Domestic and export market performance and prospects of Philippine cocochemicals

Professorial Chair Lecture

UCPB Professorial Lecture Paper

Place

College of Economics and Management U.P. Los Banos

Date

5-7-2001

Abstract

The paper attempted to assess the domestic and export market performance and prospects of Philippines cocochemicals.

The Philippines holds the distinction of having the first oleochemical business venture in the ASEAN region. As of CY 2000, there were 18 manufacturers of cocochemicals registeres with the BOI with an aggregate production capacity of 678,301 mt. However, only 15 plants with a combined production capacity of 504,501 mt. were operating as of this year. Apart from the manufacturers of cocochemicals, there were two palm-based oleochemical manufacturers registered with the BOI in the same year. These were the Zambosur Oil Refinery Corporation and the Vegeoil Philippines, Inc. was operating in the year 2000.

The industry is composed of the oleochemical producers of fatty alcohol, fatty acids, methyl esters, and glycerine as the by-product; and the surfactant or oleochemicals derivatives-producers involved in the manufacture of alcohol sulfates, alkyl phosphates, amines, distearates, etc.The oleochemicls derivative-producers source their raw materials from the basic oleochemicals producers.

Thirteen Luzon-based plants accounted for 68.39 percent of the total oleochemical production capacity (504,501 mt.) in the year 2000. Two Mindanao-based plants captured 31,49 percent of the aggregate olechemical production capacity. Meanwhile, there was only one operating plant in the Visayas region and this firm represented a miniscule share of only 0.12 percent of the total registered capacity nationwide.

The major players in the oleochemical industry in the Philippines are the United Cocochemicals, Inc. which registeres a 23.14 percent share of the total registered capacity nationwide and Pilipinas Kao, Inc. with 21.74 percent share. The United coco chemicals Inc., and Pilipinas Kao, inc. dominated in Luzon and Mindanao, respectively. Primo oleochemicals, inc. ranked third among the operating plants nationwide with 10.26 percent share while Procter and Gamble Phils., ranked fourth with 8.62 percent share.

Cocochemicals production in the Philippines exhibited an erratic trend from 1989 to 1995. Since crude coconut oil is the feedstock or raw material in cocochemical production in the Philippines, cocochemical production in the country was influenced to a large extent by the availability of the price o crude coconut oil. However, the supply and price of crude coconut oil in the Philippines are highly unstable due to year-to-year weather variability. cocochemical production was found to be inversely related to the price of crude-coconut oil.

Despite the fluctuating trend in cocochemical production, cocochemical production rose markedly from 71,799 mt in 1989 to 116,326 mt in 1995, or by 62 percent. Despite the lack of updated data on cocochemical production from 1996 to 2000, it is expected that the trend in cocochemical production in recent years will follow the trend in the domestic price of crude coconut oil and the quantity of availability crude coconut oil in the same period

From 16,955 mt in 1989, domestic consumption of cocochemicals in copra terms increased markedly to 28,817 mt in 1995, or by 67 percent. on the average, domestic consumption of cocochemicals grew an an average of 52.3 percent per year during the period 1989-1995 could be attributed to the implementation of Executive Order (E.O.) 259 in 1989. The said executive order required the substitution of petroleum-based hard alkyl benzene, a non-biodegradable chemical used in the manufacture of soap detergents, with coco-fatty alcohol sulfate, which is biodegradable.

An examination of the average annual cocochemical production vis-a-vis consumption during the period 1989-1995 showed that 34.2 percent was consumed by the domestic market. Several industries in the country utilize cocochemicals to manufacture soaps, shampoo, hair rinse, cosmetics, household detergents, textile/industrial detergents, agrichemicals toiletries (e.g. deodorants, bath oils, toothpastes and synthetic perfumes), polyyurethane, tobacco, base material in paints, explosive, propellants and pharmaceuticals. Currently, about 90 percent of domestic cocochemical consumption went to detergents compared to 59 percent in 1989. The increase in the percentage share of the househol detergent industries could be attributed to the passage of E.O. 259.

