The global Methionine market has suffered a drop in demand in recent months as slowing meat sales, due to the economic recession, have weighed on feed output. The US in particular has been hit with a build up of stocks and a subsequent reduction in meat production. However, some credit analysts are now predicting an improvement later in 2009 as the market enters a period of stability.

Wesley Moultrie, Senior Director in Corporate Finance at Fitch Ratings recently stated:  "I think the protein industry is coming out of the downside that it has experienced in the past year - U.S. meat companies struggled throughout 2008 and in early 2009 because of the high-priced feed and slowing meat sales. They responded by reducing production, particularly the chicken producers, who can react more quickly to demand changes than beef and pork producers. He added "The second half of 2009 is likely to be better than the first half."

What does this mean for the global Methionine market? Will the current downturn affect longer term plans for plant expansions in that sector? Is there a recovery in sight and what impact could this have on the demand and supply of Methionine?

Feedinfo News Service interviewed Mr Frank Chmitelin, Executive Director Performance Products at Adisseo, to understand how his company is reacting to the current situation and what is the position regarding the delay in the building of its production unit in China.
 

1. Adisseo and Bluestar have recently announced a delay in the construction of their methionine unit in China, has this event anything to do with current economical crisis? The origin if this event is an administrative decision of the Chinese authorities concerning the site on which our facility should be located. The fact that current market conditions are less favourable will indeed limit the effect of this delay. 2. Can you quantify the effect of the current economical crisis on your activity? We are facing a reduction in demand for Methionine in basically all countries. Our estimation is that, in average and compared to the same period last year, this reduction for Q1 2009 is in the range of 10 to 15% depending on local market conditions. For Q2 we anticipate the same level of demand as Q1 and as a direct consequence, we expect a stabilization of the market at the current level. In the medium and long term, and due to the fact that it is the most cost effective animal protein source, we think that the poultry market will continue to grow and that it will be in a good position for a fast recovery as soon as the economy gives signs of turnaround; this gives us the confidence that the fundamentals of the Methionine market remain strong.

Mr Frank Chmitelin Executive Director Performance Products, Adisseo

3. This means that, short term, you do not need extra capacities?

As you know it takes time to setup a new capacity and we are adapting our output to the current situation.

At the moment, we are proceeding with our annual maintenance operations at all our units. As a consequence, our Methionine production has stopped and we will adapt the timing and the level of production after start-up to demand, while maintaining our ability to react quickly to any turnaround.

In the meantime, we also have to prepare for the future and be in a position to follow market growth when the market recovers. This is the reason why we are looking at potential capacity increases at our European sites.

4. At which European sites is Adisseo planning to raise production and can you specify the proposed volume increases at each location?

All sites are concerned. We will be in a position to provide more precise information in the near future.

5. What is the timetable for increasing production at each facility?

We are assessing the gradual increase of our European capacities starting in 2010. This process will allow us to adjust supply to meet customer demand. In any case we will stick to our commitments for all our customers and we will ensure a secure supply just as we have done in the past.

6. Do you already have the necessary volumes of intermediates on hand which would allow you to increase output as per your timetable?

Adisseo is a back integrated company. This is a tremendous asset for us. Our plans therefore include adapting our intermediate production in line with our future needs.

7. Will you be in a position to add this extra capacity to existing facilities without disrupting current output?

Yes, we will be using our normal maintenance shutdown periods to increase capacities to avoid any disruptive events in our supplies to our customers.

8. From your announcement of 18 March, it is clear that Bluestar is fully committed to going ahead with the construction of a new fully integrated Methionine facility in China. Indeed, ChemChina's (Bluestar) President Ren Jianxan was recently quoted as reaffirming the company’s plans to invest 26 billion Yuan in the project.

When do you expect the delays arising from the planning issues with Chinese authorities to be resolved?

Bluestar and Adisseo teams have been extremely reactive and have been working since the announcement of this potential problem on the identification of the best alternative site. We have already identified different alternatives. It is clear that one critical criteria of choice with regard to the new site for the Bluestar-Adisseo methionine unit is the timing.

9. Given the delay to your project, how concerned are you that one of Adisseo’s competitors may step in and establish a fully integrated facility in China?

We consider that the impact of this delay remains limited. All engineering studies conducted over the last two years are still fully relevant and reusable. Bluestar and Adisseo teams involved in the project remain totally mobilized to overcome this issue as quickly as possible. This gives us the confidence that we remain in the best position to be the first to establish a fully integrated Methionine plant in China.

10. How much do you estimate this delay is going to cost Adisseo?

In terms of costs, the impact will be limited because we are still at engineering studies level and we have not started construction yet. In terms of market share, we don’t expect any negative impact since European capacity development will compensate for the delay of our Chinese plant and will be adjusted to our anticipation of market growth for the period.

11. Will your planned capacity in China be lower than was what previously envisaged given the increase in European output that you now intend to put in place?

No, the capacity of the plant will remain the same. We originally announced that we would develop these capacities in two steps and we have not changed our plans with regard to this. The evolutions of market demand will determine when we will start the second step.