Chinese competition knives EU citric acid players

European manufacturers of citric acid - used as an ingredient in fruit drinks and fizzy drinks - have been hit particularly hard by the emergence of China as a major supplier of the ingredient. Citrique Belge is cutting 62 jobs at its Tienen facility in Belgium as part of a restructuring move designed to enhance the competitiveness of its citric acid production activities. Investments will also be necessary to streamline and optimise the operations, the firm added, in a bid to cut costs by 'several million euros' a year. Citric acid, an antioxidant and acidulant, is produced by mould fermentation of sugar solutions and by extraction from lemon juice, lime juice and pineapple canning residue. The citric acid market has been under pressure for more than two years and continues to spiral downward, with prices falling as low-cost suppliers flooded the market. While citric acid was commanding prices of more than $2/kg (€1.65), this has plummeted to $0.70-$0.80/kg, cutting into the margins of European suppliers such as Citrique Belge. Citrique Belge's move is just one of several actions taken by the large citric acid players over the last couple of years, according to Leo Hepner of L Hepner & Associates , a management consulting firm focussing on the markets for food and pharmaceutical ingredients made by fermentation. Several players - including ADM and Tate & Lyle - have cut back on production levels, while two years ago Aktiva closed down a plant in the Czech Republic as a result of the adverse market conditions. He believes that other plant closures may have to occur in the European sector. "The Chinese have been in the market for more than 10 years, but not as massively as at present," said Hepner, noting that Chinese suppliers now account for more than a third of the entire global output of citric acid. Chinese suppliers tend to sell their citric acid at the lowest price possible, regardless of cost calculations, in order to bring in hard currency, said Hepner, and this has made it extremely hard for European suppliers to compete. Citrique, which had 2003 sales of over €100 million, became part of DSM when the Dutch company acquired Roche's vitamins and fine chemicals activities last year. Citrique Belge is currently running at a loss, but says it could return to profitability in 2006 as the market for citric acid stabilises. However, Hepner said that while there have been some signs that citric acid prices are on the upward escalator after years in the abyss, this may well be just a blip as there is no sign that the fundamental drivers of the soft market are going away. In May, prices had increased from about $0.9-$1.0/kg during 2003 to a level of $1.2-1.3/kg, but have since slipped back.

Chinese competition knives EU citric acid players

Pricing pressure on the global market for citric acid has forced DSM of the Netherlands to lay off staff at its Citrique Belge unit. And there's no sign of a recovery in the market, says an independent ingredients consultant,reports Philip Taylor.

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