U.S. Soybean

Export Council Inc.

Glycerin Market Analysis

Prepared for:

www.abginc.com i

Table of Contents

Section Page

Executive Summary...........................................................................................................................................1 Introduction........................................................................................................................................................3 Market Overview ...............................................................................................................................................5

Global Glycerin Market................................................................................................................................5 American Market Volume............................................................................................................................6 American Glycerin Prices.............................................................................................................................7 Glycerin Market Research Overview..........................................................................................................7 Synthetic Glycerin .........................................................................................................................................8 Glycerin and Fatty Acid/Soap Production................................................................................................9 Balance of Trade..........................................................................................................................................10 Imports .........................................................................................................................................................11 Exports .........................................................................................................................................................13 European Market Volume .........................................................................................................................15 European Glycerin Prices ..........................................................................................................................15

Biodiesel Production .......................................................................................................................................16 Domestic Refining Capacity...........................................................................................................................17

Glycerin Use by End Product ...................................................................................................................19 Factors Driving Demand ...........................................................................................................................22 Future Prospects..........................................................................................................................................24 Competing Products ...................................................................................................................................24

Potential New Glycerin Outlets.....................................................................................................................25 Second Generation Biofuels ......................................................................................................................26 Livestock Feed.............................................................................................................................................27 Industrial Chemicals....................................................................................................................................27

Scenario Analysis..............................................................................................................................................29 Glycerin.........................................................................................................................................................29 Fatty Acids and Fatty Alcohols .................................................................................................................31 Biodiesels Effect on Soap Manufacturers...............................................................................................31

Key Take-Aways ..............................................................................................................................................32

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Executive Summary

Glycerin, once touted as a co-product capable of adding more value to biodiesel (thus adding

value to soybeans), is in a global oversupply crisis. There is just not enough refining capacity or

demand to meet current crude production.

The demand for biodiesel is not driven by the demand for glycerin. Although glycerin sales

provide additional revenues for biodiesel producers, these additional revenues are currently not

high enough to drive major production decisions in the biodiesel industry as a whole.

The refined glycerin market is relatively small with global production around 2 billion pounds

annually and a market value of $1 billion worldwide1 and is expected to grow. Renewable fuel

policy (mandates, tax incentives, and subsidies) in developed nations ensures that biodiesel

industries will continue to expand well into the future. It is projected that biodiesel production

will reach 8.2 billion gallons by 2020. This will contribute 5.9 billion pounds of crude

glycerin, meaning that the current production of glycerin will be nearly tripled by biodiesel

production alone.

The market for glycerin is volatile and pricing is strongly dependent on supply. Since glycerin is

naturally produced primarily as a co-product of biodiesel and soap manufacturing, supply is

dependent on the demand for these primary products. The recent sharp rise in biodiesel

production has driven synthetic refiners out of business and caused crude prices to plunge to

pennies a pound.

Trade is a critical component of the glycerin industry. Biodiesel production has changed the

market dynamics in several countries, while several traditional importers have become net

exporters over the last few years. Currently, the United States trades glycerin with three major

regions: North America, the European Union, and Southeast Asia. The international market will

grow as biodiesel mandates in South America and Southeast Asia make these countries new

players in the glycerin market.

The glycerin market has undergone many changes in the past 20 years, including the progressive

shift of sources of supply, end use, and volume. This shift makes it difficult to develop a model

capable of predicting spot prices for the future. There is a strong negative correlation between

domestic refined glycerin prices and European glycerin production, leading to the thought that

foreign production drives American prices. Moreover, the strong negative relationship between

1 An Unlikely Impact, Chemical & Engineering News, February 2005

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Middle Eastern oil production and refined glycerin prices leads to the thought that increased

petroleum production increases the supply of glycerin substitutes, which would force glycerin

prices downward to remain competitive.

Soap and fatty acid manufacturers use vegetable oil or animal fat as a feedstock input. These

industries have also produced the majority of the natural glycerin in years past. Therefore,

biodiesel production has directly impacted the profitability of these industries by competing for

inputs and depressing their glycerin prices. This trend will eventually lead some soap and fatty

acid manufacturers to move operations overseas.

The top end-uses of glycerin are found in the food processing, cosmetics, oral care, and tobacco

industries. These markets are mature and demand growth is slow in the U.S. At the same time,

the rising standard of living in developing countries, especially in China, provides the greatest

opportunity for growth in the traditional uses of glycerin. Some crude glycerin is sold to

livestock producers and much of the excess crude is simply burned to heat industrial boilers.

High crude oil prices have made glycerin an attractively priced substitute for many

petrochemical-derived chemicals. Glycerin can be used as a building block for many chemical

compounds used in resins, coatings and adhesives.

The industry needs to find new uses for crude glycerin since significant expansion in refining

capacity doesnt seem likely in the short or intermediate term. Initial research results indicate

glycerin is a suitable corn replacement in livestock and poultry rations. Consequently, glycerin

could potentially be utilized in the livestock industry as high corn prices leave feeders looking for

an alternative energy source. In addition, researchers in Texas and Barcelona have developed

methods to convert glycerin to renewable fuels (i.e., ethanol and biodiesel). These processes

could utilize crude glycerin and add value to biodiesel production which is the type of

innovation needed to resolve the crude glycerin oversupply.

The American biodiesel industry is facing an uncertain future, which in turn will impact the

supply of glycerin. Furthermore, biodiesel producers have not received the same level of

support as the corn ethanol industry. Competition for corn acreage for ethanol as well as

competition for the primary use of soybeans, mainly food oil, has raised vegetable oil prices

higher than analysts projected. This has caused some plant construction and expansion plans to

be scrapped; many producers are facing losses due to high input prices. The industrys future is

dependent on government intervention through increased subsidies, tax incentives, and

mandates, making future projections about the supply of glycerin hard to forecast.

