17/02/2010
February 2010 - Market Report
GENERAL UPDATE
Despite general sentiments at the end of 2009 being that we would see a stable or downwards trend in product costs during 2010 we have see the complete opposite, with the majority of our traded ingredients experiencing production and supply issues and subsequent price increases.
In the past few months continuous heavy snow fall and low temperatures in many regions of China have caused widespread issues with the mining and transportation of coal. The result of this is that the majority of power stations are experiencing a coal supply shortage. Furthermore, in the South West of China the main power supply is hydroelectric and as a result of a six month drought production is extremely low. We are already seeing serious supply issues with many factories having their power supply cut or rationed in order to give priority to providing residents with the power they require. Products produced in the following provinces have been the most affected; Hubei, Yunnan, Jiangxi and Sichuan with other regions also citing similar issues although not as serious.
Numerous key raw materials such as benzene, furfural, phenol, styrene, toluene and mixed xylenes have jumped up in price since our last market report. As we are now in the time of Chinese New Year and the associated factory shut downs suppliers are extremely reluctant to offer forward contracts. We also keep hearing that the local governments in many provinces will be (or in some cases already have) increasing minimum wage bills putting further pressure on profitability.
China’s economy grew by 10.7% in the final quarter of 2009 compared to the previous year, taking the annual economic growth to 8.7% overall for the year. Exports of Chinese products grew significantly in January year on year up by 21%.
The EURO is holding a level close to a nine month low against the USD at around 1.35 with the economic crisis in Greece causing a lot of the pain. The GBP has weakened against the USD since the start of the year and is currently at levels around $1.56.
COMPANY NEWS
We are delighted to announce that from 15.02.10 Nic Dam has been appointed General Manager for our London office. Mr Dam has spent the last 4 years based in our Chicago head office as Director of Purchasing and he will be taking over the role of GM from Steve Watts. Mr Watts will become Managing Director and he will be focusing more of his time on our Ascorbates business and developing new strategic product opportunities globally.
We are pleased to confirm that we now have approval to supply Animal Feed Products in accordance with the AIC UFAS scheme. Our registration no. is 914. For more details please contact your normal sales contact or Brian Ashton in our Quality Department for certification details.
VITAMIN & DERIVATIVES
ASCORBIC ACID & DERIVATIVES
We have recently received the Chinese export figures for Ascorbic Acid and derivatives for the October – December 2009 period. These figures show a drastic decline in exports and explain the relative shortages of spot material available in Europe and the USA which have been seen over the last two months along with firmer prices.
China exported around 10% less material in 2009 compared with 2008. This could be explained by some reformulation and the general state of the world economy resulting in a drop in demand for certain products containing ascorbic acid. The prospect of new capacity coming on stream in China in the 2nd half 2010 still exists, however, there is speculation that the Chinese government may try to prevent this from happening, as they do not wish the market to be in over supply which could lead to a weakening in price.
The five Chinese factories still intend to close for maintenance at some stage during the 2nd and 3rd quarter 2010, which is likely to maintain pressure on supplies and pricing during this time period.
VITAMINS B1 AND B6
We are seeing an increase in prices corresponding to raw material cost increases, please contact us with your enquiries.
VITAMIN B2
Due to current power supply shortages (as mentioned in the general update) prices have increased by around 10% recently and the main producer is currently running approximately 2 months behind schedule. Based on the latest information we have, it should be expected that prices will continue to increase after the Chinese New Year. We recommend you keep in close contact with us to check both price and availability for any sport and forward contracts.
VITAMIN B5
The major Chinese manufacturer has recently increased their price substantially, citing shortages of both primary raw materials (Acrylonitrile and Isobutyraldehyde) which are both classed as hazardous so difficult to transport. With the Chinese New Year upon us and the upcoming World Expo in May, we are told that these transportation difficulties will become more severe. As with the above, prices and availability should be checked carefully before making any commitments.
NUTRACEUTICALS
GLUCOSAMINE
Glucosamine prices which started to rise in September have reached higher levels this year and are up around 25%. We are yet to see the price decreases many had optimistically thought would be coming this spring.We will see after Chinese New Year if reports of easing of the key raw material, Chitin, affect prices. Please keep in regular contact with us for further details.
CHONDROITIN
Prices have remained steady over the past few months despite the ‘supposed’ EU ban on Chinese pork and bovine origins. EU legislation may tighten in order to try and determine why so much of this allegedly banned product still makes its way to the EU markets. Premium offers alternative sources to Chinese and we welcome your enquiries.
CURCUMIN
Prices from this time last year have nearly doubled and India continues to have problems with their supply chain. We currently have good stock cover and can offer both granular and powder grades.
