Crude tall oil (CTO) is a by-product derived from the pulp and paper industry’s black liquor/tall oil soap during kraft pulp production, composed of fatty acids, rosins, and other neutral materials.
Historically, CTO has been a minor source of revenue or concern for pulp and paper companies. However, that is quickly changing as prices have risen rapidly over the past year—driven by supply disruptions, and more importantly, new demand willing to pay a premium for the product.
CTO and Its Fractions
CTO, a brownish-yellow oily liquid, is often purchased by refiners and further refined into different fractions, such as:
- Tall oil fatty acid (TOFA)
- Tall oil rosin (TOR)
- Distilled tall oil (DTO)
CTO and its fractions are used in a wide variety of applications, such as adhesives, inks, detergents, and emulsifiers. 30-50 kg of CTO/t of pulp may be recovered from highly resinous species—such as southern pines—representing about 30–70% recovery.
Demand Drivers in the CTO Market
We believe demand is being driven by recent decisions by regulators to classify CTO as an advanced feedstock for biofuel production. It can be used as a raw material to produce biofuels such as hydrotreated vegetable oil (HVO)/renewable diesel and sustainable aviation fuels (SAF).
Regulations and corporate ESG commitments aimed at net-zero goals are driving increased demand for low-carbon biofuels. One of the most recent examples, the Inflation Reduction Act (IRA) coupled with airline industry support provides substantial incentives for the blending and production of SAF from qualified feedstocks.
In fact, CTO is one of the very few readily available feedstocks that qualify under the Annex IX A of the European RED II mandate and the Carbon Offsetting and Reduction Scheme for International Aviation (CORSIA). Both of which were implemented to increase the use of sustainable aviation fuel in both the US and Europe.
The expansion and diversification of waste-based or circular economy feedstocks, such as tall oil, is essential to achieve the ambitious decarbonization goals of the aviation industry as well as other markets. Together with demand for low-carbon fuels from global multi-nationals, we believe it’s possible that CTO is entering a new market dynamic which will support higher prices for years to come.
CTO’s Current Position in the Pulp and Paper Industry
So why is this of importance to players in the pulp and paper industry? We’ve found that many companies lack a general understanding of CTO, its uses and, importantly, the factors that determine the price of CTO. Given the speed at which the markets are moving, we believe it’s vital for kraft pulp mills to rapidly acquire the information needed to maximize opportunities CTO offers.
According to FisherSolve, there are currently 187 mills extracting tall oil. Because prices have been historically lower, and due to the differences in yield and quality by wood species, not all pulp mills produce crude tall oil. However, as mentioned earlier, increased interest in using CTO to produce biofuels has heated up the tall oil market.
As there are a finite number of pulp mills in operation, the CTO supply is currently constrained and will be mostly price inelastic. The geopolitical situation with the Russia-Ukraine war has also created ongoing supply chain disruptions in Europe, placing further strains on CTO availability for traditional pine chemical applications.
CTO Data and Key Market Insights from ResourceWise
ResourceWise can provide you with the pieces needed for a big picture analysis. With an overview of the dynamics of CTO, together with an opportunity assessment defining the amount of potential value that could be unlocked through optimizing the price and production of CTO, you will have full transparency into the opportunities in front of you within this market.
These components consist of:
- Detailed data and market reports on renewable fuels and feedstocks through Prima CarbonZero, ResourceWise’s global research and data platform for low-carbon fuels and energy value chain.
- Detailed data sets describing every pulp mill in the world, including those producing CTO and those that could potentially produce it.
- Cash flow models that help you understand the benefits of producing CTO.
- FisherSolve benchmarking which can help you model crude tall oil yields and availability, as well as potential financial benefits.
For more information on how ResourceWise can help you identify opportunities and maximize profit in the CTO market, contact us today.