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Introduction Glycerin (also called glycerol and glycerine) is a colorless, odorless, viscous, water-soluble liquid

with slightly sweet taste2. It is a three carbon alcohol which serves as the backbone of the

triglyceride molecule. Glycerin is non-toxic and can be used topically in cosmetics or consumed

in food products and pharmaceuticals. Glycerin is made synthetically using petroleum as a

feedstock. It is derived naturally using two methods:

Soap and fatty acid production (hydrolysis) primary source for last twenty years

Biodiesel production (transesterification)

Transesterification of fats and oils processing can yield crude glycerin as a byproduct at a rate of

10% per unit of biodiesel (methyl ester). Methanol, which is mixed with fats or oils in the

transesterification process, is present in the glycerin residue. When excess methanol is removed

from the glycerin, the substance is called crude glycerin. The content of crude glycerin varies

widely, but it is generally 85% glycerin (range: 40%-90%), 10% water (range 8% to 50%), 4% salt

(range 0% to 10%), less than 0.5% methanol, and around 0.5% free fatty acids.

Figure 1: Yields of Transesterification, Source: Liberty Process Technologies

2 Frontier Natural Foods Co-op Glossary

100 lbs. Vegetable Oil or Animal Tallow

100 lbs. Biodiesel

(methyl ester)

10 lbs. Methanol

10 lbs. Crude Glycerin

Transesterification

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There are three basic grades of refined glycerin, differentiated by purity and potential end-uses.

Glycerin is generally sold as 99.5% pure and 99.7% pure. The three grades of refined

glycerin are:

Technical grade used as a building block in chemicals, not used for food or

drug formulation

United States Pharmacopeia (USP) glycerin from animal fat or plant oil sources, suitable

for food products, pharmaceuticals

Kosher glycerin from plant oil sources, suitable for use in kosher foods

The properties of glycerin create a versatile product that can be put towards many end-uses. In

fact, there are over 1,500 end-uses for the chemical. In most products, however, it is only used in

very small portions. There are only a few end-uses which require a significant amount of glycerin

in their formulation.

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Market Overview

Glycerin is a byproduct of biodiesel, soap, and fatty acid production. Therefore, the

supply of glycerin is determined by the demand for these primary products.

As the soap industry has traditionally provided most of the glycerin for the domestic

market, the soap manufacturers also own most of the glycerin refining capacity in

the country.

Global biodiesel production has significantly increased the amount of glycerin on the

market in recent years. This has shifted glycerin production to countries that were not

traditionally large producers.

Because glycerin refining capacity is limited, depressed prices prevent construction of new

refineries leading to a global crude oversupply crisis.

The glycerin market is a relatively small market on a worldwide basis. Current global

production is about 2 billion pounds and is valued at $1 billion annually3.

Since the glycerin market is small on a global basis, there is little market information,

making it difficult to establish a world spot price for the product. This helps to explain

some anomalies in the international market. For example, the United States is an

importer and an exporter of both crude and refined glycerin.

GGlloobbaall GGllyycceerriinn MMaarrkkeett

The European Union, United States, and Southeast Asia are the main regions which

produce glycerin.

Although small, the glycerin market is global and vulnerable to shocks in

international production.

Development of new renewable fuel policies in India, Canada, and South America

ensures crude glycerin supply will increase well into the future4.

As global supply increases, research and development for new uses of glycerin will be

needed to handle the surplus of crude glycerin.

3 An Unlikely Impact, Chemical & Engineering News, February 2005

4 Biodiesel: Prospects & Challenges, Promar International, 2007

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AAmmeerriiccaann MMaarrkkeett VVoolluummee The American market for refined glycerin fluctuates from year to year, but generally stays within

a range of 450 500 million pounds annually. Furthermore, the production of refined glycerin is

relatively stable over time at just under 400 million pounds annually.

Although there doesnt appear to be any drastic changes in the overall production and

consumption of refined glycerin in the United States, there has been a change in the suppliers and

refiners of glycerin over the past five years. Dow Chemical, the only manufacturer of synthetic

glycerin, shut down its 140 million pound plant when prices dropped to unprofitable levels.

Meanwhile, some biodiesel producers have added refineries on their plant site to process the

glycerin from their biodiesel operations.

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Figure 2: US Production and Consumption of Refined Glycerin, Source: Western Australia Dept. of Agriculture

The United States is dependent on the global glycerin market to meet its refined glycerin demand.

Mainly, the U.S. imports refined glycerin from Germany and Malaysia. The trade deficit for

refined glycerin has been around 55 million pounds over the past two years. Although global

trade is critical for the refined glycerin market, imports of crude glycerin into U.S. ports has

slowed to a trickle. In fact, 2007 is predicted to be the first year that the U.S. is a net exporter of

crude glycerin. More trade details are available in the Imports and Exports sections.

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AAmmeerriiccaann GGllyycceerriinn PPrriicceess The price of American refined glycerin has taken a sharp downturn in the last few years,

following the global trend in glycerin prices. Domestic refined glycerin prices have declined from

80 cents per pound in 2002, to 37 cents per pound in 2006. The price shifted back up to 45 cents

per pound by August 2007.

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Figure 3: 99.5% Refined Glycerin (USP) Prices (1980-2007), Source: www.purchasing.com

GGllyycceerriinn MMaarrkkeett RReesseeaarrcchh OOvveerrvviieeww ABG, Inc., an Adayana company, in conjunction with the United States Soybean Export Council

has completed a research study of the glycerin market. The team gathered historical data related

to the domestic glycerin market including domestic production and prices, European production

and prices, petroleum production and consumption, and fatty acid production. Although some

of the data were closely correlated, it is difficult to build a model capable of inferring the datas

explanatory power on American glycerin prices.

The glycerin market does not lend itself to modeling due to its small size and lack of information.

