China's dominance of the vitamin C market was confirmed last week as DSM halted all production of the bulk vitamin in the US, making its Dalry plant in Scotland the only remaining major plant outside of Asia.
Four Chinese producers now supply the majority of the global demand for this vitamin, selling at prices well below the numbers that are feasible for DSM and the other remaining European vitamin maker, BASF.
But as BASF evaluates the future of its small Denmark plant, DSM says it will remain a significant player in vitamin C for the mid-term despite a smaller capacity.
The company will tap into growing demand for product traceability, quality guarantees, and fears of delivery insecurity. It will also push its expertise in formulation.
"If you look at the market on a surface level, there is lots of capacity available. But there is an undercapacity in a specific type of product," Bob Hartmayer, chief operating officer at the firm's Nutritional Products unit, told NutraIngredients.com.
"There are some markets that have basic needs in terms of performance that can be met by all producers. But there are a lot of segments that require more."
For example, if a customer is looking for a new form for a product they're tweaking, they know they can get help from DSM, he says.
Other companies looking to add a GMO-free label on products need guaranteed traceability, while companies concerned about brand equity will require certain levels of reassurance from their supplier.
"GM is a choice issue that not everyone wants, and we're not pushing it, but if a customer wants that now, we can offer secure traceability," claims Hartmayer.
Mauricio Adade, head of global marketing for the group, adds that western producers are the only ones that can supply GMP product for Europe's OTC market.
DSM has for some time charged higher prices for vitamin C for long-term contracts with its key accounts, based on advantages in terms of services and reliable supply.
But these advantages have not been enough to save the Belvidere, US plant from Chinese price pressure. And DSM's reduced output could widen the price gap between Chinese and European supply, enhancing further the differentation in the market.
The Belvidere plant accounted for half of DSM' overall production capacity for vitamin C. Some of the output there will be made up at Dalry, where recent investments have increased capacity by 30-40 per cent.
"But that alone will not make up the capacity lost in the US," said Hartmayer.
The firm will buy in some additional material and is also in ongoing talks with its Chinese partner NCPC although the two companies are not yet working together, according to Hartmayer.
He said output will not be 'significantly' smaller but declined to specify numbers. The Dalry plant has been producing about 22 tons annually.
Adade says there are no plans yet to increase prices "but we will evaluate it depending on how much demand goes up".
Whether DSM can sustain this differentiated vitamin C market remains to be seen. Customers burned by Chinese suppliers in the past may be nervous of the shift in globaly supply to the east, but consolidation among the Chinese producers and more stable prices in recent months does nothing to suggest that fluctuating supply will cause the same problems in the near future.
DSM is preparing for continued price pressure however, working on a new one-step fermentation process that would cut costs. The vitamin is currently produced through fermentation followed by a chemical conversion step.
It has not yet been tested on an industrial scale but in the lab "it looks like more than just a paper exercise," according to Hartmayer.
Adado expects to have commercial material from it in three to five years but the next two will prove crucial.
There are also changes at Dalry designed to allow for increased raw material flexibility to limit the impact from price rises on fermentation crops.
But as with most industries these days, DSM cannot rule out the possibility of moving all production to China.
"Never say never to anything. But we have made a commitment to Dalry in the short-term," said Hartmayer.