FocusHydrocolloids face pricing pressures

14 January 2008 23:14  [Source: ICIS news]

By Doris de Guzman

NEW YORK (ICIS news)--Global hydrocolloids prices remain under pressure from raw material supply shortages, higher production costs, and the impact from currency exchange, according to analysts and producers.

There had been several price increases initiated in the fourth quarter of last year that includes among others, alginates, carrageenan, cellulose ethers, xanthan gum, pectin and other hydrocolloid-containing blends. More pricing announcements are expected this year, according to hydrocolloid analyst Dennis Seisun of IMR International.

“Producers can no longer absorb these added costs by reducing margins. Some producers had reached below cost price levels and were walking away from certain accounts,” said Seisun.

Aside from raw material, energy and transportation costs, major hydrocolloid producer Cargill also pointed out global capacity constraints caused by lack of investment and productivity improvements.

“Hydrocolloid manufacturing is capital intensive and return on investment has to be sufficient to make the investment attractive,” said Cindy Palermo, spokeswoman for Cargill Texturizing Solutions, Americas. “Hydrocolloid prices have not kept pace with the increased cost of manufacture, resulting in little to no investment in capacity expansion.”

International Specialty Products’ Sally Romano, director of the Food & Beverage North America division, noted that some of their hydrocolloid customers have not received any increases for the last 2-5 years despite the skyrocketing raw material and energy costs that producers had to absorb.

Gelatin producer Eastman Gelatine  declined to comment on any price increase initiatives although according to technical manager Vicki Barbur the company has been able to offset increases in raw materials from productivity improvements.

“We’ve been investing in new technology that allows us to be more productive and more efficient. To a large extent, we have managed to offset our own material cost increases by our productivity increase,” said Barbur.

Danisco’s Anders Wilhjelm, vice president and head of Gums & Systems, said the magnitude of cost increases meant it was impossible for them not to increase prices to customers, despite their productivity improvements.

Several producers even closed their manufacturing facilities because of narrow margins and competition from lower-cost producers in Asia.

CP Kelco announced the closure of its xanthan gum plant in Knowsley, UK, last September. Danisco shut down its carrageenan plant in Tullibody, Scotland, also in September, and relocated its production in Pargua, Chile.

Capacity investments in Asia, however, seem to have slowed down after European and North American acquisitions of Chinese hydrocolloid producers surged in 2006.

Companies such as Cargill, Danisco, CP Kelco, Hercules’ business unit Aqualon, French gelatin producer Rousellot, and PB Gelatins France – formerly owned by Tessenderlo Group and sold last year to French company Nactis – all invested in China in 2006 through acquisitions.

Several producers said they are now focusing on improving supply chain and product development.

“We continued to see business growth opportunities worldwide such as focusing on cost optimisation as food ingredients prices rise in the developed markets for example, while in the developing regions, we can focus more on faster launch of new, higher quality products,” said Wilhjelm.

“As consumers look for healthier food options that are both fresh and convenient, hydrocolloids can play an integral role providing the desired taste and texture of various foods,” said Jennifer Sigsworth, spokeswoman for Dow Wolf Cellulosics.

Continued restructuring in the global food ingredients industry, however, has meant ongoing acquisitions for some Western hydrocolloid producers. In 2006 there was a major restructuring in the hydrocolloids industry with the acquisition of  Degussa Food Ingredients by Cargill; Dow Chemical’s acquisition of Wolff Walsrode from Bayer; and Tate & Lyle’s acquisition of food ingredients companies Cesalpinia and CCI.

In 2007, Tate & Lyle continued its investments with the acquisition of German food ingredient group G.C. Hahn & Co, Rousselot acquired a majority stake in Brazilian gelatin producer Rebiere, and National Starch Food Innovation was sold to Akzo Nobel.

Look for more analysis of the global hydrocolloids market in the 28 January issue of ICIS Chemical Business.

By: Doris de Guzman
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