In a Volatile Market, P&G Chemicals Offers Supply Assurance

As we look toward the last quarter of the year, the 2024 North American oleochemicals market has already seen much volatility. Demand has been much healthier this year, after a slow 2023 that was characterized by inventory “destocking” and economic uncertainty — but at the same time, surges in lauric oil feedstocks and intensifying disruptions in logistics have impacted both the U.S. and global markets.

With continued supply uncertainty, mixed economic outlooks and a changing regulatory landscape, many of us in the industry are asking, “What comes next?” Here are some of the factors our P&G Chemicals team members are seeing in the North American oleochemicals market today:

Disrupted Supply Chains
From a supply perspective, North America is a net importer of oleochemicals. Thus, overseas logistics can directly impact supply availability. Several factors have driven the current supply challenges in the North American market:

• U.S. Port Labor Disputes: Labor disputes between the International Longshoremen’s Association (ILA) and the U.S. Maritime Alliance (USMX) remain ongoing, with a September 30 deadline. If a resolution is not reached, a strike at U.S. East Coast and Gulf Coast ports could significantly interrupt trade into the country.

• Southeast Asia Plant Downtimes: We have heard that several plants in Southeast Asia have paused operations for maintenance over the next couple of months.

• Ongoing Logistics Disruptions: As a recent article by my colleague Avery Hood explained, the continued disruptions have led to increased costs and delays/volatility in supply chains, an approximately 13% reduction in container capacity, and a 50%-60% rise in container rates in recent months. The disruptions include the ongoing rerouting of about 90% of ships around the Cape of Good Hope (vs. them traversing the Suez Canal) and port congestion at major transshipment locations, including Singapore.

• Hurricane Season: Many imported oleochemical supply chains go through the U.S. Gulf, which is also home to U.S. synthetic alcohol production. The fact that hurricane season is upon us may introduce further supply risk in the U.S. market.

Increased Feedstock Prices
Lauric oils palm kernel oil (PKO) and coconut oil (CNO) are the primary feedstocks for oleochemicals due to their 12- to 14-carbon chain length rich composition. After a period of relative stability from the end of 2022 into the start of 2024, lauric oils have seen much volatility this year, with a ~30% price increase over the summer, driven by high demand and lower production. Historically, July-October is peak production season, but dry weather resulting from this year’s strong El Niño has impacted production of both PKO and CNO. This reduced supply, coupled with uncertainty around implementation of the European Union Deforestation Regulation (EUDR), will likely continue to drive flux in the lauric oils market.

Mixed Economic Outlook
The U.S. economy has been a bright spot vs. rest of world in 2024. However, the nation’s recent slowdown in job growth, combined with election uncertainty, may point to mixed sentiment. Any interest rate cuts may help to incentivize consumer spending and corresponding demand for oleochemicals.

So, how do we address the question, “What comes next”? The only thing the industry appears to agree on is the likelihood of continued UN-certainty.

However, for more than 160 years, P&G Chemicals has supplied high-quality oleochemical products from our U.S. production facilities. And in today’s market, characterized by volatility in logistics, feedstocks and regulation, our customers can continue to count on reliable domestic supply from our plants in Sacramento, California, and Cincinnati, Ohio.