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In this short overview, Feedinfo News Service takes a look at what forces will drive the global Vitamin E feedgrade market during the coming months. The European spot price has moved from below EUR 4.00 kg during early 2007 to today’s historically high levels of close to EUR 20.00 kg. During end 2007 and to date this year, global consumption of Vitamin E feedgrade has been almost on par with available output.
The key issue today is will the market remain tight during the coming months and what factors will ultimately determine the price trend during H2 2008 and H1 2009.
EUROPEAN SPOT PRICE TREND 2000 – 2008
Factors affecting supply :
+ Olympic Games - Extended plant shutdowns at two Chinese factories
+ Permanent shutdown of French factory from 01 July 2008
+ Western producer maintenance shutdown this summer
Factors affecting demand :
+ Will inclusion rates be altered negatively during 2008 given the current Vitamin E price level ?
+ Will there be continued organic growth in the demand for Vitamin E during 2008 ?
Factors affecting cost of production of synthetic Vitamin E oil :
+ Cost and availability of key intermediates
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Olympic Games - Extended plant shutdowns at two Chinese factories
The two Chinese producers have a combined market share of approximately 38%. So far this year both have been operating at around 20% below normal output. Environmental restrictions have been largely responsible for this loss in output. However, recently the local government instructed both producers to operate an extended plant shutdown which will cover at least the period 20 July – 30 August 2008. Some reports suggest the latter deadline may be extended into mid September. This instruction is in line with the Chinese government’s ambition to reduce coal based energy consumption and pollution during and around this year's Olympic games. Further disruptions to the supply of Vitamin E oil are expected as restrictions on local transport take effect. The Chinese government has already imposed restrictions on the transport and shipment of hundreds of chemicals and certain additives during this summer. The rush to export commodities from China before the start of the Olympic games is already pointing towards congestion at the major shipping ports.
Permanent shutdown of French factory from 01 July 2008
From 01 July 2008, Synthetic Vitamin E oil will be produced by just four companies worldwide; DSM, BASF, Zhejiang NHU Company and ZMC (Zhejiang Medicine Company Ltd).
Adisseo are permanently stopping production of Synthetic Vitamin E oil at their French factory. Although they have been a small producer, the loss of around 3500 mt E oil per annum will be significant in the short term in a market where current global output is struggling to meet demand. It is understood that Adisseo will continue to supply Vitamin E 50 feedgrade to the premix market based on oil procured from the remaining basic producers.
(Several large’ blenders’ exist globally. They source Vitamin E oil from the basic prime producers and put it on a carrier. The blended product Vitamin E 50 adsorbate, is then supplied to end user premixers.)
Western producer maintenance shutdown this summer
Our understanding is that one large Western producer will undergo a 3 week maintenance and debottlenecking shutdown during Q3 of this year. This will contribute to a tight market during this summer. However if this debottlenecking operation is successful it is anticipated that an additional output of + 10 % might be achieved at this plant from September / October 2008 onwards.
Demand for Vitamin E feedgrade during 2008
There has been considerable speculation and discussion that inclusion rates of synthetic Vitamin E in complete feeds will be lowered as a result of the current price levels. Feedinfo News Service recently conducted a global survey* to find out if any such changes were likely during 2008.
The findings from this survey suggest that the majority of premixers in mature markets will not reduce their inclusion rates during 2008, when compared to 2007. However the feedback from this survey also suggests that 32% of polled end users in those markets will reduce their inclusion rates when compared to last year. The results of this survey are as follows :
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Q: How will your Company’s consumption of Vitamin E 50 feedgrade in 2008 compare to 2007 ?
32% No significant change
12% Not possible to predict at this point
12% Increase of 5 – 9 %, compared to 2007
12% Increase of 10 % or more, compared to 2007
8% Decrease of 5 – 9 %, compared to 2007
8% Decrease of 10 – 15 %, compared to 2007
16% Decrease of 16 – 30 %, compared to 2007
* End users located in developed markets. Developing markets such as China not included.
