Price gains help to boost margins
Gordon Graff -- Purchasing, 3/4/2004 2:00:00 AM
A round of price hikes in late 2003 helped sodium bicarbonate producers recoup some of their escalating energy and raw materials costs. But, suppliers of this commodity chemical say margins in their businesses continue to be sub-par and that further increases in bicarbonate tags are therefore likely.
SUPPLY: Adequate reserves
Overall, the sodium bicarbonate market is "fairly balanced," says Curt Siverling, sales and marketing director, specialty products, for FMC Corp., Philadelphia, Pa., the second largest bicarbonate producer in North America. Supplies of bicarbonate are tightest in the higher purity grades sold into food, pharmaceutical and personal care markets, he notes, adding that reserves are more abundant in animal nutrition additives.
The largest producers of sodium bicarbonate in North America are Church & Dwight, Princeton, N.J., followed by FMC. Solvay, headquartered in Brussels, Belgium and Tokyo-based Asahi Glass are respectively Europe's and Asia's leading bicarbonate makers. Some 1.4 million metric tons of sodium bicarbonate were produced worldwide in 2002, according to SRI Consulting, Menlo Park, Calif.
Sodium bicarbonate supplies in North America will be affected strongly by the future of an American Soda bicarbonate production unit in Parachute, Colo. that was acquired last year by Solvay when it bought American Soda. Solvay declines to comment on its plans for the Colorado facility, which also makes soda ash.
DEMAND: Strained margins
Growth of sodium bicarbonate sales has hovered in the 3% per annum range in recent years, according to industry participants. Certain bicarbonate applications, such as swimming pool chemicals and air pollution control, are expanding faster than average, while markets in food products are growing a bit slower than average, reports Arthur Esposito, senior business director at Church & Dwight's performance products group.
Margins in the bicarbonate business have been "relatively stable" over the past year, says Esposito. Still, he adds, "margins are not where we feel we need them to be to keep this business vibrant." The round of price increases announced by major bicarbonate producers in the fourth quarter of 2003 "helped us maintain our margins," says Siverling. But the relatively high cost of energy, particularly natural gas, continues to erode profits in the business, he adds. Meanwhile, supplies of soda ash are tight, notes Esposito, which he says "will translate, in part, into higher raw materials costs" for bicarbonate makers.
Demand growth for sodium bicarbonate in the next year should parallel the increase in GDP, Siverling believes. While the animal nutrition market was "challenging" for sodium bicarbonate in 2003, he says, that sector should pick up as 2004 unfolds. Margins in bicarbonate should be stable over the next year as the recent price increases are implemented, Esposito says.
PRICING: On the upswing
The sodium bicarbonate price increases, announced by most North American producers in October and November of 2003, amounted to $20/short ton for off-list products, a jump of about 4%. Customers are accepting the higher tags, report leading bicarbonate players.
The fuel surcharges imposed by the bicarbonate industry last year to pass along increased transportation costs remain in effect. But these add-ons, which in 2003 varied between 2% and 8% of the value of a shipment, have come down. Church & Dwight's transportation fuel surcharge rates have dropped by 50% since they were imposed last year, says Esposito.
Prices of sodium bicarbonate will be affected by Solvay's decision on the future of the American Soda plant in Colorado, say industry insiders. But closure of the facility would boost tags by only a relatively minor amount, they note.
While sodium bicarbonate suppliers refuse to speculate about future price hikes, they say that energy and raw materials costs will continue to put pressure on tags. Says one bicarbonate supplier: "I certainly expect the idea of an annual price increase to be the normal mode as we go forward."
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