The Outlook for Methionine
(Feedinfo News Service) - The financial crisis impacted negatively on the pace of growth of the global Methionine market. In 2009 weaker demand was reported from many geographical regions. Given that scenario, do you believe that Methionine producers adjusted their output appropriately ?
(Giovanni Gasperoni) - I think they are in line with what is happening. Meat producers lost a lot of money last year, especially in North America and Brazil. As a result they reduced output during the last 18 months to reflect current demand.
Now that there is a little more demand, they think they can adjust by increasing the weight of the animals. Nobody wants to lose money in this business and nobody wants to lose money for a long period of time. Animal protein in general has suffered quite a bit in the last 2 years.
But I do think we still have a long way to go in increasing animal weight, more especially in maximising the utilisation of the current genetics, and that is not happening. I think that only 60% of the potential in feed conversion is being used and 70% of the live weight. Although we are more oriented in developing breeds suitable for the different needs of the different market places, we still have opportunities. There is still work to be done in terms of improving the management and the feed for the animal.
(Feedinfo News Service) - Global Methionine demand is expected to grow at around 3 - 4% per annum during the coming decade. However, during those years there will inevitably be short term periods of over and under supply. Do you believe that the Methionine industry will be able to efficiently match demand with supply during such transient periods?
(Giovanni Gasperoni) - Novus customers know that there are periods when they should try to maximize output in order to match demand. There will also be phases when supply will outpace demand and our customers will need to quickly adjust production in time based on the lifespan of the animal - the poultry life cycle being faster to recover than other animals. There are also different buffer zones, such as freezing the animals when there is no demand and that helps them reduce the placements.
"If I look at the last decade and the growth rate of methionine, it is up 3.4-3.5% ... If I look at what is happening in the future, I am seeing a 2-2.5% growth. I think it is realistic because we are coming from zero growth last year, negative growth the prior year and perhaps a 1% growth the next year."
- Dr. Giovanni Gasperoni
None of our customers want to lose money in the long run or even in the short run. Today the broiler and animal protein business is much larger than a decade ago so when you look at my projection, although it seems small, the base is bigger, so it is a question of relativity. I can see fewer spikes than there used to be in the past.
As for future methionine demand, I tend to be more conservative than what my competitors are publishing. I am not really talking them, I am looking at what is published, but more so, I am looking at what happened in the past. And what I have predicted in the past decade has happened on average on the long period of time.
If you examine closely what the growth rates of Methionine have been during the past 10 years you will see that over this period the average has been 3.4 - 3.5% per annum. For the future I am predicting an average of 2.0 - 2.5% growth per annum over a 10 year period.
I think this is a realistic number because we are coming from zero growth last year, negative growth the prior year and perhaps only a 1% growth the next year. So I do not know where the enthusiasm is coming from today for anything that is growing faster than that on the long run or in the short run.
As far as how we cope with that as a methionine producer, well everybody has his own prediction. In our business if you monitor the market very closely you should be able to identify when demand is weakenening and therefore adjust your output accordingly. The market becomes unbalanced when somebody invests in new capacity which is not needed. Look at what happened in the past with one of our competitors. They took a very bold decision by starting up a new facility. However, as soon as they started they had to freeze their other facility because there was excess methionine in the market place. And since there is no elasticity in the methionine price, it does not matter how low it goes, it will not stimulate demand.
(Feedinfo News Service) - A growth of 2.0-2.5% per annum will lead to a sizeable market size over a 10 year period. Does Novus have any specific expansion plans which would allow you to capture a share of this growth?
(Giovanni Gasperoni) - I am not very concerned about market share. Novus is not just a Methionine company anymore. Methionine is an important part of our products we offer to our customers in the world but it is not the only product for us. We have developed many different products that help our customers in different areas from feed quality to gut health and more nutrition enzymes or minerals. Our company is not like our competitors with just one product on offer, at least the methionine competitors.
As far as Methionine goes, the demand will continue to grow of course. We see our Chinese competitors expanding. And we are looking at when to make our own next expansion. We still have capacity, our plant is the largest plant in the world. From one location we can support the growth of our customers and the growth of our potential customers on both liquid and dry. Today we are considering other opportunities to expand our capacity but I cannot disclose now when and how we will do that.
We are exploring ways to support the growth of our business and of our customers around the world. Timing and technology are very important. This is what we are looking at.
(Feedinfo News Service) - Novus International still has some capacity that is under-utilised. How far forward will that capacity take you based on your expectations for market growth during the coming years? How many years do you think it will take to reach that capacity?
"We are looking at when to make our next expansion. The timing and the technology are very important.... We still have capacity, our plant is the largest plant in the world ."
- Dr. Giovanni Gasperoni
(Giovanni Gasperoni) - Today Novus has no problems in supplying customers and we will be ready to continue our growth when the market will require additional capacity. I will not be supportive of being in a market place just for the sake of feeling good about it and expand when the market does not need it. The company that we are managing needs to be profitable in the long run. I do not want to be remembered for being the one that built the largest unutilised Methionine plant .
