28 January 2021 - Lysine market prices, generally speaking, have been decreasing in recent years due to global overcapacity combined with lower demand caused by African Swine Fever (ASF) and the COVID-19 pandemic.
However, l-lysine supply has been tight in Europe in recent weeks as Chinese shipments are often delayed because of container shortages and lockdown measures in parts of China.
In addition, ADM Animal Nutrition will stop producing l-lysine HCl 98% in the first half of this year and focus on l-lysine liquid 50% and encapsulated lysine products instead, and CJ Bio has reduced its output after switching some of its production lines to focus on specialty amino acids last year.
These more recent factors are likely to have played a role in the higher prices for all types of lysine in Europe seen more recently.
Monitoring all these developments – and like ADM – Ajinomoto Animal Nutrition Europe (AANE) is of the belief that l-lysine liquid 50% in the EU has a bright future. AANE is noticing a few trends emerging which would seem to back up this theory.
|
Feedinfo spoke to Pierre Tille, Sales Director at AANE, to get his views on the emergence of l-lysine liquid 50% in Europe, and the market changes that can be seen at Chinese producer level and with ADM ceasing l-lysine HCl 98% production. [Feedinfo] Mr. Tille, what factors do you see having an impact on the evolution of lysine prices in 2021? [Pierre Tille] Long-lasting overcapacity has put high pressure on lysine prices in recent years forcing many producers to reconsider their ambitions in the lysine business. In 2019, the European market was oversupplied with Chinese origin due to the ASF outbreak which sharply reduced domestic Chinese lysine demand and pushed prices to historical low levels. In addition, we estimate that the COVID-19 crisis reduced lysine demand by 5-10% in Europe with an impact on price in H2 2020. |
Pierre Tille |
The COVID-19 crisis has also revealed to European feed producers the importance and value of local supply. As a risk mitigation strategy, it is vital for EU lysine users to be able to count on lysine production in Europe.
For 2021, the price of lysine in Europe will likely be influenced by various factors in the market environment: 1) Increasing production cost due to high corn prices in China; 2) higher protein prices; 3) strengthening Chinese currency; 4) reduction of production in USA; 5) high maritime logistic costs; and 6) demand recovery in China.
For the European market, which relies a lot on foreign suppliers, security of supply is by far the main concern. AANE is keeping a close eye on market developments in China, especially the difference between domestic and export lysine prices, but also corn price evolution.
[Feedinfo] According to AANE, the western European market currently benefits from quite large quantities of l-lysine liquid 50%. In your opinion, what quantities/capacities of l-lysine liquid 50% are available currently?
[Pierre Tille] Liquid lysine, which was introduced by AANE in the 1990s, has strongly developed in the last 30 years, in part thanks to the growing supply by market players. Today, in western Europe, it represents between 30-50% of lysine usage depending on the countries, and supply can be easily increased to follow growing demand.
The main form in the EU remains l-lysine HCl 98%, with more than 50% of the supply. In the case of lysine sulphate, supply has been growing over last five years with up to nine suppliers. It is now under a re-adjustment phase due to the EU re-authorisation process which occurred in 2020. New strains are currently under evaluation by EFSA.
[Feedinfo] With EU reauthorisations of certain l-lysine liquid 50% strains in 2020 and more expected in 2021, do you expect major shifts in l-lysine liquid 50% supply and demand in the western European market in 2021?
[Pierre Tille] Looking back at 2020 until today, after the implementation of the EU lysine regulation (2019/1964), supply of l-lysine liquid 50% to the European market was little impacted compared to other lysine forms since most existing suppliers had their bacterial strains authorised. Indeed, additional supply is expected in 2021 with new strains authorised and capacities to supply the European market.
L-lysine liquid 50% has a great future ahead in Europe, where feed manufacturers invest heavily in feed factory automation and productivity. Many feed mills in Europe have the possibility to switch from one form to another one. The advantages of liquid lysine are well known. Among them: faster product unloading, no more handling, no more storage and packaging waste of bags and big bags.
[Feedinfo] AANE is of the belief that l-lysine HCl 98% and lysine sulphate are more exposed to volatility and it is economically challenging for operators of these specific forms of lysine due to low margins. Can you expand more on this view?
[Pierre Tille] When analysing statistics and announcements made by various suppliers in recent years, sourcing some forms of lysine has obviously been more challenging than others; this has not been the case for liquid lysine. Under continuous price pressure, selling lysine to Europe over long distances has ended up being non-profitable for some lysine forms and suppliers. L-lysine liquid 50% remained a credible alternative.
[Feedinfo] China accounts for a large share of the global lysine market. The issues you said l-lysine HCl 98% and lysine sulphate are encountering in most markets; will they change Chinese lysine market dynamics too?
[Pierre Tille] The Chinese market is totally different than Europe. It is, for the time being, oversupplied with many domestic lysine manufacturers producing both products (HCl and sulphate, no liquid), therefore it needs to export the excess to the rest of the world. However, as pig production in China keeps recovering from ASF, lysine demand in China will be much stronger in 2021. Therefore, more goods will be consumed locally.
In the long term, we expect China to seek self-sufficiency for feed-grade amino acids to limit its own protein supply dependency. The North and Latin American regions can also rely on significant local lysine supply whereas Europe relies on imports.
[Feedinfo] What do you make of ADM Animal Nutrition’s recent decision to permanently stop production of l-lysine HCl 98% in H1 2021?
[Pierre Tille] We think it is a concern for the European feed industry to have less suppliers, but we observe that l-lysine liquid 50% supply remains. Another consequence is that it should drive more Chinese l-lysine HCl 98% and lysine sulphate into North America to replace the reduction of local supply.
If you look at what happened with threonine five years ago, the European market was supplied by up to nine producers (two of them based in Europe, including AANE). Today it is 100% supplied by only three Asian suppliers.
In terms of lysine and threonine, the EU is in a permanent situation of dependency from third countries, China in particular, putting the region in a strategic supply risk position. This was recently picked up by the European Feed Manufacturers’ Federation (FEFAC), who called for a stimulation of EU production of feed additives, and amino acids in particular. This could be done through the valorisation of the benefits of EU production, such as low-carbon products. AANE recently conducted a study showing a great variation of the carbon footprint of lysine across geographies. The EU Green Deal could provide a framework for this valorisation, for instance through the carbon border adjustment mechanism.
Furthermore, feed-grade amino acids have a strong contribution to the European feed protein supply. Therefore, when domestic amino acid production is lost, Europe is increasing its overall dependency on imports for its own protein supply.
[Feedinfo] Last November, Takaaki Nishii, President and CEO of Ajinomoto, said that after some delays due to COVID-19, the company had resumed negotiations with some partners regarding asset reductions at its European animal nutrition business. Moving forward, can we expect AANE to make a similar announcement to ADM Animal Nutrition’s about l-lysine HCl 98%?
[Pierre Tille] No, lysine production at the Amiens plant contributes to our value proposition and our capability to develop new amino acids. Lysine will remain the main component of our Amiens plant production mix to accompany the growing interest in locally-produced and low-carbon lysine. In parallel, AANE has been introducing and developing new amino acids. In the past five years, AANE has accelerated in this direction, growing production of l-tryptophan, l-valine and introducing manufacturing of l-isoleucine, l-leucine, and soon l-arginine. In addition, our Amiens plant increased its flexibility to adapt faster to market developments.
