16 October 2000 00:00 [Source: ICB Americas]By Pamela Sauer
Following a tumultuous 1998, patchouli oil prices have fallen dramatically over the past two years, a trend that is continuing this year. Current prices are now in line with traditional selling prices, and, barring any significant weather changes or political turmoil, pricing is expected to remain at current levels or slightly decline.
Two years ago, patchouli oil prices rose to historical highs of between $55 and $60 per kilogram, well above traditional selling prices of between $18 and $22 per kilogram. A shortage caused by poor weather conditions, and political strife in Indonesia, where 70 percent of production is in North Sumatra on Nias Island, led to decreased production. The reduced supply relative to demand led to inflationary pressures.
However, the higher prices caused a downward shift in demand, which is continuing this year. Patchouli oil, a perfume oil, is used in a wide variety of applications from fragrances to household cleaners, and the higher prices caused formulators to create new formulations using reduced levels of patchouli oil. Although pathchouli oil production levels returned to more normalized levels in 1999 and so far this year, US demand for the essential oil has fallen, and prices have declined.
Patchouli oil prices continue to decrease as US imports for the product decline. US imports of patchouli oil declined 29 percent in the first six months of 2000, compared to the same period a year ago. Indonesia accounts for roughly 80 percent of US patchouli oil imports, and in the first half of this year, 138,639 kilograms of patchouli oil were imported to the US from Indonesia, down from 213,279 kilograms for the same period last year. The price has dropped roughly 13 percent during this period. The average price of Indonesian oil was $19.89 per kilogram in the first half of this year, down from an average price of $22.97 for the same period last year, according to data from the US Department of Agriculture.
Patchouli oil is produced by steam distillation of the dried leaves of pogostemon cablin, a small plant originating in Indonesia, where the bulk of patchouli oil is produced. The plant is cultivated for the production of essential oil in Sumatra, Malaya, the Seychelle Islands, Madagascar, Hainan and the adjoining China coast, and on a smaller scale in Japan, Brazil, Mauritius and Tanganyika. Indonesian patchouli leaves are distilled in Europe and the US in modern distilleries, but the oil produced is substantially different from the locally distilled patchouli oil.
Outside of Indonesia, the US imports patchouli oil from Spain, Singapore, France, Switzerland, United Kingdom, Netherlands and Ireland, where the product is largely reprocessed formulations from Indonesian and Chinese exports, according to industry sources. While demand for Chinese patchouli oil is limited, the price averages $115 per kilogram.
Spain accounts for almost 11 percent of US imports. US imports of Spanish pa-tchouli oil remained relatively flat in the first half of the year at 28,400 kilograms. Average selling prices for Spanish patchou-li oil were $51.89 in the first half, down 42 percent year-over-year from $89.38. Singapore accounted for 4.3 percent of US imports or 10,000 kilograms, down almost 11 percent year-over-year. The price of Singapore patchouli oil averaged $16.88 in the first half of the year, down 16.1 percent year-over-year.
Industry sources project that prices will continue to decline slightly. Domestic demand will increase only through the use of new formulations requiring increased use of patchouli oil, which industry sources say would take two to three years to develop. Barring any significant weather changes or political turmoil, the market is expected to remain fairly stable.
CST--The October 1 price of crude sulfate turpentine (CST) has settled at 50 cents per gallon, unchanged from last quarter. CST prices peaked at $1.75 per gallon in April 1998, but as demand fell off and inventories roses, its price fell to a low of roughly 50 cents per gallon last October. CST prices remained at 50 cents in the first three quarters of this year.
FRAGRANCE FOUNDATION will offer on November 28 in New York its semi-annual report on the trends and forecast for the spring/summer 2001.
GIVAUDAN reports a 7 percent increase in sales through September, although in local currencies, sales remained flat. For the first nine months of the year, Givaudan reported sales of SFr 1,789, up from SFr 1,673 a year ago. Flavor sales increased 10 percent from SFr 848 to SFr 933, but increased only 1 percent in local currencies. Fragrance sales increased 4 percent from SFr 825 million to SFr 856 million, but declined 1 percent in local currencies.
Asia-Pacific and Europe were the main growth drivers in both divisions, although the market in the Americas was more difficult. In flavors, Asia-Pacific reported double-digit increases in the first half, with the beverage, dairy and savory segments posting double-digit growth as a result of new product introductions and growth in the Chinese market. Combined sales in the Americas were flat despite double-digit growth in the Mexican market and improvement in the Brazilian market. The flavors division saw continued difficult economic situations in other Latin American countries, coupled with slow market growth in North America.
In the fragrance division, Givaudan reported difficult market conditions for its customers and price pressure in the consumer products segment from a downturn in the market, particularly in the Americas. The fine fragrance business rebounded from a year ago and showed double-digit growth.
Givaudan has launched a fragrance ingredients website. The new site is aimed at the entire fragrance-creation market, including perfumers and purchasing managers. An expanded range of additional services and client-specific information will soon be available, says the company.
INTERNATIONAL FLAVORS & Fragrances Inc. has launched its friendly $970 million tender offer for all the shares of Bush Boake Allen for $48.50 per share in cash. The tender offer will expire at midnight on November 3. International Paper Company, which owns 68 percent of the outstanding common stock of BBA, has agreed with IFF to tender its shares in the tender offer. BBA has recommended that stockholders tender their shares. Morgan Stanley Dean Witter served as manager for the tender offer.
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