodiesel is advantaged by only 12%.

Since 2011 the US government has imposed the mandated use of biodiesel via the Environmental
Protection Agency (EPA) by means of an Act called the Renewable Fuel Standard (second version) to the
extent of 1 billion gallons in 2012, rising to 1.28 billion gallons from 2013. This equates to approximately 2%
of diesel use in the States. The effect of this can be seen in Chart 2. It should however, be mentioned that
there was significant over-production of biodiesel at the end of 2011 by around 700,000 mt above the
mandated volumes, as producers sought to take advantage of the blenders credit subsidy, which was not
renewed at the end of 2011.

The biodiesel mandate in Brazil is 5%. It is clear that ex-President Lulas objective of increasing
employment in the north-eastern Brazilian states by subsidizing small-scale biodiesel projects increasingly
seems to be the pipedream many observers always thought it would be. The Brazilian national petroleum
company Petrobras has been forced to buy out some of the most efficient producers which are increasingly
being located in the more prosperous soya growing areas of Brazil. Moreover, Petrobras has been
publishing losses on the nationally operated biodiesel business since 2009, a situation which is complicated
by the difficult financial strictures which the company finds itself in at present. As far as glycerine is
concerned, it is tacitly acknowledged that some of the smaller players put this glycerine to drain in Brazil.
For obvious reasons it is difficult to obtain figures for this, but we have estimated that around 25% of Brazils
glycerine from biodiesel arisings are put to drain.
Glycerine Market Report
December 2012 11

This complex chapter on the biodiesel industry and its relevance to the glycerine market is
summarized by quoting what was written in December 2010s edition of Oleoline Glycerine Market Report. It
is just as relevant as it was then:

The winds of change are already in the air with political support in Europe and the USA for first
generation biodiesel not being as healthy as it was several years ago. Subsidies for biodiesel are declining,
for example in the USA and France, and legislation such as the RED and the RFS2 are putting up
constraints and barriers to the progression of the biodiesel industry. At the same time initial enthusiasm for
second generation solutions such as the use of non-food raw materials has dampened (jatropha oil is
increasingly being exposed for the scam it always was, and algae oil is fraught with technical difficulties and
at best is 8-10 years from being commercially exploitable).

Nevertheless we believe that first generation biodiesel will continue to expand globally during the
next three years, albeit at a slower rate than the almost exponential growth experienced during the past
decade. There is little doubt that biodiesel produced in the right circumstances is beneficial to the
environment, farmer and politician as well as powerful vested interests such as the multinational vegetable
oil crushers (possibly in the inverse order).

In re-reading the above paragraph, it is interesting to note that no mention is made of the benefit to
the consumer of biodiesel. Indeed biofuel policy was implemented in most countries without due democratic
discussion. This lack of transparency is now rebounding on the industry with lobby groups hostile to
biodiesel able to claim the moral high ground. An objective analysis of the benefits of the industry has been
the major casualty of this process.

With biodiesel now on the back foot, we foresee no real increase in global production in 2012. In
Europe consumption will decline for the following reasons:
i. the double-counting process
ii. the pressure from biodiesel imports mentioned on page 10,
iii. Nestes hydrocracking process which will take a significant share from glycerine-yielding
biodiesel production, estimated at about 1.5 mil mt in 2012.
iv. Consumption of diesel fuel in Europe is receding owing to improved engine efficiencies and the
recession. Less biodiesel produced in Europe will be made good by a 28% increase in the
mandated use of biodiesel in the USA. Thereafter, we consider that the biodiesel industry
globally will maintain production roughly at current levels below 20 million mt pa (see Table III
on the next page).



2.4 Natural Fatty Alcohol Production


The global detergent alcohol market is growing rapidly, especially in Asia and more particularly in
China. Global capacity is 4.3 mil mt at the end of 2012 of which 75% is natural alcohol capacity, with
material produced in very large part from lauric vegetable oils with a glycerine yield of around 13%.

Detergent alcohol is also produced synthetically, via ethylene. The cost of ethylene at around $1350
pmt globally bears no comparison with the price in the USA where cheap shale gas is proving to be a game-
changer. Both Shell and SASOL have indicated that they intend to invest in additional synthetic alcohol
capacities but the timing is beyond the frame of this study. In the meantime there is substantial investment
in the pipeline in new detergent alcohol capacity, with 12 new plants due on stream by the end of 2013, most
of world-scale capacity in Asia and most designed to use lauric oil feedstock. While it is clear that capacity
expansion by no means relates to additional production, it is generally accepted that detergent alcohol
growth will be strong. Moreover it is very likely that lauric oil prices will decline to a level around the price of
palm oil during the next three years. This will continue the trend experienced recently of natural fatty alcohol
taking share from synthetic fatty alcohol manufacture.

