China’s Oleochemicals Market Offers Opportunities for Higher Palm-Based Derivatives and Palm Fraction Exports

1.0 Background

China’s oleochemicals industry is huge and has a significant share of global production. In 2020, the country produced 1.7 million MT of fatty acid, 307,000 MT of fatty alcohol, 193,000 MT of fatty amines, 724,300 MT of glycerine, and 190,000 MT of soap noodles. Besides these, China also imported a large volume of these oleochemicals products, making the country a significant user of oleochemicals in the world. Driving the oleochemicals market growth is the end-use industries like personal care, food & beverages, soaps & detergents, paints, and plastics. In China, the raw material used for oleochemicals production is mostly palm oil and its derivatives.

Table 1: China’s Output and Import of Major Basic Oleochemicals Products in 2020 (MT)

Products Productions Import
Fatty Acid* 1,700,000 1,245,000
Fatty Alcohol 307,000 427,000
Fatty Amine 194,600 NA
Glycerine (refined & crude) 723,300 1,763,000
Soap Noodles 190,000 40,000

Note: * Includes 1.08 mil MT of stearic acid output & 323,600 MT of import

Source: CCIA & Chinese Customs

China’s oleochemicals industry growth is likely to continue in the coming years as China’s steady growth in the economy will propel these industries to grow and develop.  Growing awareness of the use of non-environmental friendly chemicals such as petroleum has also contributed to higher usages of oleochemicals products.

The industry offers good potential for palm oil import growth as demand for oleochemicals-based products rises. Manufacturers are likely to increase the production of basic oleochemicals products such as fatty acid, fatty alcohol, fatty amine and glycerine to meet their growing uses.  The demand for oleochemicals is primarily met through importation and local production.

2.0 China’s Oleochemicals Industry

This industry started as a backyard industry operated by numerous small-scale and inefficient oleochemicals plants. Since China undertook the initiative to liberalize its economy and joined the World Trade Organisation (WTO) in 2001, numerous oleochemicals companies invested in the country and transformed it into a modern operation. Currently, there are more than 10 modern oleochemicals production plants in China.

Table 1: Some Major Oleochemicals Companies in China

Company Major oleochemicals products produced
Yihai & Kerry Fatty Acid, Fatty Alcohol, Glycerine
Teck Guan (China) Fatty Acid, Fatty Alcohol, Fatty Amine
Rugao Shuangma Fatty Acid, Glycerine
Taiko Palm Oleo Fatty Acid, Glycerine
Dongma Palm Fatty Acid, Glycerine
Hangzhou Oils & Chemicals Fatty Acid, Glycerine
Liaoyang Huaxing Fatty Alcohol
Sasol Yihai Liangyungang Fatty Alcohol

3.0 Major Oleochemicals Product Segments

In China, plastic and rubber industries are major consumers of stearic acid, which is the most consumed fatty acid in China. The 2 downstream sectors of stearic acid accounted for 40% and 15% of total consumption respectively. On the other hand, the surfactant is mainly produced using fatty alcohol, which accounted for 85% of fatty alcohol consumed in China. 

3.1 Personal Care Products – 8.7% Annual Growth Potential

Among the many sectors, the big segment that uses these downstream oleochemicals derivatives in China that is seen to have better growth potential would be the personal care products sector. This segment is the major consumer of oleochemicals commonly used in hair care formulation, skincare, creams, gels, ointments and other products in the country.

Producers of these personal care products are exploring the opportunity to increase vegetable-based products in their applications.  This follows from the rising market demand towards organic ingredients such as oleochemicals as China users are concerned with the adverse effects of the products on them. Personal care products with petroleum-based ingredients are said to be harmful to their skin as it is corrosive.  Demand for personal care products is rising contributed by increasing disposable incomes and product innovation. Higher purchasing power has resulted in increased purchases of personal care products. China’s personal care product market is estimated to grow at a compound annual growth rate (CAGR) of 4.7% from 2015 to 2021 (Statista Report). Subsequently, Statista projected that revenue is expected to grow higher by 8.7% annually from 2022 to 2025 and reach USD78.5 million by 2025.

Chart 1: Sales of China’s Beauty and Personal Care Products

Source: Statista

3.2 Renewable Energy – Another Area for Potential Growth

Another major sector that could potentially benefit is the prospect of higher use of palm-based methyl ester in the renewable energy sector. China is the world’s largest global emitter of carbon dioxide. In 2019, the share of the country’s global CO2 emission was 27.92%.  As the country marches towards more clean energy use, it results in rampant expansion of its renewable energy. From 2009 to 2019, China’s energy production from coal and crude oil has been reduced from 77.3% and 9.9% to 68.6% and 6.9% respectively. The country’s green energy production rose from 206.23 gigawatts in 2009 to 758.63 gigawatts in 2019. In the absence of a mandate for biodiesel, the use of palm-based methyl ester as biodiesel in the country is insignificant. Palm-based biodiesel usage will depend on its competitiveness relative to diesel. It may require Malaysia to promote the use of palm-based biodiesel for the Malaysian palm oil industry to benefit from the growth of the country’s renewable sector.