(Feedinfo News Service) - Three different Methionine plant expansions are in progress at the moment. One is expected to come on stream later this year, and there will be some more additional capacities over the next 2-3 years. Do you think that these expansions are unnecessary to the market?
(Giovanni Gasperoni) - Yes.
(Feedinfo News Service) - Does that mean we are going to an oversupply position as these capacities come on over the next few years?
(Giovanni Gasperoni) - Yes. But it does not mean the price will go down.
(Feedinfo News Service) - Do you believe that those Methionine producers who are expanding and investing in new capacity will, therefore, find themselves not using that new capacity?
(Giovanni Gasperoni) - Yes, this is what we have witnessed several times in the past.
(Feedinfo News Service) - Judging from what you have said, Novus is taking a different position to your other competitors ?
"Based on the current technology available, it is important to put a plant in a place where infrastructure and the raw material cost is as efficient as possible, and in a location where there are no trade barriers. China is one place, but perhaps not the most economical one."
- Dr. Giovanni Gasperoni
(Giovanni Gasperoni) - I have to look at the cost of capital and what is the return on capital. I have been associated with this company for 25 years. I have examples of colleagues in the other companies who stayed in their positions for a few years and then had to battle because they helped build a new plant and after that they had to search for a new job.
I have accountability with our board. Now one of our main competitors, being Chinese, has a different view and a longer term perspective in investing in the capital. I cannot judge from here because I do not know what the background is.
(Feedinfo News Service) - Clearly China is a region where demand for meat protein will grow significantly and in parallel the demand for methionine. Is China one of those regions where you are thinking of building a fully-integrated plant in the coming years?
(Giovanni Gasperoni) - It is one of the regions we are looking at. It is more challenging because of the nature of the country, the lack of infrastructure, but more so the lack of technology.
Based on the current technology available, it is important to put a plant in a location where infrastructure and the raw material cost is as efficient as possible. Ideally the location should have no trade barriers. China is one place, but perhaps not the most economical one.
(Feedinfo News Service) - So you argue that, when considering the location of a methionine facility, it is more important to consider the production side of the equation rather than the demand side?
(Giovanni Gasperoni) - Of course, because the transportation cost is minimal.
(Feedinfo News Service) - Some of your competitors are intending to set up new facilities in greenfield locations which have limited history in terms of the handling and synthisis of dangerous chemicals. Do you think it makes more sense expanding capacity in existing petrochemical complexes?
(Giovanni Gasperoni) - This is what I think for Novus. I do not know the background of the other companies. I am sure that they have done their own homework. It is difficult for me to judge.
(Feedinfo News Service) - One global feed additive producer confirmed publicly that it had made a lot of progress in terms of producing methionine from a fermentation route. What developments do you expect in this area during the coming years?
(Giovanni Gasperoni) - It is difficult task for the companies involved in the fermentation area because it has been a promised land for the last 20 years. I would like to say that it will not happen for the time being. From my view with the large capacity situation today, these companies have a long way to go to be competitive.
"It is difficult task for the companies involved in the fermentation area because it has been a promised land for the last 20 years. I believe it will not happen for the time being. From my view, with the large capacity situation today, these companies have a long way to go to be competitive."
- Dr. Giovanni Gasperoni
Looking at what has been published and the yield of this product, if the quantity is minuscule that may mean the L-Methionine will have a different utilisation, perhaps on the food/human side. But competing with a current large methionine plant is going to be difficult from what I have seen so far. Now will the technology improve with time? There also has to be a cost advantage to do that otherwise it will be very difficult.
(Feedinfo News Service) - Is Novus also looking at the fermentation route? Or do you feel it is a direction you do not want to go to in the medium term?
(Giovanni Gasperoni) - As I have mentioned in the past, we are looking at all possibilities regarding different technologies. Our company is a technology-based company. Do not forget that Alimet was invented by Novus. MHA has been in the market for a long time. We are looking at any technology that will give us an edge, a real edge in the future.
This not only concerns our methionine business, but our other animal nutrition products too. Our efforts are also devoted to developing new molecules. Novus is changing into a multi-product, multi-species company. We are developing programmes which are addressing our customer needs and challenges in different parts of the world. I think the market and our customers are noticing this.
We are in a difficult business, which is highly regulated. So being an innovator is not easy. We have had our MINTREX products approved in Europe recently. This was the final chapter of a 3 year process and multi-million dollar investment. It has been a difficult path but our dedication and investment in time and capital is paying off.
We want to help our customers. We are in the food chain, we will be part of the food chain. This is where we are strong and where we are putting our R&D. After all it is a mission: there are fewer customers, fewer suppliers, and yet more people to feed.
© Feedinfo News Service 2010 - All rights reserved