Vitamin C makers look for new edge
signs of respite from Chinese competition. The move is seen by some
as a final attempt to make money on the commodity.
Dutch chemicals firm DSM has warned customers of a 'substantial' price increase in vitamin C and number two producer BASF could follow if the move proves successful. This would mark a de-linking of European prices from global prices driven down by burgeoning Chinese production.
Erratic delivery by Chinese suppliers became a focal point last year during the SARS crisis when demand for vitamin C surged at the same time as European supplies were depressed by works at the Roche/DSM facility in Scotland, reportedly the world's largest, and production fell in the US.
"We heard of Chinese traders unable to deliver on time unless a firm was willing to pay more. There was also a kind of auctioning of supplies to the buyer willing to pay most," a source at DSM told NutraIngredients.com.
But the problems for manufacturers created by unpredictable delivery opened up a market opportunity that DSM is now determined to exploit, as it moves to integrate the newly acquired vitamins business from Roche.
"We have made a clear value proposition and will do everything to deliver. This price is in line with higher expectations," added the DSM source.
The new price will apply especially to the supplement and nutritional foods sectors where quality is more important than in traditional food applications, such as preservation.
At their lowest point, during 2001-02, prices fell to a little over $3 per kilo. Last year's shortages prompted a surge to prices at twice that level.
But fine chemicals consultant Ulrich Marx argues that prices are unlikely to be sustainable at more than $6 per kilo (or €4.5/kg). "Personally I do not believe we can stabilise prices at $8-$9, there is so much production capacity in China, but they will probably remain at $6," he said.
Marz estimates that China was producing around 65 per cent of the global supply this time last year. Further consolidation among Chinese manufacturers could take out some of the more extreme cases of undercutting. The cost of investment in production facilities has already seen some smaller Chinese players drop out of the race, even as the bigger producers continue to expand.
But Chinese supply is growing sufficiently fast that it can only put downwards pressure on local vitamin C prices. Last year China Pharmaceutical Enterprises and Investment (CPEI) said it was investing $51 million in a new vitamin C plant in China expected to come on-stream in the second quarter. This would raise the firm's production to 25,000 million tons per year, making it one of the world's largest producers of the vitamin.
There was speculation last year that one of Europe's suppliers (either DSM or BASF) was to buy a stake in the firm.
Certainly the search is on for ways of restoring European fortunes up against the competitive threat from China.
DSM, now the world's biggest vitamin maker, has already lost market share in beta-carotene, the vitamin A precursor, to the fast-growing Taiwan company Allied Biotech. And heavy losses in last year's third quarter (a 75 per cent drop in operating profit and losses of €78 million) have put further strain on margins.
The Dutch group will likely continue to invest in ongoing research by Roche into more efficient production processes for vitamin C but production in cheaper markets could offer a easier route to bigger margins, alongside price rises.
"European suppliers are confronted with either getting out of vitamin C altogether, investing in an entirely new production process or stabilising the prices. This new price increase seems to be a desperate move to prevent further losses on the product," Marz told NutraIngredients.com.
The global market value of all vitamins is forecast to reach $2,272 million (€2.03bn) by 2007 - considerably lower than the $2.7 billion in 1999, but rising at an average annual growth rate of just under 1 per cent, according to a recent report from BCC Communications.