An increase in demand for natural fatty alcohol globally of 6% per annum is factored into our glycerine
supply scenario (see Table III on the next page).


Glycerine Market Report
12 December 2012

2.5 Others


This is mostly methyl ester of various kinds and includes in particular methyl ester sulphonate (MES).
MES is an alternative to the leading laundry surfactant, Linear Alkyd Benzine Sulphonate (LAB/LAS). LAB
plants are very expensive to construct ($200 mil/100 Kt pa) and there has been recent interest in building far
cheaper MES capacity ($20 mil/50 Kt pa). Capacities for MES have developed as follows:

End 2009: 145 Kt
End 2010: 200 Kt
End 2011: 230 Kt
End 2012: 380 Kt.

Actual production is following capacity investment slowly. We estimate this trend will continue as current
technical problems are overcome and demand for LAB/LAS and/or MES continue to grow.

Also included here is refined glycerine used for the re-esterification of acid oils in Europe to produce a
triglyceride for biodiesel manufacture. This same process is used in India illegally to manufacture
triglycerides for human consumption.



2.6 Summary


In summary, it is estimated that supply of glycerine will grow from 2,8 million mt in 2011 to 3 million mt
by the end of 2014. This is a growth rate of 2.5% per annum. The breakdown per industry segment for
2011-2014 is given in Table III below.


Table III
Estimated World Production of Glycerine
by Industry Source in 000 mt, 2011-2014



2011
2012
est
2013
est
2014
est
Saponification 101 95 90 85
Fatty Acids 687 710 730 759
Biodiesel 1872 1885 1900 1900
Fatty Alcohols 196 210 225 238
Synthetic 3 3 3 3
Others 23 30 50 55
TOTAL 2822 2933 2998 3040
Index
(base 100 in 2009)
100 104 106 108

Source: HBI


It is to be noted in this scenario that glycerine arisings from the biodiesel industry remain at above
60% of total production. In view of the fact that biodiesel will continue to consume close to 10% of global
vegetable oil and fat production each year with a renewed food for fuel crisis clearly possible within the
time scale of this study, it is clear that this is a major element of debate in this supply/demand model for
glycerine.


Glycerine Market Report
December 2012 13

2.7 Methodology and sources


As mentioned in the fly-page of this Report, HBI brokers very large volumes of glycerine on a global
basis and as a result has a comprehensive data base of most of the soap producing factories in the world,
as well as the fatty acids manufacturers. In order to understand better the rapidly changing fatty acid
industry in China, liberal use was made of Dr Brian Rossals most recent Survey of Fatty Acid Plants in
China published in April 2012 by Oleoline.

HBI has a comprehensive data base of the biodiesel factories in Europe, 111 of which are currently in
production as opposed to the 139 which were in production two years ago at the time of writing the previous
supply/demand balance for glycerine. Outside Europe, statistics from the biodiesel organizations in the USA
(NBB), Argentina (CARBIO) and Brazil (from Petrobras) have been used, with suitable precaution. The US
Energy Information Administration is the source of the biodiesel production figures in the USA.

With respect to natural fatty alcohol production and methyl ester sulphonate manufacture, reference
is made again to Dr Brian Rossals excellent publications on these markets. Both reports are available via
Oleoline.





3 World Demand for Glycerine, 2008-2014



3.1 Recent Growth in Demand for Glycerine, 2008-2012


The three major markets for glycerine, Europe, China and the USA alone consumed 2.25 million mt in
2012 representing 80% of global glycerine production. The recent volume development of these markets will
be discussed briefly and individually. For an understanding of how the statistics leading to these volumes
are put together as well as the sources, reference is made to the Oleoline Glycerine Market Report of
September 2012. It should be mentioned that the estimates for 2012 are based on actual statistics for the
first half of the year extrapolated for a full year according to criteria described in the September issue.


