January/February 2005

Ring out the old

2004 has departed and we have bid farewell to a stormy year for the industries that L. Hepner & Associates Ltd. deals with: fermentation, biotechnology, food ingredients and feed ingredients. The hurricane causing the economic waves to billow is China. Chinese producers sell products at prices which to most independent observers would seem below reasonable manufacturing costs that are in Europe and the U.S.A. The net result has been a further decline in the price of penicillin G below $5/bou. Since 1998 penicillin prices have declined steadily from their level of $12/bou but nobody ever dreamt that prices would sink below floor level. Chinese companies already account for 25% of world penicillin output and at it is impossible that even they can justify these prices were it not for the aim to grab the entire market. Most Western antibiotics companies have already decided they can no longer afford to hang around around until prices begin to increase. Similar price declines have affected citric acid companies with prices sliding steadily below $0.9/kg. Over 25% of global citric acid output is in Chinese hands and at this rate it seems they will increase their market share. Insofar as economics are concerned the cheaper the feedstock the lower the citric acid production cost. Yet Chinese starch hydrolysates/glucose is probably more expensive than in the U.S. and Europe. So who is fooling whom?

The story for vitamins falls into the same pattern especially for vitamin C where prices have been declining all the time to reach a level of $4-5/kg. Similar falling prices have occurred in vitamin E, BI and B2 but in By [pyridoxine] prices have risen. Not difficult to guess why:.because there are no Chinese in pyridoxine. In the meantime many Western vitamin producers are maintaining a semblance of business by purchasing vitamins from Chinese companies and re-selling in Western markets. This however is hardly a business worthy of a P:E ratio of 20 which speciality chemical companies in the U.S. and Europe expect to attain.

But not all is doom and gloom. Many products have held their price levels [in dollars and particularly in Euros]. Carotenoids have seen increasing volume and consumption, especially beta-carotene, lutein and lycopene. These are widely used as dietary supplements - often described as 'nutraceuticals' [see our survey: 'Carotenoids - Current Status and Outlook by 2010']. The consumption of yeast extracts is expanding due to their acceptance as 'natural' savoury ingredients and as useful nitrogen components in biotechnological processes [see our survey: 'Yeast Extracts - Current Status and Outlook']. Several other sectors are doing reasonably well notably starter cultures and probiotics [see our survey: 'Starter Cultures and Probiotics - Current Status and Outlook']. As yet these sectors have not been touched by Chinese competition and long may it last.