22 November 2004 00:01 [Source: ICB Americas]
Demand for pectin is healthy, spurred by increased use in the dairy segment, but margins are under pressure from the surge in the cost of energy and processing materials. Despite the pressure, the outlook for the market appears sound and producers are investing in new capacity to fortify their market positions.
Prices have already slid over the past several years, and companies are now attempting to restore margins through price increases. CP Kelco recently announced a 6 percent hike in pectin prices, to take effect in December, and other producers are said to have nominated similar increases or to be mulling them.
Despite the pressure on pricing, pectin remains an attractive product, with demand growing at 4 to 6 percent per year. Much of that growth is driven by robust demand in the dairy segment, which accounts for about 24 percent of the pectin market.
Dairy demand is growing around 8 to 12 percent per year, with much of that growth coming from the Asian market, according to Robert Vieregg, director of technical sales, pectin, at Citrico. Used as a protein stabilizer and in some cases to add viscosity, pectin is finding its way into stirred yogurts, acidified milk drinks and soy juice beverages, he notes.
With growth prospects healthy, the leading producers are investing to secure their place in the market. Danisco recently unveiled plans to build a pectin plant in São Paulo, Brazil, that will raise its global production capacity for pectin by 35 percent. The new facility, which will cost DKK 300 million ($52 million), is slated to come on line in 2007.
São Paulo was chosen for its proximity to raw materials. The new facility will primarily use orange peel as the starting material for pectin production, and Brazil is the largest producer of orange concentrates. “We made a very comprehensive survey and Brazil has access to fairly economical raw materials,” says Hans Henrik Hjorth, president, Danisco Textural Ingredients.
Between its pectin facilities in Mexico and the Czech Republic, Danisco currently holds about 25 percent of global capacity, making it the second-largest producer in the market. The company says the investment in Brazil will help to maintain that position.
CP Kelco, the world’s largest pectin producer with about 43 percent of global capacity in 2003, is also expanding in Brazil. The company will double existing capacity at its site in Limeira, Brazil, in two phases. The first, to be completed by mid 2005, will up capacity by 25 percent. The second phase is scheduled to come on stream “by at least first quarter 2007,” says CP Kelco.
Additional capacity will also come onto the market by the end of 2004 as Citrico ramps up production at its Malchin, Germany, processing facility to achieve full capacity. Citrico, which became the newest force in the pectin business in 2001, when it opened the Malchin facility, will be able to make up to 4,500 metric tons of pectin products annually.
In the midst of these investments, some businesses are changing hands. In July, CP Kelco was acquired by J. M. Huber for an undisclosed sum.
Degussa recently announced it has put its food ingredients business, which includes its pectin operations, up for sale. The company’s pectin facility in Redon, France, is reported to have represented about 15 percent of global pectin capacity in 2003. Industry observers have suggested that Kerry Group of Ireland and JM Huber could be potential suitors for the unit.
Meanwhile, in August, Citrico Inter-national Ltd. “splintered out” from its former parent company Citrico Inc., says Mr. Vieregg. The management of the company has been overhauled and Citrico International is now essentially on the selling block.
Looking ahead, the pectin market is likely to enjoy healthy demand and relative stability compared to the markets for other food texturizers. The entrance of Chinese producers has put severe pressure on the markets for hydrocolloids such as xanthan gum, but pectin has so far been immune. One pectin producer notes that there appear to be some very small pectin plants in China, although the quality of product appears to be lacking because there is not a major citrus source in the region.
Western producers across the board see potential for Chinese product to impact their business in coming years. In the near future, “they could potentially make apple-based pectin, but that is a much more narrow market,” says Mr. Hjorth.
However, even if supply is limited and the raw material source is of lesser quality, the introduction of domestic product in China “could throw up the prices of foreign product into China,” Mr. Vieregg notes.
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