Weather Hurts Brazilian Crop; Orange Oil Prices Are Firming

17 January 2000 00:00  [Source: ICB Americas]

By Peter Landau

The devaluation suffered by orange oil and d-limonene that defined the market a year ago has turned around. The market has firmed steadily since last fall, and high petroleum prices have helped push orange oil and d-limonene pricing back up to their historic norm.

West Texas intermediate crude oil, a raw material for the resins market, has been trading around $24 per gallon, putting pressure on d-limonene. "By far the largest consumption of citrus terpenes [d-limonene] is the resin business," notes David Cookson, a Kinnelon, N.J.-based broker.

"The buyers are well adapted to changing their formulations between the petroleum-based products and citrus, based on prevailing prices. With petroleum prices indicated to remain firm for some time, citrus will likely again be the product of choice for these users."

There is an increase in demand, but it is not very significant, according to a Brazilian producer. "The increase is probably mostly due to new projects in development by the resin producers," she says. "It seems that petroleum prices are not directly related to the prices of the products which the resin producers are users of."

The producer adds, "Demand for Sïo Paulo product from origin is not very strong yet. Apparently, there are still some stocks in the hands of traders and resellers, both in Europe and the US, selling at around 90 cents per kilo, delivered. But these stocks are doomed to end in the next couple of months or sooner." Big buyers are already examining Sïo Paulo product for volumes, prices and conditions, according to a source.

Another bullish factor are reports that Brazil has lost 25 to 30 percent of its orange crop. "Although Brazil appeared to be facing another bumper orange crop, we are being advised that by the time the crushing season ends, only about 280 million boxes will have been crushed," says Mr. Cookson. That is a 25 percent decrease from Brazil's previous crop.

Brazilian producers confirm the number. At the end of the crushing season last December, roughly 280 million boxes were processed out of a crop of approximately 388 million boxes, according to local producers.

Sïo Paulo had a drought that lasted almost six months in 1999, although rains began falling around December. According to Brazilian sources, no "objective and precise" crop estimate has been made. Independent market analysis has reported estimated losses of about 30 percent for the 2000-01 crop. The Brazilian government's agricultural research department estimates a loss of 20 to 30 percent.

"Supply should start to move more aggressively from Sïo Paulo this coming semester, when a lot of buyers will be coming back for new purchases," says a Brazilian producer. Statistics from the Brazilian Citrus Export Association show that around 16,000 metric tons of orange oil and d-limonene were exported from Sïo Paulo between July 1 and November 30, 1999.

Brazil's policy of burning orange oil and d-limonene when prices are weak has also firmed the market. "By the end of the processing season, it is estimated, approximately 11,000 metric tons of d-limonene and orange oil will have been burned as fuel," Mr. Cookson says. "Good timing in terms of the current petroleum prices."

"I have heard in the market that the burning of orange oil and d-limonene as fuel has reached 10,000 metric tons," a Brazilian producer notes. "This might go up another 2,000 metric tons. We ourselves will continue burning old stock of low-quality product until the end of the processing season."

"The major exporters of orange oil and d-limonene continue to be very bullish and intend to slowly move prices higher as we move into the non-processing part of the year," Mr. Cookson adds, referring to the months of January through June.

Prices for Sïo Paulo product are in a range of $1 to $1.30 per kilo, f.o.b. Santos, depending on whether the material is in bulk or drums. "They should remain firm at this level through the end of this season, in June," a producer says. She adds that this is certain if the volume of material being burned is accurate.

The producer continues: "This much of the product out of the processors' stock would have taken a lot of selling pressure from the market. It certainly would bring a much more balanced supply and demand situation for this coming semester."

In Florida, supplies are tight, according to a local producer. "The orange crop itself should be pretty strong compared to last year," he says, noting that the tightness in the market is due to stronger demand. "Not everyone is at full production yet. By February, the industry should be at full speed."

In general, d-limonene has been selling at 66 cents per kilo in Florida. Producers expect prices to remain firm and reach $1 per kilo as early as next March or April.

INTERNET--Universal Foods Corporation has launched a corporate investor relations Website at www.universalfoods.com. Visitors to the site can access current company information, including press releases, conference call transcripts, the annual report and other financial information.

The Olfactory Research Fund has also launched a new site at www.olfactory.org. Included on the site are summaries of current projects in progress, information about the Fund's grant program, press releases and archival files.

PARLUX Fragrances Inc. has signed a licensing agreement with Pez Candy Inc., of Orange, Conn., to manufacture and distribute fragrances, bath and body care and other beauty-related products under the Pez label throughout the Western Hemisphere.

"A partnership with Pez provides Parlux with another great niche-marketing opportunity," says Ilia Lekach, Parlux's chief executive officer. "We're excited about producing upscale fragrances under the licensing agreement with Pez and developing creative and limited-edition packaging schemes to further distinguish Pez fragrance products."

SPEARMINT--The Far West Spear-mint Oil Administration Committee has called a meeting to determine the pricing of native oil. Recent sales have reduced the available supply of native oil to roughly 28,000 pounds. "There are inquires from dealers indicating that there is currently additional demand for spot oil," notes Rod Christensen, manager of the committee.

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