3 November 2022 - Weak demand and ample supply in all regions continue to be the story for vitamin markets in Q4 2022, and while amino acids have started to see some demand improvement because of high soybean meal and corn costs, it appears that there is still a lot of inventory, according to Feedinfo’s pricing analysts.
Demand for feed additives has been weak globally for much of the year owing to swine disease, bird flu, drought, and buyers stocking up during the second half of 2021 and early 2022 to avoid a repeat of the supply chain issues that were prevalent in 2021.
Experts from the Feedinfo editorial and analyst team came together for a live webinar and Q&A discussion on 2 November to discuss what is happening in different regional amino acid and vitamin markets, and what may influence these markets in the coming months.
Demand Situation
According to European analyst Karolina Zagrodna, European demand did not return this year, even during the warmer summer months, as would normally be the case.
“In theory, we were supposed to have a typically active period after the summer as buyers would normally be looking to purchase to cover for their Q4 and Q1 needs. However, things are looking very different this year, and that’s not only because of the COVID pandemic that the businesses have learnt how to live with, so to say.”
“It’s different because of the war in Ukraine and its profound impact on many commodity markets, and the uncertainty of what else can happen in the coming months", Zagrodna said. “Higher raw material costs and rising energy prices have had and will have a huge impact on feed additive production in Europe.”
As the market entered Q4, demand was still slow to pick up in Europe.
“I’m hearing from market sources that many have too much inventory sitting in their warehouses – having problems getting rid of the material. Their goal is to sell what they have, some even at a loss, try to reduce inventory, which inevitably leads to less demand from China and lack of support for prices,” Zagrodna said. “How long will this situation last? That remains to be seen. We are dealing with very low demand in Europe, caused by less meat produced and therefore less need for feed.”
Pig feed production in Europe has been decreasing since 2021, caused by reduced meat demand in key export markets, high costs for feed grains, the impact of African Swine Fever, and significantly increased 2020 production. The countries most affected have been Germany, France, Portugal, Spain, Austria, Slovenia, and Hungary. The Netherlands and Belgium have continued the depopulation of their pig herds to lower agricultural environmental emissions.
Asian analyst Lydia Ma described similar issues related to weak demand in China.
“Prices of all feed additives in both Chinese export and domestic markets are much lower in 2022 compared to last year. Prices were extremely high last winter mainly due to the ‘black swan’ – China's power shortage in 2021,” Ma said.
“Almost all China feed additive prices were in a downward trend from the beginning of this year, due to low demand which was triggered by low live hog prices. And this was because of the overcorrection from the previous African Swine Fever. During the first half of this year, many pig breeding companies were facing a loss, and each pig they were selling there was around a CNY 500 loss,” Ma added.
In addition to bird flu and swine disease, droughts have had a huge impact on demand in North America, Americas analyst Heather McGuire Doyle explained.
“If you look at the US Drought Monitor right now, you will see that nearly 85% of the United States is in abnormally dry to extreme drought conditions. This has had a huge impact on demand and many cattle have been culled during the hot dry summer months,” Doyle said “It is also currently impacting logistics. The Mississippi River remains at a record-low level, grounding boats and causing shipping delays.”
Weak demand is also a result of large contract buyers and resellers/distributors having plenty of inventory from buying long in 2021, and some are still working off unused inventories, Doyle said.
Meanwhile, in Brazil, although meat exports have been strong this year because of the country’s lack of bird flu and traditional strength in beef and pork exports, consumers in the country have decreased spending on many of their favourite meats due to a recession in the region, she added.
The Americas have some minerals and amino acids production but no vitamins production, so they depend on China and Europe for all their vitamin needs. However, material can take 60 days or longer to arrive via ocean freight, and by that time the price may have changed significantly.
“Spot buyers in the Americas region have been reluctant to cover forward positions out of concern that prices will change too much before the product arrives, so they have been living by their wits and buying hand to mouth for much of the year,” Doyle said. “This also means that the resell/distribution market has material in storage to get rid of and has at times offered hefty discounts to make room for incoming shipments or to clear out storage all together.”
Supply Situation
Amid weak demand across all regions in 2022, some sellers have warned that supply could tighten due to low margins that would impact production decisions. History shows us that high production costs paired with weak demand can mean lower production rates or a complete stoppage of production, and changes in these markets can happen quickly.