However, the research team observed a slight correlation in the data, which indicates an

explanation for the variations in domestic glycerin value (Table 1).

Domestic glycerin prices are negatively correlated with the European glycerin market which

indicates the U.S. market is vulnerable to fluctuations in global supply. Another remarkable

observation is the small, but positive correlation between American refined glycerin prices and

domestic refined glycerin supply. Surprisingly, this correlation does not follow the logic that

more supply will lead to lower prices.

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Petroleum production and consumption impacts domestic refined glycerin prices, especially

production in the Middle East. High petroleum production in the Middle East has historically

led to depressed refined glycerin prices. The interpretation of this correlation is that increased

petroleum production increases the supply of substitutes for refined glycerin.

Table 1: Correlation of Domestic Glycerin Prices and Market Factors

SSyynntthheettiicc GGllyycceerriinn Producers of synthetic glycerin have been hit very hard by the biodiesel industry. Biodiesel

companies produce more glycerin as a waste byproduct than the market can hold; putting a

squeeze on synthetic glycerin producers. Dow Chemical, the only synthetic producer in the

Americas, closed its 140 million pound facility due to the abundant supply of crude glycerin from

biodiesel production. Some synthetic glycerin producers remain in Europe and Southeast Asia,

however, this market is not expected to expand.

The only market sustaining the synthetic glycerin refiners is the pharmaceuticals industry. Many

prescription drugs and over-the-counter medicines received FDA approval when they were

formulated with synthetic glycerin. To include natural glycerin in these medicines would require

pharmaceutical manufacturers to re-submit the drugs to FDA testing5.

5 Glycerin Overview, Government of Western Australia Department of Agriculture and Food, 2006

Variable Correlation (Pearson Coefficient) with U.S.

Refined Glycerin Prices (1995-2006)

Refined Glycerin Production 0.39

Crude Glycerin Production 0.01

E.U. Refined Glycerin Prices 0.44

E.U. Refined Glycerin Production -0.74

E.U. Crude Glycerin Production -0.58

Middle Eastern Petroleum Production -0.66

U.S. Petroleum Consumption -0.55

E.U. Petroleum Consumption -0.49

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GGllyycceerriinn aanndd FFaattttyy AAcciidd//SSooaapp PPrroodduuccttiioonn Glycerin is a byproduct of the industrial soap manufacturing process (saponification). Modern

soap manufacturers use fatty acids and sodium hydroxide as an input. Fatty acids for soap are

manufactured through the process of hydrolysis (fat splitting). The process separates the lipid

source, either animal fat or vegetable oil, into water, fatty acids, and glycerin6. The glycerin is

then removed from the water and fatty acids (sweet water) and is often processed into refined

glycerin. This is why much of the glycerin refining capacity is owned by soap manufacturers such

as Dial, Proctor & Gamble, and Lever.

The production of fatty acids and biodiesel is a similar process (Figure 4). Both processes can

use either animal fat or vegetable oil as an input; both produce glycerin as a byproduct.

Figure 4: Comparison of Saponification and Tranesterification

Biodiesel production, boosted by subsidies and tax breaks, has squeezed soap and fatty acid

producers on input costs and byproduct revenues. The domestic soap industry has remained

competitive in the past by using beef tallow as a feedstock. Meanwhile, biodiesel makers with

multiple feedstock capability use as much animal fat as possible to combat high vegetable oil

prices. This has driven up the price for beef tallow, which has, in turn, led soap manufacturers to

begin importing foreign plant-based oils for feedstock.

6 How Soap is Made, How Products Are Made Vol. 2, http://www.madehow.com/Volume-2/Soap.html

Animal Fat

Vegetable Oil

Alkali Methanol

Water

Fatty Acids

Glycerin

Methyl Ester

Glycerin

Hydrolysis (Soap and Fatty Acids)

Transesterification (Biodiesel)

BYPRODUCTS BYPRODUCTS

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Glycerin has traditionally provided consistent revenues to soap and fatty acid producers. These

revenues are now fractions of previous years since global biodiesel production has flooded the

market with glycerin.

BBaallaannccee ooff TTrraaddee The market for glycerin is very sensitive to worldwide production. Southeast Asia and Europe

are traditional centers of glycerin production. The recent glut of crude glycerin in the domestic

market has slowed crude imports into the U.S. to a trickle. However, imports of refined glycerin

have remained relatively stable over the past few years since the refining capacity has not

increased significantly over the past few years.

The international market for glycerin is not efficient due to scarcity of information. The United

States imports and exports both crude and refined glycerin. More market information and a

better understanding of the spot prices would theoretically improve the import/export situation.

The balance of trade for crude and refined glycerin can be seen in Figure 5. The oversupply of

glycerin has affected crude glycerin trade more than refined glycerin trade. Figure 5 shows that

the crude trade deficit becomes smaller between 2002 and 2006. However, it is projected that

the U.S. will be a net exporter of crude glycerin during 2007. The refined glycerin trade

deficit fluctuates over time, but it is expected to remain stable unless domestic refining

capacity increases.

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Figure 5: Snapshot of Balance of Trade, Source: U.S. Census Bureau Foreign Trade Data Dissemination

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IImmppoorrttss Although imports have fluctuated over the past six years, the quantity and value of crude glycerin

imports have trended downward and are approaching zero (see Figure 6). Meanwhile, the

quantity of refined glycerin imports has remained relatively steady over the past four years. The

value of refined glycerin imports, on the other hand, has fallen slightly relative to refined glycerin

quantity due to falling prices.