FISH OILS
We are nearing our completion of the registration of our Chinese fish oil supplier to comply with all current EU Legislation. We expect completion of registration by May and now would be a good time to consider looking at the high quality material we are now able to offer. Grades available include DHA or high EPA, Ethyl Ester and Triglyceride.
FOOD & BEVERAGE INGREDIENTS
ERYTHORBIC ACID & SODIUM ERYTHORBATE
Despite the fact that both Chinese manufacturers are now back in production spot market prices in Europe remain stable. At the time of writing stock levels in Europe appear to be low so with the inevitable delay in shipments ex China during the New Year we do not foresee a decline in price in the short term.
CITRIC ACID
Following our last report where we advised of recent price increases, we are now hearing that one of the current Chinese manufacturers is planning to increase their production capacity by as much as 50%. In addition to this we understand that two former manufacturers who had ceased production are now re-entering the market. The logical conclusion would be that this additional capacity will lead to prices weakening, however, with the MIP (Minimum Import Price) system still in place it should mean prices remain firm.
D-GLUCORONOLACTONE
Prices are currently firm and availability in Europe is restricted. As far as we can establish, this is being driven by a relative shortage of production in China caused by a drop in demand from the market which led to some of the Chinese manufacturers ceasing production. At the same time one of the remaining major producers in China reduced their capacity recently and to exacerbate the problem further raw material prices continue to rise.
CAFFEINE
There has been no change to the market since our last report.
POTASSIUM SORBATE
As per our previous report, prices remain firm and demand is strong. Therefore, availability should be checked before making any commitments.
QUININE
The market is relatively stable with a slight upward trend as Cinchona bark is increasing in price.
SACCHARIN
Prices out of China have started to firm up after several months of very low prices. In the USA the ITC has decided to keep in place the imposed tariff on Chinese saccharin for the original 5 year period. Premium is offering USP Indian saccharin at very attractive prices. Please contact us for more information.
ACESULFAME K
Just before the New Year prices began to firm up, we anticipate the price to slightly rise after the Chinese New year.
PHOSPHATES
Prices over the last 6 months have been low, however, they have now stabilized. With energy costs and transportation costs up it is highly likely we will see prices rise after the Chinese New Year.
AMINO ACIDS
L-CYSTEIN HCL MONO & ANHYDROUS
Prices continue to increase and availability is tight as two of the main four L-Cystine factories are closed. The adverse weather conditions, Chinese New Year tardiness and shortage of vessel space are all affecting shipments. We forecast that there will be shortages of the product in March and April and we recommend cover for first half year be put in place.
GLYCINE
Prices have increased from their all time lows at the end of 2009. Availability is currently still ok, however, it may be affected as well by the factors mentioned above for Cystein. It certainly seems better to take a position at this stage rather than waiting.
D-XYLOSE
Prices have increased between 10-20% over the last few weeks driven by increasing raw material costs. There is currently a high demand for furfural which is produced from corn cobs causing difficulties for the Xylose producers to obtain enough corn cobs for their own production.
TAURINE
Further to our previous market report prices have continued to rise and the main producers are aiming to get the price up further. The factories are indicating currently that raw material costs have increased by up to 50% and that product demand is still high in spite of the price rises. Bearing in mind the factory closures in February we believe that the market will remain high with an upward tendency for the coming 2-3 months at least.
L-LEUCINE
Prices have moved up by about 35% over the last few weeks corresponding on this occasion with the L-Cystein HCl products.
L-ISOLEUCINE & L-VALINE
Prices have been increasing and material has been tight for some months now. New manufacturers are entering the market and they should, over time, increase the quantity of material in the market and we may well see prices reducing. However, this will not happen in the short term and we strongly recommend that buyers ensure they have cover for these items.
ESSENTIAL OILS & AROMA CHEMICALS
MENTHOL/MINT
Markets have remained firm since the last report. The same factors that we have mentioned before have been the main influence, but now we have the added complication that the Government has confirmed that they are implementing Mandi Tax. There is some concern that this tax may be back dated so some suppliers have been reluctant to pick up stock.
Uptake of stock from the MCX has also reduced. Authorities are stating that exporters can lift oil at the MCX, only after paying Mandi tax, hence exporters are reluctant to lift the oil from MCX for the time being. Authorities have mentioned that they will allow the movement of oil, if one gets registered with them. Many small time traders are not prepared to register as they are on some cases running business through illegal means and if they register then they will have to pay Mandi tax, sales tax and, for some, even income tax.
Currently the view by most producers is that the market will remain firm and that they do not anticipate any improvement with the new crop. It does appear that the outlook is fairly gloomy and it is becoming more and more difficult to predict these products. We are making a trip to India early in March to visit Menthol plants and view the fields so we will be able to bring more information on our return. Please contact us toward the end of March for detailed information.