It is expected that the domestic market potential of cocochemicals in great due to its wide application in local manufacturing industries and the growing end-use markets as a result of the country's increasing population and the real income per capital. The country's population increased as an average of 2.4 percent annually from 1990-1999 while the average annual growth rate in real income per capita was 1.01 percent. Real income per capita is a measure of the purchasing power of each individual consumer. Hence, a projected rise in consumers' purchasing power will allow increased purchase beyond the essentials of food, clothing, and shelter into personal care products, soap, detergents, and other products which rely on cocochemicals, Among the end-use markets, major growth areas will be in the soap and detergent market and the personal care product market. The demand for drugs, lubricants, and motor oil which use oleochemicals as inputs is also projected to continue growing.

The Philippine oleochemical industry is largely export-oriented. An average of 65.2 percent of the total cocochemical production in the country during the period 1989-1995 was exported. The major cocochemicals exported by the Philippines as fatty alcohol, fatty acid, and methyl ester. other cocochemical exports include refined glycerine, crude glycerine, alkanolamide, and coco acid oil. During the nine-year period under review, the Philippines generally did not perform well in exporting cocochemicals as evidenced by the negative growth rate in the aggregate volume of exports of all types of cocochemicals (-1.2%/year). This could be largely attributed to the significant decline in the volume of methyl ester exports and to a lesser degree to the drop in the volume of exports of alkanolamide, coco acid oil, and crude glycerine. However, despite the negative trend in the aggregate export volume of all types of cocochemicals, overall export receipts generated grew by an average of 10.2 percent per year due to the rising export prices of cocochemicals (9%/year).

Among the cocochemical exports of the Philippines, fatty alcohol, fatty acid, and refined glycerine appear to have bright export market prospects as evident from the increase in the number of foreign buyers and the positive trend in export volume, value and price of these cocochemicals.

Oleochemical firms forecast that the world demand for natural oleochemicals will grow at 3-4 percent per year due to the world population growth and increased standards of living. The main markets of natural oleochemicals in the world will cntinue to be the United states, Europe and Japan, partly due to the high level of environmental awareness or conciuousness in these countries. For Philippine oleochemicals, the emerging major market is the people's Republic of china. Moreover, the demand for fatty alcohols to be used in the production of surfactants for the laundry and detergent industries in the United States, the People's Republic of China and Taiwan is projected to continue increasing. Considering that the demand for personal care products in Japan, the United States, and Europe is also growing, this, in turn, will increase the demand for fatty amines and derivatives has strong growth, partly due to the growing use in "ultra" liquid detergents and in hair-conditioning products and shampoos. The demand for fatty alcohol is also projected to increase because of the development of new uses of natural fatty alcohols such as the production of alkyl polyglucoside. On the other hand, there are indications that China will show strong growth in fatty acid demand and capacity in the coming applications. Drugs and personal care are by far the most important end-use markets especially in the United States , Western Europe, and Japan, followed by tobacco/triacetin in the United states and Western Europe, Glycerine is also used in manufacturing polyether polyols, alkyd resins, cellophane, explosives and food, among others.

Despite the favorable market prospects of oleochemicals in the Philippines is confronted with the following problems which might constrain in the country from capturing a bigger share in the world market for oleochemicals; (1) stagnant coconut production and low coconut productivity; (2) high price of coconut oil and stiff competition with palm kernel oil-based oleochemicals from Malaysia and Indonesia; (3) price competitiveness of ethylene-based synthetic alcohols; (4) new competition coming from rapessed oil and cuphea as a feedstock in olechemicals production due to biotechnological development; (5) negative effects of trade liberaization ; and (6) smuggling of detergents.

The future of the local oleochemical industry hinges on the reliability of coconut supply and the price competitiveness of coconut oil vis-a-vis palm kernel oil and ethylene. Unless coconut production is increased and prices of coconut oil are competitive, the country's cocochemical industry will face a bleak future. Given threat facing the local cocochemical industry from palm kernel-based olechemical industries in Malaysia and Indonesia and from synthetic capacities, concerted efforts of both the philippine government and the private sector in undertaking a large-scale replanting program in the country are urgently needed.

To be globally conpetitive in the world oleochemical market, the Philippines should not only be cost-efficient in copra/coconut oil production. but in oleochemical manufacturing as well. To expand the domestic and export markets of locally manufactured cocochemicals, researches aimed at developing new uses of cocochemicals must also be accorded priority in terms of budgetary allocation by local research funding institutions.

Call Number

PL

College

College of Economics and Management (CEM)

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