Figures 7 and 8 break down crude and refined glycerin imports by source country. Germany and

Malaysia are the two largest suppliers of glycerin in the world. Malaysias palm oil industry has

historically made the country a major player in the fatty acids market; a boom in biodiesel

production from palm oil means the country will produce even more crude glycerin. Therefore,

Malaysia will be the biggest exporter of crude glycerin to the United States for some time. Figure

7 shows that imports of crude glycerin from Germany decreased steadily over time and moved to

nearly zero by 2007. This is because the market price for crude glycerin does not meet the cost

to ship crude glycerin from Europe to the United States. Figure 8 indicates that imports of

refined glycerin fluctuate annually but generally stay between 75 million and 90 million kilograms

a year. Imports of refined glycerin have trended slightly downward the last three years.

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Figure 6: Snapshot of Glycerin Imports, Source: U.S. Census Bureau Foreign Trade Data Dissemination

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Figure 7: Crude Glycerin Imports by Country, Source: U.S. Census Bureau Foreign Trade Data Dissemination

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Figure 8: Refined Glycerin Imports by Country, Source: U.S. Census Bureau Foreign Trade Data Dissemination

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EExxppoorrttss Although crude glycerin exports have remained steady for the past six years, the volume of

refined glycerin exports has increased steadily over the same time period (see Figure 9). China is

responsible for the increase in refined glycerin exports, while the value of U.S. glycerin exports

has closely followed the level of glycerin exports.

Figures 10 and 11 break the export market down into Canada and the rest of the world. Canada

is by far the largest consumer of U.S. glycerin. Crude glycerin exports to Canada have fluctuated

annually, but have remained within a 12 million kilogram range from year to year. However, the

share of refined glycerin going to Canada has declined noticeably in the last three years, mainly

due to the exports to China. The United States exported 14,000 kg of refined glycerin to China

in 2005 (China received no U.S. glycerin in previous years). The quantity of 2007 refined glycerin

exports to China is projected to be 4.7 million kg.

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Figure 9: Snapshot of Glycerin Exports, Source: U.S. Census Bureau Foreign Trade Data Dissemination

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Figure 10: Crude Glycerin Exports, Source: U.S. Census Bureau Foreign Trade Data Dissemination

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Figure 11: Refined Glycerin Exports, Source: U.S. Census Bureau Foreign Trade Data Dissemination

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EEuurrooppeeaann MMaarrkkeett VVoolluummee The European Union is the global leader in biodiesel production. Policymakers have committed

themselves to reducing the E.U.s dependence on foreign oil by providing incentives to use

biodiesel made from rapeseed oil. Subsequently, the E.U. glycerin market has been flooded with

crude glycerin since biodiesel production became large scale in the early part of this century.

Germany is the leading glycerin producer in the European Union (Figure 12). This is mostly due

to an aggressive biofuels policy, which has mandated 5.75% of energy will come from renewable

sources by 20107.

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Figure 12: European Refined Glycerin Production, Source: EUROSTAT

EEuurrooppeeaann GGllyycceerriinn PPrriicceess European glycerin prices have suffered greatly from the biodiesel boom of the last few years

(Figure 13). Depending on purity and grade, refined prices have declined 40% to 60% since

20028. Many fatty acid producers and glycerin refiners have exited business due to low prices.

The reduction in refining capacity has slightly tightened supplies, which in turn, has brought

refined prices up in the past year. However, the crude glycerin market in Europe is suffering and

prices are approaching zero9.

7 Biofuels and the European Union: Bi-Weekly Bulletin, Market Analysis Division, Agriculture and Agri-Food

Canada, July 2007 8 HB International

9 Glycerin Overview, Government of Western Australia Department of Agriculture and Food, 2006

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Figure 13: 99.7% Refined Kosher Glycerin Prices (Europe), Source: HB International

Biodiesel Production

Global biodiesel production will determine the future of the glycerin industry. Demand for

biodiesel is projected to be 8 billion gallons by 2020. This would result in 5.8 billion pounds of

glycerin entering the market from biodiesel production alone.

It is uncertain whether future biodiesel production will meet projections. Policymakers have set

optimistic renewable fuel goals and mandates which may not become a reality. Feedstocks for

biodiesel companies have become so expensive that generous subsidies still do not enable

biodiesel to be competitive with petroleum-based diesel. Biodiesel production may be lower than

projected in the future; therefore, there will be less glycerin than expected.

Although biodiesel production may not meet future projections, it is expected to increase well

into the future and further exacerbate the crude glycerin glut. It will be in the best interest of

biodiesel producers across the world to find a solution for crude glycerin prices which can add

more value and profitability to their biodiesel operations.

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Figure 14: Projected Biodiesel Production, Source: Promar International

Domestic Refining Capacity

The domestic glycerin refinery capacity is slightly below 500 million pounds of refined glycerin

annually. However, this is not large enough to refine all of the crude glycerin produced in the

United States because the demand for refined glycerin has not kept pace with the recent surge in

crude supply.

Glycerin is refined in the United States by only a few companies. The largest producers include

Proctor & Gamble, Dial, and Cognis, which are all major players in the global chemical market.

All domestic refiners currently refine natural glycerin only.

Proctor & Gamble owns the largest refining plant with a capacity of 150 million pounds annual

capacity, which accounts for over 30% of the domestic glycerin refining capacity. Table 2

contains information pertaining to the owners and the capacity of glycerin refineries in the

United States.

The most recent major entrant into the refined glycerin market is Cargill. The agribusiness giant

built a 30 million pound capacity plant on the same site of its 37.5 million gallon biodiesel plant.

This is the second glycerin refinery to be constructed on the site of a biodiesel refinery. The

other company is Purada Processing, LLC, which is a subsidiary of World Energy Corp. Other

firms have cancelled plans to build or expand glycerin refining operations due to the crude

glycerin glut.

