12/23/08

DECEMBER 2008 -  MARKET REPORT

General Update

Since our last report in October there have been many changes to key industry drivers including; currency rates, oil prices and the global economic situation.

Weakening currencies have been causing real problems for buyers and sellers alike. We have seen the US$ reach a two month low against the EURO of 1.37 over further fears for the US economy and the GPB has fallen to a record low of 1.10 against the EURO and a low of 1.45 against the US$. The Chinese RMB appreciation seems to have stopped for the moment and we will be paying close attention to this trend in the New Year.

At the time of writing this report crude oil prices were well under $50 per barrel, which is more than $100 per barrel lower than the record highs experienced during the summer months of this year. Despite this crash which has been caused by the global economic slowdown, speculation is mounting that prices will rise again in 2009 as it is likely that OPEC will reduce production by at least 1 million barrels per day in order to stabilise prices.

In early December the Chinese government announced that the country’s exports fell in November this year, this is the first drop in seven years. This drop is causing much worry in China as according to experts the Chinese economy needs to grow by at least 8% per year in order to absorb the estimated 1m graduates looking for work each year. It has been projected that economic growth next year could be much lower than this required 8% meaning that China is far from immune to the global economic crisis.   

The outlook for 2009 is gloomy with the continuing fallout of the global credit crunch expected to seriously affect the manufacturing economy. We do expect to see falling prices for a number of our key product lines although Ascorbates could well be a significant exception to this trend.

Lastly we take this opportunity to wish all our customers and suppliers a very merry Christmas and a happy and successful 2009!

VITAMINS & NUTRACEUTICAL INGREDIENTS

ASCORBIC ACID & DERIVATIVES

Prices in the spot market are firm with seemingly little product left in distributors warehouses. Each of the four large Chinese producers have announced they will close for maintenance at some stage during the next 8-9 months. At present only one of the four main producers is making offers but only for January/February shipments and in limited quantities.

The above is likely to ensure there is not a surplus of material in the market as we move forward into the first quarter of 2009 and consequently it is most likely that prices will remain firm.

Looking further forward, it is more difficult to predict the market but, two of the Chinese producers have indicated that they intend to produce less Ascorbic Acid powder in 2009 as they plan to concentrate on producing Direct Compression grades for both export and their own in-house tablet production. There are two new Chinese producers planning to enter the market by the middle of next year and their combined capacity is expected to be approx 10,000MT, however, the very earliest their product is expected to be available is late summer of 2009.

VITAMIN B1, B2 AND B6

Prices for the above have declined and there is limited demand in the spot market.

VITAMIN E (SYNTHETIC)

Since our last report, prices have eased very slightly but availability remains quite restricted. At present, the Chinese manufacturers appear reluctant to quote for volume on a forward basis which is likely to ensure the situation remains uncertain.

INOSITOL

Since our last report, prices have weakened and availability in the market appears to be much improved.

CHONDROITIN & GLUCOSAMINE

We have recently introduced these items into our product portfolio and are looking to establish them as regular stock items in the New Year. Glucosamine will be suitable for all applications in food and nutrition. Both Powder and DC grades will be offered in this expanding market. Chondroitin continues to pose problems with quality assurance. With this in mind, we have teamed up with a European based producer to assure our customers that our Chondroitin is the genuine article.

The market for joint health continues to increase with demand for applications in human, domestic pet and equine formulations. Applications in food and drink are also on the increase.

FOOD & BEVERAGE INGREDIENTS

ERYTHORBIC ACID & SODIUM ERYTHORBATE

As a result of improved availability ex China prices have weakened since our last report and we have stock of both products.

CITRIC ACID

The U.S. Department of Commerce has finalized anti-dumping duties ranging from 130-155% against the Chinese producers.  Currently, it is cost prohibitive to import Chinese origin Citric Acid.  In the near future there seems to be plenty of material in the hands of distributors, however, there will not be enough to satisfy demand throughout 2009.  Consequently, prices have increased substantially.  It is possible that we will see shortages and prices above $1.50/lb by the peak of the summer season demand.