Source : Feedinfo News Service survey June 2008
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The results of this survey would appear to confirm a generally held view among nutritionists that inclusion rates of vitamin E practised during 2007 are still considered appropriate for the majority of diets. Although the cost per kg of Vitamin E 50 has risen dramatically over the past 18 months, the additional cost to each tonne of complete feed remains modest given the low inclusion rates in finished feed. Typical inclusion rates of Vitamin E for pig diets are 50-130 mg/kg feed. Poultry diets are generally 20-55 mg/kg of finished feed.
However feedback from this survey also suggests that end users are now paying very close attention to recent developments in Vitamin E pricing and availability. Premixers have stated that a prolonged period of uncertain supply and record high prices would eventually encourage nutritionists to seriously reconsider current usage levels in the certain diets.
Nutritionists say that it is a relatively complex task to alter Vitamin E inclusion rates over a short term period. Feedback from premixers suggests that they have avoided implementing a reduction to date in the belief that the current supply issue is of a temporary nature. However if current price levels prevail over a longer period it seems inevitable that there will be a decline in the consumption of Vitamin E in certain geographical regions.
2004 - 2007 saw very strong growth levels in in the consumption of Vitamin E feedgrade on a global basis. However current price levels and tight supply will probably lead to close to stagnant growth in mature markets such as North America and Europe for year 2008. In China, however, the context is different with growth levels of up to 7 - 8 % predicted for 2008. China's consumption of Vitamin E 50 feedgrade is expected to be close to 13 000 mt during 2008. Other developing regions also anticipate strong growth rates of 5 - 7% during 2008. The net effect on a global basis suggests that the consumption of Vitamin E 50 feedgrade will probably grow by up to 2 - 4% for 2008.
Factors affecting cost of production of synthetic Vitamin E oil
Vitamin E oil is manufactured from several downstream petrochemical intermediates. At least two commercially viable processes exist today. Our understanding is that none of the four basic producers of E oil are totally integrated. Some are more integrated than others but all are dependent to a greater or lesser extent on external intermediate suppliers. Key intermediates for the production of Vitamin E oil include iso-phytol , meta - cresol, TMP etc . The costs associated with producing such intermediates are directly linked to the crude oil index and explains why significant price increases have been pushed through by these producers in recent months. The number of companies capable of producing such intermediates are extremely limited. The barriers to entry to this segment of the market are very high. The supply of Meta - Cresol in particular is extremely limited and will remain problematic through to at least 2010 due to the permanent departure of one large manufacturer.
The cost of building a new greenfield Vitamin E facility is estimated to be between 200 - 300 million US dollars with a time delay of 2 - 3 years. Apart from the prohibitive set up cost, new players face the additional hurdle of securing a strategic partner who is capable of supplying the required volumes of key intermediates. In the past, one Vitamin E Oil manufacturer permanently stopped production because they could not secure a long term source of certain strategic intermediates. It is for those reasons that it is highly unlikely that any new producers of synthetic Vitamin E oil will appear in the foreseeable future.
Vitamin E feedgrade oil - estimated Global output (Kt) during 2008 DSM 18.5
BASF 14.00
Zhejiang NHU Company Ltd. 10.50
XP 10.50
Adisseo 1.75
Total Estimated Output 2008 55.25 kt
+ In addition to the above output, it is understood that
both BASF and DSM each produce 5 kt per annum of
Vitamin E OIL for food and pharma use. |
Summary
The Vitamin E market entered 2008 with global consumption practically on par with available output. Supply is expected to remain very tight during the coming summer months due mainly to restrictions associated with the Olympic Games. Structural fundamentals mean that it is impossible for any of the remaining four basic producers to increase output significantly in the short term.
2008 will see continued strong growth in Vitamin E consumption in developing regions. This will offset any slowdown in demand from mature markets such as North America and Europe. Disruption to production in China (Olympic games) will maintain a very tight market during July and August 2008. An improvement in supply should occur during Q4 of this year as the Chinese return to normal output levels. A possible increase in output of up to 10% from September onwards might be achieved thanks to a de-bottlenecking operation at one Western facility.
However, rising costs of key intermediates and the inability of Vitamin E producers to significantly increase capacity in the short to mid-term will maintain supply concerns well into 2009. Limitations on the supply of key intermediates such as meta - Cresol will maintain tightness in the intermediate market until at least 2010. The threat of a possible reduction in consumption levels of Vitamin E feedgrade might restrict opportunities for existing producers to get approval for investments in much needed plant expansions. |