Hydrocolloids price under pressure

Price pressures have taken their toll on the hydrocolloid market, but some producers are taking up the challenge to appease consumers through innovation
Doris de Guzman/New York

THE HYDROCOLLOID market is creaking under the weight of numerous price increases served late last year. Increasing global competition, rising costs for raw materials, transportation and energy, and tightening supply have all battered the industry, and analysts expect further increases to follow.

Prices for hydrocolloids – which are thickening, gelling and stabilizing agents used mainly in food and beverage products, as well as oil field and pharmaceutical products – have, in turn, increased.

“Hydrocolloid producers and food companies have tightened each other’s margins to the limit,” says Dennis Seisun, analyst at US firm IMR International, a California-based hydrocolloids consultancy. “Hydrocolloid prices were generally up in the fourth quarter of 2007 and continued upward pressure for most hydrocolloids, with some exceptions, is likely in 2008.”

Alginates supplier International Specialty Products (ISP) has already announced a 15% increase for its sodium alginate gelling agent for agricultural applications, effective from January 1. ISP also raised some of its alginate prices in November by 10-15%.

“The price increase is a result of various factors, such as significant increases in seaweed feedstocks, other raw materials, energy, ocean freight and product stewardship expenses,” says Sally Romano, director at ISP Food and Beverage North America. “In some cases, customers had not received increases for the last two to five years,” she adds.

Cellulose ethers producer Aqualon Group, a division of US firm Hercules, also initiated a 5% global price increase for its pharmaceutical grade carboxyl methylcellulose (CMC) and methylcellulose (MC), effective January 1. Aqualon says the increase was necessary for it to be able to invest in production capacity, and research and development (R&D).

Hydrocolloid powerhouses Cargill, of the US, and Denmark’s Danisco have not formally announced any price increase initiatives, but concede that they have also been impacted by the superfast rate of rising raw material costs.

Energy costs alone increased by around 40% last year, says Cindy Palermo, marketing communications leader for Cargill Texturizing Solutions, Americas. Palermo points out that raw materials such as apple pomace, starch, citrus peel and seaweed are experiencing double-digit price increases.

“Not only that, climatic impacts of drought and typhoons have resulted in raw material shortages on extract-derived products such as alginates, carrageenan, pectin, guar and locust bean gum,” says Palermo. “There are also price-pressure effects on fermentation-derived products, due to increasing raw material input costs of corn syrup, maltodextrin, yeast and phosphates.”

Danisco says it initiated price increases on several hydrocolloids and hydrocolloid-containing blends, but will not disclose any specific pricing information.

“The reasons for the increases are sadly similar to what is being experienced in many other areas of the agrifood sector,” says Anders Wilhjelm, executive vice president, head of gums and systems at Danisco.

“We are doing our utmost to absorb as much cost as possible through productivity improvements, but cost increases are of a magnitude where it is simply impossible for us not to increase prices to customers.”

November saw several more price increase announcements from producers such as CP Kelco, FMC Biopolymer – both US producers – Jungbunzlauer, in Germany, for its xanthan gum, and Dow Wolff Cellulosics, a division of US-based Dow Chemical, for its cellulose derivatives products.

Dow Wolff Cellulosics says the price adjustments will partially offset a number of cost pressures, such as rising cellulose pulp costs, and record levels of hydrocarbon and energy costs. “The global price increases are also a result of continued strong overall demand, portfolio investment plans and escalating costs to manufacture and deliver our products,” says Dow Wolff Cellulosics spokeswoman Jennifer Sigworth.

Seisun notes that the price increase initiatives were more successfully implemented than in the past. IMR International estimates current xanthan gum prices to be $2.25-$2.50/lb (€3.38-€3.76/kg) pectin at around $4.50-$5.50/lb locust bean gum at about $6.25/lb and guar gum steady at 75 cents/lb.

Cooking up new ideas

To soften the recent pricing blows, as well as to maintain competitiveness, several producers are either being innovative, offering lower cost formulations or presenting new product applications, some through joint ventures and partnerships.

Early this month, ISP joined forces with the US Center for Advanced Technology & Innovation (CATI) to promote the company’s alginate patents for application in restructured foods.

