Market Update: May 2021
by Tony Xue, General Manager, ingredientsonline.com China
The changes from April to May have been unparalleled for the raw material supply chain and have not been seen since the industry started to boom back in the early ’90s. The unexpected shift and disruptions can be attributed to starting materials being cut off, factory shutdowns, hard-to-find vessels, and port and hub warehouse chaos. The active cases of Covid-19 have dropped dramatically in some places, but it looks as if we are still far from “back-to-normal.”
Here are six key factors that are contributing to the global ingredient market:
- Policy: The Sino-U.S. relationship is down to a historical low. It is unlikely that we will see the end of the tariff war anytime soon. The export and import activities such as inspection rate, limitation of products from rare resources, and limitation of high-tech chips and techniques are now being monitored more closely by both countries.
- Currency: The currency exchange has been stable from April to May ranging from 6.4-6.5, but we will soon see inflation. Economists have sent a warning that it will get worse in 2022. The money from the U.S. stimulus bill will encourage more consumption by ordinary people but will also flow into other countries by international trade and currency transaction system.
- Transport: The Suez tunnel blockage and the restriction at the Strait of Malacca have led to global sea shipment chaos. Our shipping agent has warned us that the shipping vessel scarcity is thought to get much worse in the upcoming months. Air freights are also quickly becoming an expensive alternative.
- Pandemic: India is still suffering from high Covid-19 cases. It has been difficult to get in touch with Indian contacts during this time and factories have had to shut down. On the other hand, China is pretty much back to normal.
- Pollution control: China has recently learned that the government inspection team is auditing around Shandong, Jiangsu, and Inner Mongolia.
- Starting material: The price of corn and soy has been fluctuating. It dropped at the end of April and early May but has since bounced back. It is thought that it will continue to increase into June. The African Swine fever has led to a shrinking demand for pork and feed. Crude oil and paper pulp shipped by sea have also seen multiple disruptions.
Here are updates on some of the most popular industry ingredients:
Price increased sharply in Q4 last year and remained high in Q1 of this year but has begun to decrease beginning in April. Because of high ocean freight costs and some factories taking annual overhaul in summer, price remains stable and may slowly decrease in the second half of the year.
Betaine and Choline
Price is stable, but freight costs increased and interest to treat the production waste may lead to a price increase.
Major factories are scheduled to shut down for maintenance from the end of July to early August. The material is in short supply now and the price is increasing.
Calcium Beta Hydroxybutyrate (BHB)/Sodium/Magnesium
Demand was high in April and drove the price up, but for now they should remain stable.
Price has doubled and even tripled for the following reasons:
• Domestic producers Cargill and ADM have had production issues and had to shut down for maintenance.
• Sea shipment rates have increased and that plays a very important role in the final sales price due to low product value. The lead time is also very long for sea shipments.
Currently, only one starting material producer is keeping the production running and many creatine factories have had to shut down. This is resulting in only a 30% output of creatine. It is expected the price will remain high for the remainder of the year due to:
• basic chemical prices increasing.
• the current profit being high, and the factory may want to control the output to maintain a high level of profit instead of increasing the output.
• the starting material producer is state-owned and the chances of increasing the capacity to increase the pollution risk are slim.
Erythritol has been the star of sugar substitutes this year. It can be found in many newly released products from major beverage brands. It has been available on the market for years, but it is becoming increasingly popular for its taste and zero calories. On the contrary, xylitol and sorbitol price increased a slightly due to freight costs, but overall is mostly stable.
Gamma Aminobutyric Acid (GABA)
Due to its starting material cost increase, the price of GABA has also increased. New production by fermentation will step into production soon and it may affect the market price.
In China, the supply and price are stable. In the U.S. market, the price has started to increase due to freight costs and long lead times.
Horny Goat Weed
Price has increased slightly due to the starting material increase.
Price increased quickly in April but has now stabilized.
Instant Branched-Chain Amino Acid (BCAA) and L-Leucine
The price of instant BCAA is largely determined by leucine whose price is currently low. Considering the output from hydrolyzation in the summertime is low, the general cost increase is likely to increase in the coming two months.
Price has increased very fast, and supply is getting limited. One of the key factories has shut down production for the remainder of the year. The other factories are trying to expand production, but it will not happen until July. In the meantime, the starting material price tends to be increasing fast.
L-Lysine and L-Threonine
Lysine and threonine prices have been affected by the feed industry demand. Due to corn prices increasing, their prices also increased. Swine fever has caused pork prices to drop and feed ingredient prices to also decrease. Combined with the general cost increase, price is currently stable in the U.S. market.
Demand for tyrosine has increased and the supply is tight. Fermentation grade supply has increased by 5% while the hydrolyzed grade is in short supply.
Price has been increasing since last November due to starting material cost increases and shipping rates. It will steadily increase for the remainder of the year.
Microcrystalline Cellulose (MCC)
Supply will be very tight for the following reasons:
• The pandemic affects production greatly and the output has dropped dramatically in India.
• The Indian government is controlling the export to protect domestic needs.
• The starting material paper pulp supply has been interrupted due to shipment problems.
The mineral market is on a rise. Calcium salt and magnesium salt, particularly calcium citrate and magnesium citrate, are low-value goods, and their price is greatly affected by the sea freight costs. The mineral demand has also been higher during the pandemic.
Monk Fruit (Luo Han Guo)
Organic grade has been out of stock for a while, and it will not change until a new harvest comes in September or October. The regular grade is available in stable supply.
Mushroom (Organic and Extract)
Organic mushrooms grown in the wild have been very rare this year. The ones that have been planted are still available and are of good quality. Price has increased this year due to currency and a starting material cost increase.
One factory has shut down, but price is mostly stable.
Due to the raw material and energy costs increases, the major factories have announced an increase in the price for 80% of feed grade riboflavin. The price for USP-grade will also rise.
With the approval and recognition by the Chinese government, sodium hyaluronate demand is much higher than before. Supply is temporarily tight but is expected to be back to normal as the production output increases.
Soy Protein Isolate
Prices are increasing.
Demand, currency, cost of labor, and cost of equipment have all led to a price increase.
Supply has been tight, and price is going up, but it is still manageable. As summer approaches, the demand for zero-calorie drinks is on the rise.
Price is drastically increasing due to its starting material, epoxyethane and sodium bisulfite, prices increasing and sea freight prices increasing.
Due to the pandemic worsening in India, the price from China has increased by 15%.
Several factories have announced their plan for the rest of the year, which will include a 10-week shut down in July at NHU and production expansion at the end of June at BASF.
Several factories have shut down for production equipment maintenance and price is beginning to increase. Some factories stopped quotations to avoid being unable to fulfill backorders.
Disclaimer: Information presented in this article are for customer reference only and subject to market fluctuations due to limited research and resources. Trends are current as of May 2021.
Tony Xue is the general manager of ingredientsonline.com China. His expertise supports market analysis, procurement forecasts, and vendor relationship management. Tony holds a bachelor's degree from Shanghai Foreign Studies University and has been working in the ingredient industry for 14 years.