This certainly looks to be a dynamic year for the oleochemicals industry! Demand across the sector saw weakness during most of 2023 due to overall economic uncertainty and inventory overhang throughout supply chains – but demand has returned in early 2024, as it did near year-end 2023. Has the industry successfully worked its way through the inventory glut, or are customers preparing for the uncertainties that lie ahead this year?
The coming months seem poised to be VUCA (volatile, uncertain, complex and ambiguous). The escalating volatility in the Red Sea is a paramount concern. The activity there, coupled with ongoing shipping slowdowns in the Panama Canal, has led to increased logistics costs and substantial disruptions in trade flows and reliability across numerous industries.
The situation in the Red Sea, characterized by missile and drone attacks from various factions, has prompted major shipping lines to avoid the Suez route, opting instead for the longer Cape of Good Hope route. Carriers are implementing significant surcharges to account for the additional time, fuel and insurance needed.
Also, although the drought that began last year in Panama improved this January, a return to normal shipping volume in the Panama Canal may take up to a year. P&G Chemicals will continue to work closely with our contracted customers to protect our agreements by building resiliency in our supply chains and agility via our regional manufacturing locations.
The outlook for feedstocks remains an area of uncertainty. Our industry is in the seasonally low production period for palm (January through March), a time in which stocks could be depleted. Palm production for 2024 is expected to be lower than in 2023 due to the potential impacts of El Nino, aging tree profiles and a decrease in fertilizer use. However, we’ve seen positive indicators for other vegetable oil complexes, such as soy and rapeseed, which could help balance out potential price spikes in palm oil.
While production of traditional biodiesel remains strong in Southeast Asia, production of renewable diesel in North America has grown disproportionately. With this growth, we’ve seen elevated risk to traditional biodiesel production and therefore, North American crude glycerine. As the petroleum industry continues securing its supplies of renewable feedstocks for 2024, the role that traditional biodiesel will serve in the industry is uncertain.
However, when we consider the potential demand for oleochemical products through a “big picture” lens on America’s economy, we see reason for cautious optimism. As the U.S. Department of the Treasury explained in a recent update, “The U.S. economy in 2023 outperformed expectations along three key dimensions: growing economic output, labor market resilience, and slowing inflation.” Furthermore, according to the update, “U.S. real GDP…is now 6.1 percent higher than in Q4 2019.”
Additionally, as the Bureau of Labor Statistics shared on Feb. 2, 2024, the seasonally adjusted unemployment rate for January 2024 was 3.7 percent. The U.S. unemployment rate has been consistently below 4 percent since January 2022, recovering well after its COVID shock.
As we look ahead to the rest of 2024, we will be closely watching how the U.S. presidential election, evolving interest rates and the potential impacts of geopolitical tensions affect the economy. Whatever the scenario may be, it’s heartening to know that, backed by oleochemical expertise honed over more than 180 years, P&G Chemicals will continue its strong focus on adapting to customer needs by staying ahead of industry trends and investing in reliable products and supply chains. Throughout uncertainty, P&G Chemicals offers our customers the benefits of domestic supply from our production locations across the globe.
And I know firsthand the dedication of our people, as I’ve recently rejoined P&G Chemicals North America after a global tour through our P&G Chemicals Europe and P&G Consumer Products businesses – and just returned from a visit to our Sacramento plant, which celebrated its 70th anniversary last August. It was inspiring to get to better know the people and processes committed to delivering high-quality oleochemical products to our customers. I am excited to be back with the P&G Chemicals team during this dynamic time and look forward to (re)connecting with you soon.