VANILLIN/ETHYL VANILLIN
Despite some new producers of Ethyl Vanillin coming on stream in China the price of both of these items has firmed and for the moment the Eternal Pearl factory is unable to offer any volume for prompt shipment. It appears that they have committed a large volume of product in the first few weeks of 2010 which has left them struggling to offer shipments until the second quarter. This has, unsurprisingly, led to a significant increase in pricing. Although the supply of Ethyl Vanillin from other factories is slightly easier, pricing has still moved up. It is recommended that customers cover their needs for at least the first six months on these products, please contact us for more information.
EUCALYPTUS OIL/EUCALYPTOL
Despite many buyers hopes and beliefs that we would see a downward trend as we entered 2010 these items have continued to rise in price. One of the main problems now is that there are virtually no free stocks in Europe and the USA. As many traders and consumers held off purchasing in anticipation of lower prices, limited forward purchases were made from China, resulting in very high spot demand and little stock to supply against it. We will have to wait for the suppliers to return from the New Year break to see if there is any softening in the market, but at this stage it looks unlikely.
CAMPHOR POWDER/ISO BORNYL ACETATE
As recently reported on our website offers from China are now very high and until we see a new crop of turpentine gum we will not see any improvement for these items. Availability is also low as producers are reluctant to manufacture material without firm orders in hand as they don't want to buy raw material or stock unsold finished product at these levels.
GERANIUM OIL
The market price for Egyptian and Chinese geranium oil has been trading well above the USD 100 per Kg mark for over a year. It seems that it has now been accepted as the norm and we do not expect the price to ease until the summer crop. Currently, the Egyptian oil is lower in price than the Chinese with both origins tending to follow the same price trend, however, the qualities are not fully interchangeable for all applications.
CLOVE LEAF OIL/EUGENOL
There is an acute shortage of oil in the market with Madagascar having not yet fully restarted their distillation campaign and the Indonesian crop suffering from heavy rainfall. The market price is currently at a 12 month high with the knock on effect being that there is very limited availability of Eugenol and Iso-Eugenol in the market. We expect the market for these items to continue to escalate.
NUTMEG OIL
Nutmeg prices have significantly risen as a result of crop disease and poor weather conditions in Indonesia and it does not seem likely that full production will recommence for several years to come. Due to tightened security checks in the USA it has become necessary to ship Nutmeg Oil as dangerous goods which has added another cost to material. Please keep in touch with us for updates.
CITRONELLA OIL
We are seeing a firming in Citronella Oil prices from all countries, however, demand is somewhat slow and is therefore keeping the increase at a moderate pace. The Sri Lankan quality seems to have been abandoned by most stockists in Europe as this origin of Citronella Oil became virtually unavailable a few seasons ago due to local demand. It has since not recovered its market share in Europe and the USA.
PATCHOULI OIL
In the last few months price increases seem to have halted. The firmer US dollar versus the Rupiah combined with a reduction in demand, as a result of the inflated prices, being the main reasons for this weakening.
ORANGE OIL/TERPENES
The frost in Florida has been a trigger for the sudden price hike and shortage of stock globally. Even the major Brazilian producers are unable to offer, subsequently on-call contracts have been taken early in fear of a genuine shortage of product in-between the crops times (March to June in Brazil). We do not expect any price reduction until the summer when material from the new crop becomes available.
GARLIC OIL - CHINESE
Prices continue to rise and there will not be any relief until at least June/July when the new harvest takes place. It is too early to tell whether this will bring much reduction to the prices which are now approaching $50 per Kilo on the spot.
CINNAMIC ALDEHYDE
Supply remains tight with several producers ceasing production. In particular the US market is squeezed on availability and this looks set to continue until May or June when hopefully producers will have caught up with their contract commitments.
COUMARIN
Prices have risen a little and it is expected they could continue to firm. We would recommend cover for the next 6 months.
HELIOTROPIN
The market is firmer and the cheap offers from China that we saw late last year have now all disappeared. Prices have advanced by more than $1.50 per Kilo and we expect this to be trend for the next few months.
CASSIA OIL/NATURAL BENZALDEHYDE
The market for these materials has run short in the past three months due to a lack of production during the Autumn season. Farmers were uninterested in producing material because the price was so week and Benzaldehyde producers did not want to get caught with high price raw material thus the farmers had no need to produce. This has caused the market to increase drastically and we do not see any relief until the spring production of the cassia oil. There are more inquiries in the market than there is material available.
LITSEA CUBEBA OIL/NATURAL CITRAL
Prices have firmed in this first quarter and look set to continue moving upwards during the second quarter due to a shortage of material. We do not anticipate seeing any relief in pricing until the next berry crop is available during the summer months.