China citric acid price trend outlook 2011
China citric acid export price estimate for the year 2011
By: Hasan Saleem
Chinese citric acid prices seem all set to continue to rise through year 2011. The main factors expected to drive this price increase are raw material (corn) price hike, strengthening of Chinese Yuan (RMB) against US dollar, and possible industry regulation owing to anti-dumping proceedings abroad.
Global corn prices are so high and fundamentals strictly point to increased corn prices in future. In Oct last year Jungbunzlauer, due to the strongly increased prices for agricultural raw materials, raised its product prices up to 10%. The products affected include citric acid and citrates, xanthan gum, gluconates, specialty products and erythritol. Thus the overall environment is conducive for increased citric acid export prices from China.
The state-run news media in China warned Monday that the country’s major agricultural regions were facing their worst drought in 60 years and said Tuesday that Shandong Province, a cornerstone of Chinese grain production, was bracing for its worst drought in 200 years unless substantial precipitation came by the end of this month. The New York Times News Service, February 8, 2011 (Beijing).
China's national obsession with self-sufficiency in food includes corn. Little known outside of China, the country's corn industry grows one-fifth of the world's corn, according to the Food and Agriculture Organisation's (FAO) statistics. China's corn crop is mostly in the country's northern provinces, where the drought is worst now.
Earlier, an FAO source said the success or failure of the corn crop, as well as the rice crop, would depend mostly on rainfall this spring and summer, not the shortage of rain this winter.
Further there is strong indication that RMB will continue to strengthen against USD pushing prices of China’s exports upwards.
One Feb 04, 2011 the RMB/USD was 6.556. A reliable expert, Yen Ping Ho, the head of Asian foreign-exchange strategy for JPMorgan Chase & Co. in Singapore, whose 6.58 forecast was closest to the Dec. 31 close among 21 analysts surveyed by Bloomberg a year ago, had stated "The yuan will advance 4.6 percent to 6.3 per dollar, after climbing 3.6 percent in just over six months. ING Groep NV and HSBC Holdings Plc, whose predictions were the next most accurate, say the yuan will advance 3.8 percent from its year-end rate to 6.35." Hence a 4% increase in RMB in 2011, if translates into 4% - 5% increase in export price of citric acid will mean an increase of roughly $50 - $60 per MT.
On Feb 09, 2011 Bloomberg News reported that China’s yuan traded near its highest level in 17 years after the central bank raised rates for the third time since mid-October. At that time, twelve-month non-deliverable forwards were little changed at 6.4285 per dollar, reflecting bets the currency will rise 2.6 percent, according to data compiled by Bloomberg. All these figures point to an increase of $30 to $60 per MT in export price of citric acid in 2011. This is based solely on currency exchange rate incresae. Other factors like corn prices hike, are expected to further increase the citric acid export prices.
Short term factors affecting the price (upwards) are start of the beverage season creating demand surge for citric acid consumption by beverage producers, Brazilian Citric Acid Industry Association’
In 2008, EU and the US separately ran anti-dumping investigation into Chinese citric acid, which finally brought a negative effect on the export to these two countries. However, due to market explosion in other countries, such as India, Thailand, and Vietnam, the total export volume still kept increasing in China year by year.Except pressure from outside (Brazil), domestic regulation is also a key factor for the development of Chinese citric acid industry. Citric acid production is environmentally degrading and hampers pollution. Shanxi Zuyuan Industry and Trade Co., Ltd. and Qinyang Xinxing Chemical Co., Ltd. were eliminated from the manufacturer list for their backward industrial capacity in September 2010, as well as the requirement for environmental protection. Besides, according to the latest issue of Corn Products China News, Chinese corn deep-processing industry will face to be checked and regulated again, which may impact domestic citric acid industrial adjustment and citric acid global market. At present, Chinese citric acid is estimated to reach 800,000 tonnes, accounting for 70% of the world total volume, and 73% of it is for export. (CCM)
All in all, the expected price trend is as follows: FOB prices of Citric acid monohydrate will remain between $1,100/MT and $1,200/MT in the next few weeks. In the medium term, it is possible for FOB prices of Citric acid monohydrate to touch $1300/MT after currency adjustments. Generally prices seem to remain upwardly mobile throughout the whole year 2011 which could result in Dec 2011 FOB prices in excess of $1,300/MT for citric acid monohydrate and in excess of $1,400/MT for citric acid anhydrous.
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