Europe Reports

Investigating alternative sources

By Sean Milmo | November 2, 2005

Cheaper sources of raw materials are sought as oil prices continue to rise.

The strong likelihood of a lengthy period of high oil prices is forcing coatings producers to seek, or at least investigate, cheaper sources of raw materials.

One option is a move to ingredients made from oleochemicals or other natural-based substances, whose prices have either been declining or have been going up at a much slower rate than those for petrochemical derivatives. In Europe, the price of glycerine has been plummeting because of excess production due to massive hikes in biodiesel capacity.

But a switch to less expensive materials could pose big problems, especially if quality standards are to be maintained and new formulations are to remain consistent with existing technical specifications.

Some economic forecasters are predicting that the oil prices could stay above $60 a barrel for at least five years. Among those expecting a drop in prices few believe that they will fall below $40 a barrel, mainly because of the huge needs for energy among the emerging Asian economies, particularly India and China. Also there could now be permanent pressure on crude prices because of the inability of oil supplies to keep up with demand.

Coatings producers are facing the prospect of persistently high prices for ingredients like binders which are accounting for a growing share of their production costs.

This comes at a time when they are having to find ways of lowering the solvent content of their paint because of new European Union legislation on the emissions of volatile organic compounds (VOC), which is due to come into effect in 2007. The increase in oil prices has made the decision on which measures to take to comply with the regulations even more complex.

The prices of some petrochemical derivatives have been going up faster than others. Some resin makers have been raising the content of polyester in their products in preference for epoxy because polyester prices have been weaker, in some regions even declining. Low cotton prices have softened demand for polyester in the fibers sector causing an excess of supplies of the polymer.

Material from recycled polyethylene terephthalate (PET) bottles is also providing an inexpensive source of polyester in Europe, especially for epoxy polyester hybrid resins.

"Recycled polyester can pose problems because its properties are slightly different from the virgin material," said one coatings consultant. "But it has become a possibility at the lower end of the market rather than with resins for higher performance coatings."

Worries about quality and difficulties with reformulations, particularly when customers want to test them, have so far hampered any major transition from petrochemical-based ingredients to renewable materials in coatings.

In the wake of the steep rise in prices for crude oil, the prices for renewables are, at the moment, attractive. The average price of crude palm oil has been approximately 15-20% lower so far this year than that of 2004 and is predicted to remain relatively stable throughout most of 2006.

The price of glycerine in Europe tumbled from approximately 1,000 ($1,200) a metric ton three years ago to 450 per ton by October. It looks likely to drop even further because of the large amount of capacity being built in Europe for subsidized biodiesel of which glycerine is a by-product.

In 2005, biodiesel output in Europe of two million tons will have produced 200,000 tons of glycerine. By 2007 European biodiesel plants will be making 450,000 tons of glycerine, well above Europe's current consumption of 380,000 tons.

There is now a strong possibility that there will be so much surplus crude glycerine available that it will have to be burned as a fuel.

With competing petrochemical-based raw materials like ethylene glycols, glycerine was two to three years ago almost twice as expensive in Europe. Now the position has been reversed with glycerine being close to 50% cheaper than monoethylene glycol (MEG).

Nonetheless there have been few signs of producers of coatings ingredients or their customers wanting to take any big advantage of the rock-bottom glycerine prices.

Glycerine used to account for a sizeable proportion of raw materials being used for the production of alkyd resins. But even at its present low prices there seems to be little chance of its making inroads into that sector once again.

"My understanding is that there will not be a major switch to it (for alkyd resins production) in Europe as an alternative material," said Mike Heming, CEO of Paris-based HB International, a leading glycerine broker. "There are problems with quality standard certifications. Getting the agreement of customers and their customers to changes in formulations could take years."

"Also glycerine has a reputation for price volatility," he continued. "People would be reluctant to commit themselves to glycerine without more evidence of greater price stability. A lot of them have yet to be convinced that prices will stay at their present low levels. Generally the potential for glycerine as a new source of raw materials for coatings is limited. The use of glycerine in this area has probably reached its full potential already."

The prospects for fatty acids and natural fatty alcohols as replacements for petrochemical-based materials in the coating sector is, however, much brighter, especially if crude oil prices remain high or continue to climb.

"The high price for ethylene will change the scenario for synthetic fatty alcohols over the next couple of years," said Heming. "Natural fatty alcohols will take over more of the market and synthetically produced alcohols could more or less disappear if mineral oil prices stay as high as they are now."

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