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Company and Location Capacity

(Million Pounds)

Proctor & Gamble, Ivorydale, OH 150

Cognis, Cincinnati, OH 65

Uniqema, Chicago, IL 35

Cargill, Iowa Falls, IA* 30

Crompton, Memphis, TN 30

Dial, Montgomery, IL 30

Lever, Hammond, IN 25

Colgate-Palmolive, Jeffersonville, IN 20

Crompton, Mapleton, IL 20

Lonza, Painesville, OH 20

Starchem, Fostoria, TX 20

Purada, Lakeland, FL* 15

Marietta American, Olive Branch, MS 2

Total 462

Table 2 Glycerin Refineries, Source: The Innovation Group Chemical Profile Glycerin

As can be seen on Figure 15, most glycerin refineries are located in areas traditionally involved in

chemical refining. The largest capacity for glycerin refining lies in the eastern Corn Belt states.

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Figure 15: Glycerin Refinery Locations Source: The Innovation Group Chemical Profile - Glycerin

GGllyycceerriinn UUssee bbyy EEnndd PPrroodduucctt According to the Soap and Detergent Association, there are over 1,500 uses for glycerin10. The

uses range from energy bars to cough syrups to protective boat coatings. With 1,500 uses, the

market is expected to be fragmented. While this traditionally meant that refiners commanded

more market power, much of this power has been undermined with the recent glut of crude

glycerin in the domestic market.

The top three uses for refined glycerin are food products, personal care products, and oral care

products. These three uses account for 64% of refined glycerin consumption. Figure 16

contains a complete breakdown of glycerin consumption by end use.

10

Why Glycerin USP?, The Soap and Detergent Association, 2000

www.abginc.com 20

Food Products

24%

Personal Care

Products

23%

Oral Care Products

17%

Tobacco Humectant

11%

Polyether Polyols for

Urethanes

8%

Pharmaceuticals

7%

Miscellaneous

10%

Figure 16: End Use of Refined Glycerin, Source: The Innovation Group Chemical Profile : Glycerin

Food Products

Glycerin has unique properties which make it a useful component of food products mostly as

humectants in food products11. As a humectant, glycerin absorbs water molecules from the air,

helping keep food moist and prevent crumbling. This property of glycerin helps preserve food

and keep it fresh for longer periods of time.

Glycerin is also making inroads into the sporting world as a unique carbohydrate source. Its

chemical properties give it a sweet taste, but unlike other carbohydrates, glycerin does not cause

an insulin surge during the digestion process. This means excess energy from glycerin is not

stored in the body as fat, making glycerin ideal for body-builders as it provides short-term energy

but does not increase body fat. Moreover, glycerin has water-retention properties which make it

ideal for sports drinks.

Glycerin can be used as a lubricant in food manufacturing facilities because it is non-toxic and

has many lubricant properties.

11

Glycerin Overview, Government of Western Australia Department of Agriculture and Food, 2006

www.abginc.com 21

Personal Care Products

Personal care products account for 23% of the usage of refined glycerin. The properties of

glycerin are ideal ingredients in many personal care products, mostly helping to prevent moisture

loss. Thus, glycerin is used as an emollient in skin creams, lotions, shaving creams, makeup

and deodorant.

Oral Care Products

Oral care product usage accounts for 17% of refined glycerin demand. Glycerin is commonly

found in toothpastes, mouthwashes and sugar-free gum, giving these products a sweet taste

without contributing to tooth decay12. Gel toothpastes generally contain more glycerin than

traditional toothpastes because glycerin helps to provide a smooth appearance.

Tobacco Humectant

Glycerin is used as a humectant and sweetener in the manufacture of tobacco13, accounting for

11% of refined glycerin consumption. Glycerin is often sprayed on leaves before processing to

prevent crumbling and dehydration. It is used as a plasticizer in cigarette papers as well as a

sweetener in chewing tobacco.

Polyether Polyols for Urethanes

Glycerin provides one of the basic chemical building blocks for the construction of rigid

polyurethane foams. The usage in this category accounts for 8% of glycerin consumption.

Pharmaceuticals

Glycerin is used in many medicinal formulations, accounting for 7% of refined glycerin

consumption. Glycerin provides lubrication and smoothness to many cough syrups and elixirs.

It can be used as a plasticizer in gel caps and is an active ingredient in the emergency heart

medicine, nitroglycerine.

Miscellaneous

Miscellaneous uses of glycerin account for 10% of refined glycerin consumption. About 3% of

refined glycerin is used for the formulation of alkyd resins. Alkyd resins are used as protective

surface coatings, components of plastics, and paints. Glycerin is also a component of

nitroglycerine explosives.

12

Bluffton University Department of Chemistry 13

Acme-Hardesty Glycerin Product Catalog

www.abginc.com 22

Energy Source

The most common uses of crude glycerin today are for incineration. Glycerin burns well at high

temperatures (it is toxic at 392-572 F) and is useful for heating industrial boilers14. This is one

use of glycerin that consumes large amounts and does not require refining. However, this is

considered the lowest valued use of glycerin, as it adds little value to biodiesel producers when

the glycerin is sold for waste byproduct prices.

FFaaccttoorrss DDrriivviinngg DDeemmaanndd

Glycerin is produced in the manufacturing or refining of several chemicals from

petroleum to soap to biodiesel. Therefore, glycerin supply is not related to glycerin

demand, however, prices are. Glycerin prices adjust to deal with the global supply.

Like any normal good, the price of substitutes determines glycerin demand. Many

substitutes for glycerin are petroleum-based. Although these products are not up to the

quality standards of refined glycerin, they are generally less expensive than refined

glycerin. The recent rise in crude oil prices has made petroleum-derived chemicals more

expensive than they have been in the past15. This has helped to increase the demand for

glycerin from natural sources as more manufacturers start to look to glycerin for their

oleochemical needs.

One of the primary drivers of increased demand for glycerin has been the rising standard

of living in Asia. As the Asian population becomes more affluent, the demand for

personal care products will increase as many of the cosmetics, soaps, and other hygiene

products contain glycerin. China is a rapidly developing market for personal care

products, which will provide further opportunities for glycerin.