In December, FMC Biopolymer and Norway’s Pronova BioPharma entered a licensing deal in the development of alginate-based capsule products. Pronova plans to launch the capsule by around 2010-2011.

Another partnership formed last year was between Germany’s Evonik and Aqualon for the development of methylcellulose for personal care use.

Both Danisco and Cargill say they are increasingly offering their hydrocolloids as alternative, cost-reducing ingredients, especially in food applications where ingredient prices continue to skyrocket.

“Texturizers and stabilizers are increasingly called upon to perform a critical formulation role as a cost-reducer,” says Palermo. “Cost and wellness trends continue to drive textural innovations that stabilizers and emulsifiers support, particularly in processed foods. There is a growing demand for food-grade hydrocolloids in nutraceutical and cosmeceutical applications, as well as in food and beverage application areas.”

Sigworth points out that hydrocolloids can now play an integral role in providing healthier food options without altering the taste and texture customers are accustomed to.

Oil, food, and drugs

Food continues to be the dominant application for global hydrocolloids, at roughly 90%, followed by oil field and pharmaceutical use, according to the 2007 Hydrocolloids report from SRI Consulting (SRIC) in its Chemical Economics Handbook.

SRIC estimates that the global growth rate for hydrocolloids consumption will be 3-4%/year between 2006 and 2011.

“Higher growth is expected for others such as xanthan, carrageenan and cellulose ether,” says SRIC senior consultant Ray Will. “For cellulose ether, global growth has been higher at 4.2%. Its 2006 value was $3.1bn.”

Global consumption exceeded 600,000 tonnes in 2006, according to SRIC’s 2007 cellulose ethers report. Xanthan, guar gum derivatives and CMC are said to be experiencing exceptional growth rates due to increasing oil exploration activities. In the US, around 64% of guar gum, mostly derivatized, goes to petroleum use.

“The big story for CMC has been the explosive growth in Chinese capacity, accounting for over 160,000 tonnes in mid-2007, with more coming on stream,” says Will. “China’s interest in CMC is driven by domestic consumption in food, detergent, and toothpaste applications, as well as oil production and export markets.”

CMC use in US oil fields is expected to rise by 6% to $86m in 2010, according to US market research firm Freedonia Group.

“Food, beverages, and oil fields together accounted for 73% of total US CMC demand in 2005,” says Freedonia analyst Bill Weizer.

“Opportunities in oil field applications will pace advances, but growth will be threatened by product maturity and competition from other cellulose ethers and gums.”

China’s interest in xanthan gum has exploded in the past couple of years as oil exploration accounted for 90% of Chinese domestic xanthan gum use, says SRIC. Almost half of the global xanthan gum demand comes from China.

“China’s footprint in hydrocolloids is not that big, but their footprint in xanthan is gigantic,” says Will. “Xanthan really complements oil exploration and so from their strategic standpoint, China’s interest in xanthan is well outside the food area.”

In the medical and pharmaceutical market, global gelatin use is growing by over 3%/year, says Vicki Barbur, technical manager for Eastman Gelatine, Massachusetts, US. Global gelatin consumption across all markets was 290,000 tonnes in 2005, and is expected to reach 315,000 tonnes in 2010.

“The largest market for gelatin is still in food and beverage, at 200,000 tonnes, rising to around 225,000 tonnes in 2010. Market growth, however, is flat at 2%,” says Barbur. “There has been a great deal of development in using gelatin as a protective coating and as either a water or oxygen barrier. In the pharmaceutical market, it is increasingly being used in tablet coating and encapsulation.”

The use of gelatin in photography, however, continues to decline worldwide due to that industry’s changing landscape, she adds.

Overall, SRIC pegged the global total hydrocolloids market at roughly $19bn in 2006. “Starches and their derivatives, which are worth roughly $12bn, have lower average value by weight, compared with other hydrocolloids,” says Will.

SRIC estimated global hydrocolloids consumption in 2006 to be 16.3m tonnes. Europe accounts for most of the consumption of hydrocolloids excluding starches (43%), followed by North America (33%), China (7%), Japan (5%) and other Asian countries (4%). The rest consumes around 77,000 tonnes of hydrocolloids other than starches.

Seisun says more of the industry’s outlook this year will be revealed during the International Hydrocolloids Conference to be held on April 27-29, in San Francisco.

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