3.1.1 The European Glycerine Market


The refined glycerine market in Europe was badly hit by the financial meltdown in 2008 as far as
traditional applications such as polyols, foods and alkyd resins were concerned. Since then there has been
a substantial recovery in demand from these applications. More especially there has been a significant
increase in demand for technical quality refined glycerine for use in epichlorohydrin manufacture, in de-icing
and anti-freeze applications. The latter use is new and mostly limited to Eastern European countries which
are importing around 5,000 mt of glycerine per month for this purpose. In West European countries, anti-
freeze standards as stipulated by the German DIN or the British BS for example, do not currently enable the
use of glycerine, even though in environmental and safety terms it would result in a better product. There
have however been trials conducted by a number of the major automobile manufacturers in Europe during
the last two years and a breakthrough in the West European anti-freeze market is anticipated within the next
few years. Finally, in 2012 Oleon commenced the production of mono-propylene glycol (MPG) from
technical grade refined glycerine.

Chart III on the next page shows that demand for refined glycerine in Europe rose from 406,000 mt in
2008 to 559,000 mt this year.
Glycerine Market Report
14 December 2012

Despite this improvement in refined glycerine consumption, biodiesel mandates continued to increase
in Europe and the production of glycerine rose during the same period from just below 900,000 mt to slightly
above 1,1 million mt in 2012 before falling back to an estimated 979,000 mt in 2012. Nevertheless it has
proved impossible yet again to dispose of total glycerine arisings without significant sales of crude glycerine
to the animal feed, bio-gas and waste-water purification industries. As Chart III shows, 431,000 mt will be
consumed at low cost by these processes in 2012, up from 276,000 mt in 2008. It should be mentioned that
only nine years ago in 2003, there was no sale of crude glycerine in Europe into disposal applications, and
all the crude glycerine produced was converted into refined glycerine.

As has been mentioned on page 9 the increasing use of UCO as a raw material in biodiesel
production has resulted in high volumes of crude glycerine which are difficult if not impossible to refine. The
squeeze between declining glycerine arisings of refinable quality and increasing demand for refined
glycerine particularly for industrial applications has seen

a reduction in exports of glycerine from Europe to about 50,000 mt in 2012 (one-third of the
level of three years ago)
an increase in the price of glycerine as shown in Table I on page 6 above.


Chart III
European Glycerine Demand
In 000 mt, 2008-2012


406
510 510
564 559
276
345
479
404
431
0
200
400
600
800
1000
1200
2008 2009 2010 2011 2012
Consumed as Crude
Glycerine
Consumed as
Refined Glycerine

TOTAL 681,000
mt
855,000
mt
989,000
mt
968,000
mt
990,000
mt


Source: HBI



3.1.2 The Chinese Glycerine Market


China is by far the major consuming country of refined glycerine in the world. This year the Chinese
market will show a demand for 755,000 mt. As Graph III on the next page indicates, this means an average
annual growth of 34% for each of the last six years. China now consumes 35% more refined glycerine than
all European countries combined and 2.3 times more than the USA. Other than developments in the
biodiesel market, the Chinese demand for glycerine is the most important factor determining how the market
will develop globally.

Glycerine Market Report
December 2012 15

Graph III
Chinese Imports and Consumption of Glycerine
In 000 mt, 2006-2012


60
120
295
409
429
517
593
130
300
420
524
634
719
755
0
100
200
300
400
500
600
700
800
2006 2007 2008 2009 2010 2011 2012 est
Imports of crude and refined glycerine
Approx. Consumption of refined glycerine

Source: HBI China, Chinese Customs Office
Note: Changes in inventories have not been taken into account


How to explain this quite remarkable growth in refined glycerine consumption? The explanation is
largely to do with the well-known business pragmatism of the Chinese entrepreneur:

It is well-known that China has become the factory of the world with double-digit or near
double-digit annual rates of GDP growth.
While the developed world struggles with vested interests and overwhelming bureaucratic
constraints, the Chinese simply exploit to the full any perceived opportunities. The
disadvantages of this philosophy are well published with specific examples of tainted
toothpaste purported to have used refined glycerine coming to mind. But there is also an
upside. A good example of this in relation to glycerine is the anti-freeze market. With refined
glycerine substantially cheaper than glycol, the Chinese have no hesitation in using
glycerine in anti-freeze. China is now the largest car-market in the world, and we estimate
that 130,000 mt of glycerine will be used in anti-freeze in 2012. It is perhaps pertinent to
mention that glycerine is a non-toxic, biodegradable anti-freeze component, in contrast to
the glycols used in Western Europe.
A second example of Chinese pragmatism is the use of glycerine in the manufacture of
epichlorohydrin (ECH), where 57,000 mt was used this year. This particular aspect will be
discussed in more detail later (see page 20).