The historical data analysis determined that petroleum production has traditionally

impacted glycerin prices. Figures 17 and 18 explain the mid 80s shock in European and

American glycerin prices as a result of reduced oil production in the Middle East.

14

Glycerin Overview, Government of Western Australia Department of Agriculture and Food, 2006 15

Global Market Outlook: Glycerin Flexnews Food News, 2006

www.abginc.com 23

The overarching restraint on the glycerin market is oversupply. There is just simply more

crude glycerin than the market can handle. The worldwide increase in biodiesel

production will further contribute to this situation in the future. Europes production of

crude glycerin exceeded 1.1 billion in 2006. The entrance of Asian palm oil producers

into the market will further exacerbate the supply glut. Also, high transportation costs

limit glycerin demand. It costs between $0.04 and $0.05 per pound to ship glycerin from

European ports to the American market16. At times the freighting cost is higher than the

value of domestic crude glycerin.

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Figure 17: Middle Eastern Oil Production and European Refined Glycerin Prices, Source: HB Int'l, BP Shell

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Figure 18: Middle Eastern Oil Production and US Refined Glycerin Prices, Source: Purchasing.com, BP Shell

16

Global Market Outlook: Glycerin Flexnews Food News, 2006

www.abginc.com 24

FFuuttuurree PPrroossppeeccttss The increase in the Asian standard of living and substitution for petroleum-derived chemicals will

lead to slight growth in the demand for glycerin; however, the increase in demand will not be

enough to keep up with the supply of crude glycerin from biodiesel production. Japan and the

United States, two historically large consumers of glycerin, only have an annual growth rate of

two percent for glycerin consumption17.

Research and development into future uses of glycerin provides the only hope for dealing with

the crude glycerin glut brought on by biodiesel production. University researchers, chemical

giants Dow and DuPont, and agribusiness powerhouse Cargill are all investing time and money

to find better ways to utilize glycerin. The short-term effect of the current research will be

minimal; however, there is some promising research which could make glycerin less of a waste

product and more of a valuable byproduct. This is discussed in section on potential new glycerin

outlets.

CCoommppeettiinngg PPrroodduuccttss There are several substitutes for glycerin depending on the end-use industry. These substitutes

are often used when they are priced cheaper than glycerin. The chronic oversupply of glycerin

has cut inroads into the markets of glycerin competitors, including sorbitol, propylene glycol,

and bentonite.

Sorbitol

Sorbitol has several end-uses similar to glycerin and often they are included together in the same

formulations. By category, the uses of sorbitol are:

Toothpaste and cosmetics 35%

Processed food 30%

Pharmaceuticals 7%

This is a highly concentrated market with three producers accounting for 93% of the 820 million

pound production capacity18. Sorbitol is produced with sugar from corn starch or invert sugar as

a feedstock. The three largest producers are SPI, Roquette America, and ADM and account for

ninety-three percent of the sorbitol market.

17

The Innovation Group Chemical Profile: Glycerin 18

The Innovation Group Chemical Profile: Sorbitol

www.abginc.com 25

With demand at 606 million pounds and a growth rate of 1.5 percent, the United States is a net

exporter of sorbitol. Sorbitol prices range between $0.27 and $0.40 per pound for

pharmaceutical grades.

Propylene Glycol

Propylene glycol (PG) has industrial uses similar to glycerin. These compounds can often be

seen as ingredients in the same formula19. By category, the uses of PG are:

Unsaturated polyester resins 27%

Functional fluids (anti-freeze, de-icers) 20%

Cosmetics and food industry 20%

Miscellaneous (paints, coatings, tobacco processing) 33%

The PG market is highly concentrated. The top two producers account for 85% of the 1,280

million pounds production capacity.

With demand at 943 million pounds and a growth rate of two percent, the U.S. is a net exporter

of Propylene Glycol. Prices range between $0.60 and $0.68 per pound.

Potential New Glycerin Outlets

In order to add value to glycerin from biodiesel, new outlets need to be found for the byproduct.

The supply of crude glycerin has reached crisis levels. Many view glycerin as a waste product

instead of a versatile byproduct. Prices for crude glycerin have bottomed out in both the US and

European markets. The best means to improve the glycerin glut will be innovations that add

value and create new, strong demand for glycerin.

Most new outlets for glycerin are in the development phase. Therefore it is difficult to estimate

their future impact on glycerin demand and prices.

19

The Innovation Group Chemical Profile : Propylene Glycol

www.abginc.com 26

SSeeccoonndd GGeenneerraattiioonn BBiiooffuueellss One of the most exciting developments on the horizon is research related to converting glycerin

into renewable fuels known as second generation biofuels. These fuels improve the yield of the

biodiesel process, add value to the bottom line and result in less glycerin to either market or

dispose of. These second generation fuels do not require refined glycerin as an input; therefore,

biodiesel plants across the world can use the process without building refining capacity.

Researchers in Barcelona (IUCT) have developed a technique which converts glycerin into

biodiesel. The process, known as IUCT-S50, is meant to be used alongside a traditional biodiesel

plant. The IUCT-S50 process allows biodiesel plants to convert 100% of their biomass to

biodiesel. In addition to automatically boosting plant production by ten percent, the process

eliminates the need to market or dispose of crude glycerin20.

IUCT has been in talks with several biodiesel companies in Europe and the United States to

license their technology. IUCT-S50 technology should be commercialized between mid 2008 and

early 200921. If the process is cost-efficient, it can be expected that this technology will be very

popular among biodiesel producers.

Dr. Ramon Gonzalez, a Chemical and Biomolecular Engineering professor at Rice University,

has identified a strain of E. coli which can convert glycerin to ethanol in an anaerobic

environment22. The process yields pound of ethanol for every pound of refined glycerin. The

other pound can be used as a feedstock for other industrial chemicals, thus adding even more

value to the glycerin.

