Global Oleochemical Markets Face Supply Constraints on Shipping, Logistics Slowdown

CINCINNATI–Global oleochemicals markets are facing supply constraints as shipping and logistics problems slow supply chains and uncertainty grows alongside increased demand for goods to combat the spread of coronavirus (COVID-19).

Malaysian oleochemical producers are slowing and halting operations as confusion grows after Prime Minister Muhyiddin Yassin announced the Restricted Movement Order (RMO) on 16 March following an increase in COVID-19 cases.

The initial RMO mandated a total lockdown with the exception of essential activity from March 18-31 and included closures of borders. The RMO has now been extended until April 14 as COVID-19 infections continue to rise. The initial exemptions included manufacturers of disinfectants, sanitizers and detergents.

There was widespread confusion concerning what were considered essential industries and the Malaysian government made a second announcement listing the exemptions.

Producers across the oil palm complex were initially thought to be included in the lockdown, prompting the Malaysian Palm Oil Association (MPOA) to request for the expansion of the exemption list to include palm plantations and those exemptions were approved on March 18.

Several Malaysian oleochemical producers have declared force majeure (FM) amid uncertainty on whether they were allowed to operate during the lockdown, despite both upstream and downstream sectors being included on the exemption list.

Some plants continue to run, but sources say each oleochemical company will likely need to apply for exemptions to continue operating.

Sources in the region said that if the Malaysian oleochemical plants are considered supplying essential products and they have government approval, then they are allowed to run at 50% of capacity.

However, a larger issue is that is the demand centers in countries like India, Europe or US are locked down then there is nowhere to send product. So, sources said most companies are either running at 50% of capacity or not at all, causing FMs.

Malaysia is the world’s second-largest producer of palm and oleochemicals after Indonesia.

Indonesia has not yet officially declared any lockdown on movement. However, there is increasing discussion in local and international media outlets to officially declare lockdown. Indonesia is the world’s fourth largest country by population.

Asia’s oleochemicals markets have been affected by the COVID-19 since the beginning of the year when the absence of demand from China put sharp downward pressure on feedstock palm oil and oleochemical prices. Oleochemical producers across southeast Asia reduced operating rates in Q1, but it failed to slow the price decline as headwinds grew.

The additional headwinds hit the market when Saudi Arabia and Russia started a crude oil price war, plummeting crude prices into the $20s/bbl. The timing of the crude price war happened exactly when demand declined sharply globally as Europe, the US, India and southeast Asia went into lockdown to fight the spread of COVID-19.

The implosion of crude oil prices and decreased demand for diesel fuel has stalled Indonesia’s and Malaysia’s push to implement B30 and B20, respectively.

Glycerine markets seem to be tightening quickly as concerns are increasing about crude and refined glycerine production in the region as demand for oleochemicals rises with the continued spread of COVID-19.

Fatty acids and fatty alcohols will likely be next in facing shipping and logistics disruptions along the global oleochemicals supply chain, as increasing demand and reduced supply start to outweigh declining feedstock costs in the negotiations for volumes.

Vessels shipping oleochemicals to both Europe and the US and out of southeast Asia are heard to be delayed amid port and logistics constraints.

Malaysia’s freight forwarders have been asked to clear shipments as major ports clog up in the second week of a RMO, the transport minister said on March 26.

Ports and logistics companies were allowed to operate, but non-essential businesses faced problems moving goods out of ports, the Federation of Malaysia Freight Forwarders said.

The trade group said in a statement that the backlog of non-essential goods, which make up 80% of cargo volumes, would affect port operations and capacity.

“Currently, Port Klang, Port of Penang, and Johor Port in Pasir Gudang have reached nearly 100% of their capacities to hold goods,” Transport Minister Wee Ka Siong said in a statement. The congestion must be cleared to avoid disruptions to the supply of imported essential goods, he said.

The ministry gave freight forwarders and haulage companies a special exemption to remove their goods, including non-essential items, out of ports over the weekend.

The rapid shutdown of business across the US and Europe in a move to slow the spreading COVID-19 has removed a critical component in the recovery of shipping demand, with no certainty when consumer spending will return.

Cargo owners are reducing and postponing ocean shipments from China to North America and Europe, according to forwarders.

The change is a sharp reversal from just a few weeks ago when shippers were looking to accelerate shipments through the supply chain to replenish inventories depleted due to the prolonged China shutdown.

With US and European retailers temporarily closing stores and business activity in March experiencing the steepest decline since 2009, shippers are seeking to delay goods in transit by keeping them on the water for longer periods of time, in part by diverting them to longer transit times.

In North America, shipments are still arriving, but there are signs that some retailers are accepting fewer additional goods into their distribution centers. That’s raising questions as to where unloaded imported containers will go.

Trucking rates are climbing across the US as demand to haul essential goods skyrockets. The frantic rush to get essential goods to grocery stores, hospitals and other critical service providers has caused available loads to rise sharply and rates have quickly followed.

In India, with ports facing serious inland service shortages amid a 21-day countrywide lockdown that began Wednesday, exporters and importers are scrambling to move cargo in and out of terminals across the country.

Indian containerized freight has been hit hard by severe truck driver scarcity and drayage capacity issues with some terminals operating at about 30% of capacity because of a sharp drop in gate-in and-gate-out activity.

Scroll to Top