Needless to say, the Chinese have no biodiesel industry to speak of (there is limited capacity to
process UCO) nor do they use crude glycerine in disposal applications.


Glycerine Market Report
16 December 2012

3.1.3 The US Glycerine Market


Chart IV below shows the development of the glycerine market in the USA since 2008. Before
comparing these statistics up to 2011 with those of Europe and China and using them as an indication of
further decline of the US as an economic power, there are specific grounds which require explanation.
Firstly, the collapse of the housing and automobile markets in 2008 is well documented and hit glycerine
demand hard. The car industry in the USA is now in the process of recovering and the housing sector is
showing the first small shoots of renewal. This is shown in the spectacular recovering of refined glycerine
demand since 2011, which also includes ADMs use of glycerine to manufacture green-MPG. Secondly, as
in all developed economies, the transfer of production to cheaper locations is a fact which was touched on
above when discussing China as the worlds factory. In Europe, many of the cheaper locations such as
Poland, Turkey and Romania remain in the demand statistics. In the USA, cheaper locations such as
Mexico and South America do not show in the figures. A further factor compared to Europe is that glycerine
arisings from biodiesel production really only began to drive glycerine demand with the RFS2 mandate in
2011. As with Europe, the result is a large volume sale of crude glycerine in the US to disposal applications;
mostly animal feed and anti-dust uses. The fact that the US is obliged to dispose of 327,000 mt of crude
glycerine this year, while at the same time importing 133,000 mt of crude and refined glycerine, reflects the
poor quality of glycerine produced by the US biodiesel industry whose glycerine is largely unrefinable.
Furthermore, very little is kosher quality, which means that the majority of imports are for kosher certified
refined glycerine from South-East Asia and Europe.


Chart IV
USA Glycerine Demand
In 000 mt, 2008-2012


216
193 201
286
329
207
210
180
285
327
0
100
200
300
400
500
600
700
2008 2009 2010 2011 2012 est
Consumed as
Crude Glycerine
Consumed as
Refined Glycerine

TOTAL 423,000
mt
403,000
mt
381,000
mt
571,000
mt
656,000
mt

Source: US Department of Commerce, US Bureau of the Census, NBB, EPA EMTS Data, HBI


Glycerine Market Report
December 2012 17

3.1.4 Summary of Global Glycerine Demand in 2011


For 2011 in 000 mt expressed at 100% glycerine


Refined Glycerine Crude Glycerine TOTAL
Europe 564 404 968
China 719 - 719
USA 286 285 571
Japan 103 - 103
India 98 - 98
Rest of World 282 81 363
TOTALS 2052 770 2822


Notes: i) For the sake of simplicity, stock movements have not been taken into account in this model, so that global
arisings of glycerine as shown in Table III on page 12 equate to total global demand shown above.
ii) All figures are shown as 100% glycerine purity, so yield losses in glycerine refining for example, are
accounted for.
iii) New uses for refined glycerine, equating to 263,000 mt (see Chart VI on page 21) are included in the total
refined glycerine consumption of 2,052,000 mt in 2011.
iv) Crude glycerine use in the Rest of the World is for animal feed in South American countries predominantly
Brazil and Colombia. Glycerine put to drain in Brazil is not included in this total.




3.2 Estimate for Growth in Refined Glycerine Demand, 2012-2014


A scenario for the consumption side of this supply/demand analysis up to 2014 will be approached as
follows:

Firstly, an organic growth for refined glycerines traditional applications will be calculated.
Secondly, new uses for glycerine will be analysed, a judgement made of their chances of
succeeding and the volumes of refined glycerine likely to be consumed will be added to overall
demand.
Finally, the impact of the substitution of different polyols by glycerine will be considered and included.