Dr. Gonzalezs process is very cost-effective. He estimates the cost of production for his process

is 40% of the cost of corn ethanol production. One of the most promising aspects of Dr.

Gonzalezs process is that unprocessed and crude glycerin can be used as feedstock.

Dr. Gonzalez has formed a company to commercialize and license the technology. The company

expects to have a pilot glycerin to ethanol plant operational in the summer of 2008.

Depending on industry acceptance, this technology has room to grow and could consume a

considerable amount of glycerin in the future.

20

Press Release Mollet, September 25th, 2007 Institut Univ. de Ciencia i Tecnologia, S.A. 21

E-mail correspondence Josep Boliart CEO and General Manager, IUCT 22

Personal conversation Sept. 14, 2007

www.abginc.com 27

LLiivveessttoocckk FFeeeedd Another potential use of glycerin is corn replacement in cattle feed. Several universities in the

U.S. are researching the effectiveness of feeding crude glycerin in beef feedlot and dairy cow

operations23. Other animal scientists are investigating crude glycerins suitability as a corn

substitute in swine and poultry rations. The research has yielded very positive results so far,

showing that glycerin can be substituted for corn as an energy source with a 1:1 ratio.

The research indicates there is no sacrifice to milk, meat, or egg production when crude glycerin

is substituted for corn in livestock diets. This is great news for the livestock and poultry industry

which has been dealing with high corn prices due to ethanol demand.

One concern with feeding glycerin to livestock is methanol content. High methanol producers

will not have access to the livestock feeding market. Another practical concern is the stickiness

of the feed. Swine and poultry researchers noted that glycerin levels above ten percent of the

ration were not practical to feed with modern feeding equipment24.

IInndduussttrriiaall CChheemmiiccaallss There are opportunities to use glycerin as building blocks of industrial and organic compounds.

Glycerin can be used in many types of chemicals; their uses ranging from paints to dyes to fuel

cells.

Epichlorohydrin

Epichlorohydrin has traditionally been a building block in the manufacture of synthetic glycerin.

However, with the flood of crude glycerin on the market, the demand for epichlorohydrin has

fallen drastically. Solvay Chemicals has patented a process which converts glycerin from

biodiesel into epichlorohydrin25. This compound is then used to as a component of UV coatings,

resins, and paper reinforcement.

1,3 Propanediol

Researchers have identified several strains of bacteria which are capable of converting glycerin

into 1,3 Propanediol. This compound, much like epichlorohydrin, is useful in UV curings,

adhesives, polyesters, and laminates.

23

University of Minnesota Extension Service, Dr. Jim Linn 24

Biodiesel Byproduct Effective in Swine and Poultry Feed, Feed Management, May/June 2007 25

Solvay Chemical Press Release January 2006

www.abginc.com 28

Hydrogen

Although hydrogen fuel cells are very much in their developmental stage, glycerin processing

often yields fuel-grade hydrogen as a co-product. This will add more value to glycerin in the

future, but it will not have any short-term or intermediate effects on the value of glycerin.

www.abginc.com 29

Scenario Analysis The teams research has led to a few conclusions about the future markets for biodiesel

byproducts. Even though there is much uncertainty and often little market information available,

making firm conclusions about the future difficult to predict, the teams interpretation of the data

leads to a few potential scenarios for the future of glycerin, fatty acids, fatty alcohols, and bar

soap. All of these are dependent on the volume of biodiesel produced on a global basis.

GGllyycceerriinn The future of the U.S. glycerin market is dependent on three major factors: the volume of

biodiesel produced globally, domestic soap production, and development of new uses for

glycerin. The teams interpretation of the future market for glycerin is an extension of current

trends. Barring any new innovations which significantly increase the demand for glycerin,

then the price of glycerin will continue to plummet and crude glycerin will sell for waste

byproduct prices.

Biodiesel Production

The most realistic scenario to consider is the volume of biodiesel being produced globally

increasing well into the future. Growth in the industry is buoyed by government subsidies, tax

incentives, and usage mandates. Europe and the United States are leaders in biodiesel

production, but nearly every developed country in the world has included biodiesel as part of

their renewable energy policy initiatives. The reality of high feedstock prices in relation to

petroleum may stifle biodiesel growth in some countries, but countries with abundant sources of

fats and oils will build up biodiesel capacity, thus putting more glycerin out into the market and

driving prices lower.

Another biodiesel production scenario to consider is little or no growth in biodiesel production.

This does not seem feasible in the long-run given all of the political goodwill currently directed to

green energy. However, in the short term, high vegetable oil prices make U.S. biodiesel

production unprofitable despite $1/gallon subsidies and tax incentives. This has already put

biodiesel volume at lower levels than expected; thus the volume of crude glycerin hitting the

market is not as high as expected. There is already a surplus of glycerin; however, a slow down in

biodiesel growth will make the glut of glycerin less severe.

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Soap Manufacturing

The soap manufacturing industry is very much tied to the biodiesel and glycerin industry. Soap

manufacturers are competing with biodiesel companies for input feedstocks and compete with

biodiesel companies to sell their byproduct, glycerin. This has squeezed margins on both ends

for soap manufacturers.

The scenario that the team sees emerging is soap production moving to Southeast Asia. The area

already has lower labor and input costs than the United States. Consumption from multi-

feedstock biodiesel plants has driven up the price of animal fat - the saving grace of American

soap makers in the past. Soap makers can import cheap raw oil as a fatty acid input for the short-

term, but if the U.S. continues to need more fatty acids than it can produce then soap production

will shift to Southeast Asia.

If soap production shifts to Southeast Asia, two things will happen: (1) the volume of glycerin on

the U.S. market will decrease; (2) the glycerin refining capacity will shrink, thus increasing glycerin

imports. The team projects that the shift of soap production to Southeast Asia would have an

ambiguous effect on prices for glycerin from biodiesel. Although the shift of soap manufacturers

to foreign countries would reduce the amount of crude glycerin that biodiesel companies have to

compete with, there will be less refining capacity since most glycerin refineries are owned by soap

manufacturers.