“A lot of vitamin production capacity as well as methionine capacity is in Europe and that will be impacted by gas issues this winter,” Zagrodna said. “In addition, Germany houses a key feed additives production site: the BASF chemicals site in Ludwigshafen. However, feed additive market sources have said that the gas supply situation is not currently affecting BASF’s production of vitamins A or E.”
BASF is preparing to replace natural gas with other sources of energy at its production sites, according to the company's Q2 financial results report in July, as Europe is set to reduce gas consumption this winter.
According to Feedinfo's Supply & Demand Pro analytics service, the Ludwigshafen site has nameplate capacities of 5,600 tonnes/year for vitamin A 1000 and 16,000 tonnes/year for vitamin E oil. This represents around 25% and 13% of total global capacity for feed-grade vitamin A and E respectively.
“Most recently, Europe amino acid producer METEX was saying that it was considering temporarily adapting amino acid production volumes in Amiens, France, amid high energy costs and the overall economic situation; this was followed by higher offers from other producers for amino acids such as lysine, tryptophan, and valine,” Zagrodna said.
In China, ongoing COVID restrictions, high corn prices, and weak hog prices are influencing supply.
“The strict 'COVID-19 dynamic zero policy' is still ongoing till now, and as far as we know, current domestic logistics and production are affected. Amino acids have been impacted more compared to vitamins because the current lockdown or ‘silent mode’ is stricter in North China, where most of the amino acid capacities are located. Specialty amino acids in particular are being affected, and prices are rising rapidly in China now,” Ma said.
FOB China prices increased by more than 10% in the last week, while valine prices in the Chinese domestic market have increased by nearly 15% since September.
“There had been expectations that the government’s lockdown policy would be less stringent following the end of the Party Congress, but the lockdowns continue to be as strict as ever,” Ma said.
According to many sellers, there continues to be plenty of inventory in the Americas market for most products, although D-Calpan prices have changed so quickly this year that some Brazilian sellers decided to only bring it in on request and by air freight.
“In the US, there was a lot of Chinese-brand lysine around over the summer and the beginning of Q3. Some of the distributors were bundling lysine with valine. If you want the valine, you have to take the lysine,” Doyle said.
There have been some concerns about valine supply in the US as imports have been reduced this year due to trade issues with China concerning the Xinjiang region.
“But as inventories did eventually begin to dwindle some on the buy side, and corn and soybean meal prices grew to record highs, the lower amino acid prices became more attractive and brought buyers back into the market,” Doyle said.
“In an effort to avoid big production cuts as we are beginning to see in Europe, manufacturers in the Americas have lifted their asking prices for most amino acids for November/December delivery,” Doyle added.
Looking Ahead
Although the Feedinfo team does not forecast prices, they were able to offer an insight into what these market developments might mean.
Asked about the future of Chinese amino acid production, Ma pointed out that there is already overcapacity in this market, especially in lysine and threonine. “There is expected to be new capacity in threonine from Fufeng and Meihua before the end of the year, and it’s already oversupplied, to be honest.” Similarly, in the case of lysine sulphate, new capacity has inhibited producers' ability to raise prices this year.
In such a situation, survival will come down to the efficiency of each individual producer, and how well they manage issues such as rising costs and cash flow. “After [these forces have] squeezed the market, some producers with low efficiency will need to quit the market,” Ma said.
Meanwhile, in response to a question about whether Adisseo’s plans to halt methionine production in Commentry, France, through the end of the year because of high energy and raw material costs would help balance out weak demand, Zagrodna advised caution. “Based on my conversations with market participants following the announcement, I would say there won’t be an immediate impact.”
Firstly, this plant only accounts for 12% of Europe's methionine capacity, according to Feedinfo's Supply & Demand Pro data. Secondly, Zagrodna noted that “demand is very low. Buyers are covered well this quarter and for Q1.”
To view a recording of the webinar, click here or on the image below.
To schedule a meeting with the Feedinfo analyst team at EuroTier, click here.
Want to hear more from the Feedinfo analysts? The team will be giving a free 2023 Market Outlooks Briefing at EuroTier at 17:00 on Tuesday, 15 November, in the Casablanca room. Interested? Register here.