3.2.1 Organic Rate of Growth for Traditional Applications for Refined
Glycerine, 2012-2014


On the assumption that demand for traditional applications for refined glycerine will grow at the same
rate as GDP, Chart V on the next page represents the growth per region in line with 2012/2013 GDP
increases estimated by the IMF. The same rate has been used to extrapolate the incremental growth of
refined glycerine demand up to 2014.
Glycerine Market Report
18 December 2012

It is obvious that the assumptions behind this assessment for organic growth can be questioned,
particularly with regard to China. As shown on page 15 of this Report, the growth of the refined glycerine
market in China has averaged 34% for the past six years. In this scenario, we are using a rate of increase of
only 8% per annum. However, as will be shown in developing the argument in the next pages, much of the
new uses for refined glycerine as well as the substitution of different polyols by glycerine will occur in China.
Nevertheless, since about 60% of refined glycerine consumption globally goes into personal care, foods and
beverages, tobacco and pharmaceutical applications where growth is traditionally better than GDP, this can
be considered to constitute a conservative element in our model.


Chart V
Estimated Growth of Traditional Applications of
Refined Glycerine, in 000 mt, 2011-2014

0
500
1000
1500
2000
2500
2011 2012 2013 2014
564
608
657
710
486
486
488
490
282
293
308
323
256
261
268
275
103
104
106
108
98
103
109
115
India
Japan
USA
ROW
Europe
China

1,789,000 mt 1,855,000 mt 1,936,000 mt 2,021,000 mt

Source: The IMF, HBI
Note: These volumes exclude new uses for glycerine defined in Tables IV and V on pages 20 and 21


In summary the use of refined glycerine in traditional applications will grow from 1.9 mil mt in 2010 to
2.2 mil mt in 2013, an increase of 5% per annum.



3.2.2 New Uses for Glycerine


Graph III on the next page shows the development of the refined glycerine price in Europe and the
USA since 1995. This shows that since the end of 2004 the price of best quality refined glycerine has
averaged 587 pmt in Europe and 45 c/lb in the USA, half of the average of the previous nine years in
Europe. At less than the price of bottled water this is exceptionally low for a chemical with the qualities and
characteristics of glycerine.
Glycerine Market Report
December 2012 19

Graph III
USA and European Spot Prices for 99.7% Kosher
Glycerine Delivered Customer in Bulk - 1995-2012

0
200
400
600
800
1000
1200
1400
1600
1800
0
20
40
60
80
100
120
D
e
c

9
5
M
a
r

9
7
J
u
n

9
8
S
e
p

9
9
D
e
c

0
0
M
a
r

0
2
J
u
n

0
3
S
e
p
t

0
4
D
e
c

0
5
M
a
r

0
7
J
u
n

0
8
S
e
p

0
9
S
e
p

1
0
S
e
p

1
1
D
e
c

1
2
EUR/t
European market
c/lb
USA market
c/lb /t

Source: HBI


This has led to a plethora of projects designed to use glycerine in new applications. A non-
exhaustive list of these projects based on glycerine as a feedstock is for the manufacture of:

Epichlorohydrin (ECH)
Bio-methanol
Propylene glycol
Acrylic acid
2-amino-1-propanol (2AP)
Glycerol-tert-butyl ethers (GTBE)
Glycerol carbonate
1-3 Propane-diol (PDO)
Ethanol, isoprene, acetone, hydrogen, formate lactate and succinate
Glycolipid surfactants such as sophorolipids and rhamnolipids


In addition to this list of new uses there is the re-use of glycerine in anti-freeze and winterizing fluid
applications.

Within the constraints then of a relatively limited global supply of glycerine, growing less rapidly than
in the past, and demand buoyed by the high price of substitutable polyols such as propylene glycol, the key
question to be asked is which of any of the above projects is likely to be successful in consuming glycerine
over the next two years.

In previous Oleoline Glycerine Market Reports, the merits and demerits of these new uses projects
have been discussed many times. Suffice it to say that in 2011 265,000 mt of glycerine went into various
new use applications, and the figures for 2012 will almost double to 523,000 mt. Table IV on the next page
shows the glycerine-to-epichlorohydrin projects currently and an estimate of what they will consume in 2013-
2014.
Glycerine Market Report
20 December 2012

Table IV
New Uses for Glycerine
ECH in 000 mt, 2011-2014



2011 2012 2013 2014
Europe Solvay 17 17 20 20
Spolchemie 17 20 23 23
Polish Zachem - 2 2 2
Leuna Herz - 4 5 5
34 43 50 50
China Dongying Hebong - - - 20
Fujian Haobang 5 5 5 5
Hebei Jiao - 2 30 30
Jiangsu Yangnong 30 50 70 70
Wilmar - - 30 65
Ningbo Huanyang - - 10 10
Xangi Global Chem - - 10 10
Solvay - - - 10
35 57 155 220
Thailand Solvay - 80 100 100

TOTAL 69 180 305 370

Source: HBI


Table V on the next page shows a list of other new uses for glycerine including the substitution of
glycol by glycerine in anti-freeze and winterizing fluid applications. We are aware of further projects for the
manufacture of MPG in various parts of the world, for making ethanol and isopreine in Malaysia, acrolein in
France and Japan and PDO in Malaysia and China. Rightly or wrongly it is our view that none of these will
consume glycerine before the end of 2014.


