Focus on nutrition gibes boost to hydrocolloids sector as supply tightens

28 March 2005 00:01  [Source: ICB Americas]

Food and beverages offer the greatest opportunities for hydrocolloids, with growing attention focusing on their nutritional benefits, and consumption relatively robust. Supply is tight in certain corners, and prices run the gamut.

“Prices range from unusually high, such as arabic gum, locust bean gum, and gelatin, to average, which include agar, alginates and carrageenan,” says Dennis Seisun, analyst with Industrial Market Research International, a San Diego-based hydrocolloids consultancy. “Downward pressure continues on xanthan gum which, in real price terms, is now below $3.00 per pound on average. Big buyers are closer to $2.50 to $2.75 per pound, which [are] unheard of levels for xanthan gum.” Xanthan prices were around $5 to $6 per pound in the early 1990s.

While strong downward pricing pressure could initially be attributed to Chinese competition, all xanthan producers now compete at these levels, says Seisun. “Some recovery in xanthan gum pricing had been expected, as current prices do not allow much long-term investment in process and product development. However, a higher pricing trend seems unlikely in today’s market, as competition from Chinese producers continues to hold recovery at bay. The pressure is likely to increase, as Western producers like Cargill and Danisco establish production in China.”

The overall supply-demand situation depends mainly on the hydrocolloid and the time of year. “Locust bean gum is in very tight supply and will remain so for the next eight to 12 months,” says Seisun. “Arabic gum is also tight and the price high, especially for emulsifying grade. Gelatin is also at an unusually high price, although there appears to be no tightness in supply. Guar gum is another hydrocolloid on the high end of pricing.” Despite general tightness, however, demand is being well addressed by a range of products and producers, he notes.

Meanwhile, major hydrocolloids producer CP Kelco, a J.?M. Huber company, is working diligently to get additional capacity on line. “Across the portfolio we are seeing an increasingly tight supply situation, particularly in pectin,” says Tom Lamb, president and CEO of CP Kelco. “CP Kelco is investing in a significant program to expand the capacity of the Limeira, Brazil, pectin plant. We have announced capacity expansion at Okmulgee, Okla., and continue investment in our San Diego and Knowlsley, UK, plants.” The move was a response to the end of a toll manufacturing agreement and continued strong global demand.

“In addition, we see a tight supply situation with xanthan gum,” Lamb adds. In December, CP Kelco, which now includes the Noviant business, raised prices for xanthan and xanthan blends by 5 percent. Other price increases included 6 percent for pectin and between 6 and 10 percent for selected carrageenan products. CP Kelco holds strong positions in both pectin and xanthan gum.

Starches dominate the hydrocolloids market by volume, with 93.7 percent of the market on a weight basis, according to SRI Consulting, Menlo Park, Calif. “Starches and their derivatives have a lower average value by weight and are worth roughly three times other hydrocolloids, or roughly $12 billion, giving a global hydrocolloids market size of over $16 billion,” states SRI.

In aggregate, world consumption for hydrocolloids is expected to grow in the range of 1.5 percent to 2.5 percent per year between 2003 and 2008. “Several hydrocolloids will exceed this growth rate, such as pectin, xanthan and carrageenan, while starches will be at the low end of the growth range,” SRI notes.

The fastest growth is expected from pectin at a 5.7 percent annual rate, followed by xanthan gum with a 5.2 percent annual growth rate, according to Seisun.

“Overall, food is the dominant application for hydrocolloids, followed by oil field and pharmaceutical applications,” SRI says.

“Nutritional aspects of hydrocolloids are getting the most attention, mainly in regards to soluble fibers,” Seisun affirms. “Arabic and guar are used already in this respect, but much research is being done on establishing physiological benefits of many other hydrocolloids. Pectin has the best label image and is the most consumer-friendly.”

“Pectin has demonstrated strong growth in established applications such as fruit-based jams and jellies, as well as high-growth-rate applications such as confectionery and acidified milk and yogurt-based drinks,” says CP Kelco’s Lamb.

The company also has new proprietary products such as diutan, gellan, specialty xanthan, specialty pectin and proprietary systems, which are “growing very quickly because they solve our customers’ challenging problems,” according to Lamb.

Beverages represent another rapidly growing segment and a focus for CP Kelco. In the last 12 months, the company launched three products specifically formulated for acidified milk and soy-based beverages.

“We also see growth coming from personal care, pharmaceutical applications, dairy and confectionary,” notes Lamb. “Certain end-customer trends such as healthier eating, reduced carbs/sugar and the desire for ‘clean’ labels and natural products offer opportunities.”

Cargill is also looking to get into the pectin arena. Earlier this month, the company announced that it would acquire German pectin supplier Citrico for an undisclosed amount. The move boosts Cargill’s position in texturizing (CMR, 3/15/05, pg. 3).

“Cargill has not previously supplied pectin, so the acquisition will strengthen the company’s existing texturizing and stabilizing ingredient portfolio and will facilitate the creation of value and growth for customers,” states the company.

Through a joint venture in China, Cargill also recently added xanthan gum to its portfolio. In 2002, the company acquired Cerestar, which enhances its capabilities in specialty starches and sweeteners.

“By integrating Citrico’s pectin business with the Cargill/Cerestar specialty starches and xanthan gum business, the company will be better positioned to deliver unique, high-value solutions to food and beverage companies worldwide,” Cargill says.

Outside of the food and beverages categories, there is less opportunity for growth. “In most other hydrocolloid applications, only modest growth is anticipated, according to SRI. “Above-average growth is expected in new applications or where hydrocolloids are being substituted for other water-soluble polymers,” states the consultancy. New opportunities include applications in low-fat food formulations where hydrocolloids can emulate the mouthfeel of fat and in food formulations requiring low carbohydrate content but higher fiber.

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