Decreases in the domestic refining capacity will depress the price of crude glycerin since the top

use for refined glycerin is as an input for refined glycerin. The extra crude glycerin will be used

for lower value uses.

New Uses for Glycerin

Research and development of new uses for glycerin, especially crude glycerin, is the only realistic

hope the industry has to increase glycerin prices. There are several developments in various

stages of the research pipeline which may add value and provide an outlet for glycerin. These

include second generation biofuels, industrial chemical usage, and livestock feed.

If the new outlets for glycerin come to fruition, then the price of crude glycerin can be expected

to increase. The level of that increase depends on how much the new uses utilize crude glycerin.

www.abginc.com 31

Second generation biofuels plants, which can be located on the site of an existing biodiesel plant,

can be an efficient use of glycerin and can add value to the bottom line. They will keep crude

glycerin off of the market which will increase the value of glycerin.

If new outlets for glycerin, especially crude, do not pan out, then glycerin prices will continue to

lag. Excess crude will be sold as a waste product and will be used incinerated to heat industrial

boilers.

FFaattttyy AAcciiddss aanndd FFaattttyy AAllccoohhoollss Biodiesel production has created a feedstock shortage in both fatty acids and fatty alcohols. Fats

and oils traditionally used to produce fatty acids and fatty alcohols are being diverted to biodiesel

production. Prices have risen for both fatty acids and fatty alcohols which have led domestic

consumers to import Malaysian (the world leader in fatty acid production) palm oil for feedstock.

The future of the U.S. fatty acids and fatty alcohols producers will be impacted by trends in the

biodiesel industry. If demand for biodiesel increases as projected, the price of inputs for

domestic fatty acid and fatty alcohol manufacturers will be prohibitive. The manufacturers will

be able to import oil from overseas; however, lower input costs will eventually move even more

fatty acid and alcohol production to Southeast Asia.

If biodiesel production remains steady and new construction and expansion plans are put on

hold, then domestic fatty acid and fatty alcohol producers will still face a difficult time. The

market equilibrium is still adjusting to the current level of biodiesel production, and raw imports

are necessary to sustain the domestic fatty acid and fatty alcohol industry. Southeast Asian fatty

acid and fatty alcohol producers will take advantage of this situation and export more of their

lower cost fatty acids and fatty alcohols to the American market.

BBiiooddiieesseellss EEffffeecctt oonn SSooaapp MMaannuuffaaccttuurreerrss The recent surge in biodiesel production has alarmed soap manufacturers since it impacts both

input costs and revenues. A dramatic increase in biodiesel production will drive up the price of

fatty acid inputs and further reduce the price of glycerin.

Animal fat and vegetable oil are used as feedstock for the manufacture of natural fatty acids.

Biodiesel producers have cut into the vegetable oil supply and driven up prices across the board

and animal fats are expected to be a significant source of biodiesel in the future. Thus, natural

www.abginc.com 32

input supplies for soap manufacturing will be more expensive if biodiesel experiences major

sustainable growth. Soap manufacturers are already dealing with a shortage of beef tallow. Their

short term remedy is to import Malaysian palm oil or use petrochemical (synthetic) stock26. If

domestic manufacturers lose access to cheap inputs, the production will move overseas for

cheaper labor and inputs.

The biodiesel industry negatively impacts glycerin revenues which soap makers have traditionally

relied on. The 2006 price of refined glycerin is more than thirty-one cents below the average

price of the previous twenty years. The development of alternative uses of glycerin may provide

soap producers some relief from sagging glycerin prices in the future, but glycerin prices will

continue to be depressed in the short term.

Key Take-Aways

The glycerin market is a complex, volatile market which is dependent on global supply.

There have been many changes in the glycerin market over the last twenty years, making

it difficult to develop a model to predict future spot prices. The price of domestic refined

glycerin is negatively correlated with Middle Eastern petroleum production and European

glycerin production.

Global glycerin production has increased drastically in recent years due to renewable fuel

production driven by subsidies, tax breaks, and usage mandates.

Prices have dropped due to the increased supply of glycerin. Refined glycerin prices have

almost halved while crude prices hover between five and fifteen cents a pound.

Biodiesel production is inadvertently affecting the soap manufacturing and fatty acid

production industries by competing for input feedstocks and driving down glycerin

prices. This will likely cause some of these companies to move their operations overseas.

Since the majority of domestic refineries are owned by soap and fatty acid manufacturers,

this would cause a decline in refined glycerin capacity.

26

Biofuel News, The Grass Farmer - http://wincustomersusa.com/stockman/index.php?option=com_content&task=view&id=84&Itemid=9

www.abginc.com 33

The future volume of biodiesel production is uncertain. The reality of petroleum prices

and the rising costs of input feedstocks are coming to a head with the optimism of

legislated renewable fuel policies. Biodiesel producers are having a difficult time

maintaining profit despite direct subsidies, tax breaks, and usage mandates. Although

growth in biofuels is expected to continue, future production may be below current

projections, thus glycerin production may be lower than initially projected.

Markets which have traditionally consumed glycerin (cosmetics, food products, and oral

care) are mature and growth is slow. However, Southeastern Asias rising standard of

living is the highest growth opportunity for refined glycerin.

Glycerin is currently favorably priced compared to it substitutes, many of which are

petroleum derived; however, this is not pushing the needle enough to significantly

improve glycerin demand.

Research and development for new uses of crude glycerin are promising. Corn

replacement in livestock rations and second generation biofuels (i.e., glycerin to

ethanol, glycerin to biodiesel) may provide outlets for large quantities of crude glycerin.

This will help to alleviate the crude glycerin glut and improve biodiesel producers

glycerin revenue.