Glycerine Market Report
December 2012 21

Table V
Estimate of Potential New Uses Applications
for Glycerine, in 000 mt, 2011-2014


2011 2012 2013 2014
MPG Oleon - 12 20 20
ADM 30 60 90 90
30 72 110 110
Anti-freeze and
winterizing fluids
(incl windscreen
washing)
E. Europe 35 50 60 65
W. Europe 7 15 30 35
China 120 130 150 155
USA - 20 40 45
India 2 3 5 5
164 218 285 305
Bio-methanol NL - 30 60 60

TOTAL 194 320 455 475

Source: HBI


Chart VI below summarizes the total consumption of refined glycerine in new uses between 2011-
2014.


Chart VI
Summary of New Uses for Glycerine
in 000 mt, 2011-2014

0
100
200
300
400
500
600
700
800
900
2011 2012 2013 2014
69
180
305
370
164
218
285
305
30
72
110
110
30
60
60
Bio-methanol
MPG
Anti-freeze liquids
Epichlorohydrin

263,000 mt 500,000 mt 760,000 mt 845,000 mt

Source: HBI


This means that these new uses for glycerine have grown the refined glycerine market by half a
million mt in 2012 and are predicted to increase the size of the market by a further 345,000 mt by the end of
2014.
Glycerine Market Report
22 December 2012

3.2.3 Summary of Total Global Demand for Glycerine, 2011-2014


Table VI below summarizes the volumes of refined glycerine which will be in demand globally
between 2011 and 2014 based on the assumptions we have employed in the previous pages.


Table VI
Summary of Total Demand for Glycerine
in 000 mt, 2011-2014


2011 2012 2013 2014
Traditional Applications
for refined glycerine
1789 1855 1936 2021
New uses 263 500 760 845
TOTAL 2052 2355 2696 2866



So of the total supply of glycerine of slightly above 2.8 million mt in 2011 and an estimated 2.93
million mt this year, less than three-quarters have been converted into refined glycerine on 2011 and only
80% in 2012. The difference between crude glycerine used for refining and total supply of crude glycerine is
of course, disposed of in the applications described in pages 14 and 16 above: animal feed, bio-gas, de-
icing and water treatment. Logically, when the demand for refined glycerine outstrips supply of all crude
glycerine, the market will tighten and prices rise. According to table VI above this would not occur within the
timescale of this model, for as shown in Table III on page 12, crude glycerine arisings in 2013 are estimated
to be at 3 mil mt and in 2014 at 3.04 mil mt. However, the situation is not that simple and this will be
demonstrated in the following chapter.





4 Theoretic Supply/ Demand Balance for Glycerine,
2011-2014


In the second chapter of this Report, pages 7 to 13, we have presented a scenario where glycerine
supply would increase by 3% pa from 2.82 mil mt in 2011 to 3.04 mil mt in 2014. The major deviation from
the past development of glycerine supply in this model is our prediction that arisings of glycerine from the
biodiesel industry will more or less stabilize over the coming two years (see Table III on page 12).

In the third chapter which hopefully the Reader has consumed with some attention, we predict
demand for refined glycerine rising from a current estimated level for 2012 of 2.35 mil mt to almost 2.9 mil
mt by the end of 2014. This represents a growth of 10% per annum and is essentially driven by substantial
investment in new, but proven technology to produce epichlorohydrin and MPG from glycerine, as well as
the substitution of glycols by glycerine in anti-freeze applications.

