Citric Acid Prices

Citric acid prices are rising
Citric acid prices are on the upswing while supplies are gradually tightening. These trends are likely to continue into 2008, spurred by rising raw materials and energy costs, a healthy demand, and recent shutdowns of some production capacity.

Behind the run-up in citric prices and tightening of supply are several factors. The stepped-up demand for citric acid, coupled with the underlying raw materials and energy cost pressures, will ensure steadily rising citric acid prices (as much as 10%) through the next year, analysts forecast.

One factor in the steep rise will be the burgeoning biofuels industry. As new biofuel plants come on-stream, the demand for carbohydrates [corn-derived starch] will further increase, leaving proportionately less available for citric manufacturing.Another reason for more controlled supply is the consolidation of suppliers.This is particularly true of China, which has about 60% the world's citric acid capacity, which clearly means less competition in the market.

Also a leveling of former regional differences in costs of raw materials, energy and labor, that has diminished the ability of China and other Asian countries to undersell citric producers in North America and Europe. Costs for the energy used in citric acid production have been rising steadily, which have mostly been passed on to buyers. Energy costs are also becoming more uniform across the globe.

The once artificially low energy rates in China are now rising to the same levels as elsewhere.

Even the traditionally low labor costs in China are coming closer to world norms. Even if the comparative cost structure for citric acid production in China isn't what it once was, it still looks relatively attractive to foreign producers. Gadot, for instance, will build a $30 million, 60,000 tons/year citric acid plant in China as a joint venture partner with a Chinese company, Jiangsu Nuobei Biochemical. Gadot's move was motivated by the "lower costs of production" in China, adding that the plant's output will go primarily to North America and Europe.

Meanwhile, citric acid overcapacity has induced such major manufacturers as Archer Daniels Midland, Tate & Lyle, and Aktiva AS to close citric production units in various parts of the world since 2003. In the latest cutback, Tate & Lyle announced the shutdown of a U.K. citric plant on March 31, citing intense competition from Chinese imports and oversupply of citric in world markets as the reasons behind the move.

But that oversupply is decreasing, due to a thriving citric acid market, which he says is growing at the rate 3–5% annually which is extraordinary for a commodity chemical. Annual output of citric worldwide is at about 1.6 million tons.