Chart 2: Energy Generation in China

Source: Statista

4.0 The Key Factors / Challenges Related to China’s Oleochemicals Industry

4.1 The Prices of Raw Materials

Price fluctuation of raw material in recent years have caused increased uncertainties and pressure on the oleochemicals enterprises.  Raw materials price fluctuation is a challenge for the oleochemicals enterprise to sustain its margin, especially when almost all the raw materials in China’s oleochemicals sector are relying on importation.  

For instance, due to the lower than expected CPO output in Malaysia, as well as slower growth in Indonesia since last year, the price of RBD Palm Stearin has surged from an average of US$520/MT in May 2020 (FOB Msia) to US$1,107.50/MT in Oct 2021, an increase of 113% in 17 months. This has caused many producers to slow down the operation as the profit margin has become very thin or even negative. 

4.2 China’s Environmental Action Plan

At the United Nations General Assembly in September 2020, China pledged to attain peak carbon dioxide emissions reduction by 2030 and carbon neutrality by 2060. Since then, various measures have been taken by provincial and local governments in China to echo this commitment announced by President Xi.  On 27 Oct 2021, the States Council of China further released the White Paper on “Responding to Climate Change: China’s Policies and Actions”, which outlines a variety of strategies, regulations, policies, standards, and actions to achieve the goal set under the dual-carbon policy. 

To tighten the control on greenhouse gas emissions, the white paper has outlined the chemical industry as one of the key industries in this policy. With the implementation of policies introduced, the approval for new chemical processing projects will be more stringent, and inefficient plants would also be removed. The development restricts the expansion of chemical production on the back of stable growth in demand. This may favor the import of oleochemicals products.  Being a major oleochemicals producing country, Malaysia will benefit from this development.

4.3 Indonesia’s higher CPO output limits Malaysia’s ability to secure a higher market share

China’s oleochemicals industry is highly dependent on imports for the supply of raw materials from Malaysia and Indonesia.  With Malaysia’s CPO production growing at a slower pace as compared to Indonesia, it is difficult for Malaysia to increase its market share for the raw material supplied to China’s oleochemicals industry. From 2016 to 2020, Indonesia’s palm oil production grew by an average annual rate of 6.9% or 2.4 million a year to 42.7 million while Malaysia’s production rose at a lower rate of 2.8% or 0.4 million MT a year to 19.1 million. 

Furthermore, the export duties structure administered by the Indonesian government on palm oil and palm kernel oil products favors the export of oleochemicals products from the country.  These competitively priced Indonesian oleochemicals such as stearic acid also limit the expansion of locally produced oleochemicals and hence, limits the expansion of demand for raw materials from Malaysia which is also less competitive against Indonesia.   

Table 2: China’s RBD Palm Stearin and Palm Kernel Oil Imports and Malaysia’s share

               RBD Palm Stearin (MT)             Palm Kernel Oil (MT)
  M’sia export China imports M’sia share (%) M’sia export China import M’sia’s share (%)
2016 470,398 1,321,000 35.6 132,441 553,000 23.9
2017 593,287 1,614,000 36.8 168,871 570,000 29.6
2018 415,102 1,785,000 23.3 157,813 744,000 21.2
2019 436,199 1,919,000 22.7 187,313 929,000 20.2
2020 582,900 1,805,000 32.3 220,908 742,000 29.8

Source: Chinese Customs and MPOB

5.0 Conclusion/Recommendation

During 2012 and 2020, the production of major oleochemicals products in China has registered a CAGR of 6%. This consistent production growth indicates that the potential for exports of raw material and finished oleochemicals to China continues to be high.

If the industry continues with its current growth pace of 6% per year, it is anticipated that the total size of the oleochemicals market in China will reach 8.83 million MT in 2025. This is an additional 2.24 million MT room for market expansion for either the raw materials or the oleochemicals products in 5 years, and shifting consumer trend towards natural and less toxic ingredients is anticipated to steer oleochemicals demand in China in the future.

Indonesia is quite likely to maintain its domination both in the exports of oleochemicals and supply of raw materials to the manufacturers or users of oleochemicals products in China due to its competitive pricing and its abundance. Nevertheless, Malaysia can also benefit from the continuous growth in China’s economy and the rising need of the country for sustainable products to increase its export of raw materials and oleochemicals derivative to the industry.  

The renewable energy sector is one of the sectors to work on to improve Malaysian palm oil exports as China in reducing the usage of fossil fuels. There is huge potential in this sector as the diesel market is big at around 150 million MT consumption annually. Furthermore, the peak carbon and carbon neutral duel-policy laid down by the Chinese central government will also lead to the use of green fuel in power generation, and this may benefit palm oil or derivatives’ demand from this sector.

Prepared by Lim Teck Chaii  & Desmond Ng

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