As implied in the last paragraph of the above chapter, the balance between supply of crude glycerine
and demand for refined glycerine is sold at low prices to disposal applications. It has been mentioned in
pages 14 and 16 of this model that considerable volumes of crude glycerine produced from biodiesel
manufacture are unrefinable. In particular this is the result of biodiesel technology using sulphuric,
phosphoric or acetic acids to neutralize the soaps formed during esterification. There are a small number of
specialized refineries which are capable of refining blends of crude glycerine containing acetate and
phosphate salts, but it is generally impossible to refine crude glycerine continuing sulphur salts. These salts
form a very fine powder which simply blocks heat exchangers during distillation. Furthermore, as discussed
Glycerine Market Report
December 2012 23
on page 9, the increasing use of UCO as a raw material for biodiesel production in Europe and the USA,
can result in a heavily polymerized glycerine being produced which is difficult and sometimes impossible to
refine correctly. The volumes of unrefinable crude glycerine being produced globally are known in Europe,
but more difficult to define in Brazil (where cotton acid oils are used as biodiesel raw materials) and the
USA. Our best estimates for unrefinable crude glycerine are as follows, increasing from 2012 onwards
because of the double-counting of UCO in Europe:

2011 200,000 mt
2012 280,000 mt
2013 300,000 mt
2014 300,000 mt

These volumes have then been included in a theoretic supply/demand balance for glycerine from
2011-2014 shown in Table VII below.


Table VII
Theoretic Supply/ Demand Balance for Glycerine
in 000 mt, 2011-2014


Actual
2011
Estimate
2012 2013 2014
Global Glycerine Supply:
of which unrefinable
Net supply of refinable glycerine
2822
(200)
2622
2933
(250)
2683
2998
(300)
2698
3040
(300)
2740
Demand for refined glycerine from traditional applications
Demand for refined glycerine from new uses
Total demand for refined glycerine
1789
263
2052
1855
500
2355
1936
760
2696
2021
845
2866
Balance
Pm: crude glycerine used for disposal applications
570
770
328
578
2
302
(126)
300

Note: this model takes no account of inventory movements


This supply/demand balance shows that with the current potential of commercially viable new projects
(predominantly the manufacture of ECH from glycerine) and the ongoing substitution of glycols by glycerine,
glycerine will be in short supply during 2014. Obviously, price will be the tool which will regulate supply and
demand.





5 Price Forecast for Glycerine, 2012-2014



As Table VII above shows, glycerine was in surplus throughout 2011 (570,000 mt had to be disposed
of as crude glycerine) as well as 2012 when we estimate that 328,000 mt has to be disposed of. It is clear
that while excess crude glycerine is available which cannot be consumed by conversion to refined glycerine,
prices will stay relatively low, even though there have been solid price increases in all markets during 2012.

Beyond 2012, we foresee glycerine prices falling slightly during the first part of next year as the
market adjusts to the rapid price increases experienced during the latter part of this year and as difficult
economic conditions continue to put a break on demand in the developed world. However during the second
half of 2013, glycerine will become tighter as demonstrated in Table VII above. We foresee glycerine price
rising rather rapidly at this stage. Once glycerine approaches the 1000 pmt level, it starts to price itself out
of certain markets for example against propylene in ECH and anti-freeze applications. Thus we foresee
Glycerine Market Report
24 December 2012
refined prices in the longer term until the end of 2014 rising to but not exceeding for any lengthy period,
900 pmt in bulk delivered in Europe and 65 c/lb in bulk delivered in the USA.

Consequently, our short, medium and longer term forecasts for glycerine prices are shown in Table
VIII below.


Table VIII
Short, Medium and Longer Term Forecasts
for Glycerine Prices, 2012-2014



Country Dec 2012 Mid 2013 End 2013 End 2014
Europe
99.5% Kosher spot price
99.5% technical grade spot price
80% crude glycerine (weighted average of
better quality material)

EUR 770 pmt
EUR 725 pmt
EUR 325 pmt

EUR 550 pmt
EUR 500 pmt
EUR 275 pmt

EUR 650 pmt
EUR 600 pmt
EUR 350 pmt

EUR 900 pmt
EUR 800 pmt
EUR 550 pmt
USA
99.5% Kosher spot price
99.5% tallow-based spot price

USD 0.50 c/lb
USD 0.40 c/lb

USD 0.48 c/lb
USD 0.40 c/lb

USD 0.52 c/lb
USD 0.45 c/lb

USD 0.65 c/lb
USD 0.60 c/lb

All prices are delivered customer in bulk.
All prices for pharmaceutical quality glycerine
Assumes exchange rates at EUR 1 = USD 1.30




MH 15.12.2012
Glycerine Market Report
December 2012 25








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