POTASSIUM SORBATE/SORBIC ACID

Further to our last report, prices have continued to ease as it seems there is now a surplus of stock in China. Having said that we feel it is a good time to consider taking forward cover as the current price levels are probably unsustainable and are likely to increase as we move into the early stages of next year.

SODIUM SACCHARIN

In October the Department of Commerce did a sunset review on the anti-dumping duties for Chinese origin Sodium Saccharin.  Duties were reaffirmed at 249-329%.  In addition, Shanghai Fortune’s duty was increased to 249%.  If Shanghai Fortune is forced to exit, the U.S. market prices could once again go up dramatically.

CAFFEINE

Prices are stable and stock levels appear quite high in the market. As a result of what appears to be a lack of new orders having been placed in China over recent months, we feel there is the chance that prices may weaken as the Chinese producers look to secure some volume business for 2009.

AMINO ACIDS

L-CYSTEIN HCL MONO & ANHYDROUS

Prices have reduced mainly due to lack of business being concluded in recent weeks and falling raw material costs. This is definitely, however, one to watch as it could well bounce back up again over the Christmas / Chinese New Year period as orders start to be placed and shipments made. We recommend customers have cover for at least Q1.

GLYCINE

Prices have decreased recently for the same reasons detailed above for L-Cystein.

TAURINE

The price has decreased recently mainly driven by a fall in raw material costs and a shortage of forward business being concluded. The two main producers increased their production capacities in 2008 and we are likely to see additional material available from two new producers in 2009. However, the full impact of this remains to be seen as there are still issues around the two new factories.

L-LYSINE MONO HCL

We are offering material for 2009 and powder, granular & crystalline material is available.

D-XYLOSE

This product remains relatively stable in price – we can offer from stock.

BRANCH CHAIN AMINO ACIDS

Prices are still higher than early 2008 and Valine & Isoleucine remain stable at these higher level. The Leucine price has reduced and now is a good time to buy.

FLAVOUR & FRAGRANCE INGREDIENTS

MENTHOL CRYSTALS

Following the attractive lower pricing experienced during October and early November, we are now seeing a sharp upturn. It would appear that in an effort to stem dropping prices some of the larger players have bought some inventory to try to push the market back up, which seems to be working. However, as this increase does not appear to be a result of genuine higher demand or reducing stocks, it is difficult to know if these levels can be sustained. It is usual to see prices rise during January to give the farmers an incentive to sow more plants, so it could be that these numbers are here to stay for couple or months.

MALTOL/ETHYL MALTOL

Prices have been dropping, although some would say not as quickly as expected, given that both factories are now running well. However, as the number of producers is so small, it is possible that the reduction in price will be limited in order to maintain reasonable profits for the factories.

VANILLIN/ETHYL VANILLIN

As with most Chinese aroma chemicals prices have declined and today’s offers are back to the numbers we were seeing in May/June of this year. Although many buyers are holding on to see if it can go down further this does of course carry a risk.

METHYL SALICYLATE

Prices are now lower than we have seen for most of the year and now appear to have stabilised. Availability is good and it could be a good time to asses demand for early 2009.

PHENYL ETHYL ALCOHOL

Prices have reduced considerably and this has stimulated strong buying interest. Offers today look attractive and it would be advisable to take cover before styrene prices take off again.

PEPPERMINT OIL ARVENSIS

As with the menthol we have seen some increases in the past few weeks but the ration of price between Menthol and DMO still seems to be out of line.

EUCALYPTUS OIL

Prices have fallen recently as a result of both the increase in the export tax rebate and the lack of buying interest which has caused the producers to be more aggressive. This is normally a major purchasing time but most buyers are waiting as they believe the market will continue to decrease.

SPEARMINT OIL 60% & 80%

Spearmint is one of the few oils which remain firm in price and do not appear to have been improved recently. There does not appear to be much incentive for anyone to grow and produce even at these levels.

LEMON

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