Producers' cost woes keep rates on the rise
Staff -- Purchasing, 4/7/2005 2:00:00 AM
A vibrant economy is generating a strong demand for sodium bicarbonate. But relentlessly rising costs of energy and raw materials are crimping the margins of bicarbonate producers and putting upward pressure on prices. The latest round of price hikes for bicarbonate, which took effect in the beginning of the year, merely offset the increased costs of production and did little to boost profits, say leading bicarbonate suppliers, suggesting that further rate increases will be pushed throughout the year.
For the higher value, more differentiated side of the bicarbonate business—such as food, pharmaceutical and personal care products—supply and demand continue to be in balance says Art Esposito, senior business director in the specialty products division of Church & Dwight, the largest producer of sodium bicarbonate in North America. But for the less differentiated side of the business, specifically digestion-promoting animal feed additives, he says, "the market is somewhat oversupplied at the moment."
One reason for the overabundance of bicarbonate in animal nutrition is that a competing food additive, sodium sesquicarbonate, is gradually edging out bicarbonate in this application, notes Curt Siverling, sales and marketing director for specialty alkali and distributors at FMC Corp., another major bicarbonate manufacturer.
Among sodium bicarbonate producers, Church & Dwight has the largest share of the North American market, with about 60%, according to industry analysts. FMC is the next largest player. Brussels-based Solvay also has a major presence in North America and is Europe's largest bicarbonate producer. Japan's Asahi and Tosoh are also leading players on the global scene.
Most sodium bicarbonate in the U.S. is made synthetically by the reaction of soda ash (sodium carbonate) with carbon dioxide. But one company, Natural Soda in Rifle, Colo., derives the product from nahcolite, a natural form of sodium bicarbonate mined in Colorado. One former manufacturer of nahcolite-based bicarbonate, American Soda, had a production facility in Parachute, Colo., that was taken over by Solvay when it acquired American Soda in 2003. Solvay still makes bicarbonate at the Parachute site, but longer uses nahcolite in its operations.
Worldwide production capacity for sodium bicarbonate is about 1.7 million tons, estimates the Sentient Group, a private equity firm with investments in AmerAlia, the parent company of Natural Soda. Current bicarbonate capacity utilization is in the 72-75% range, according to Val Zolotoochin, director of flue gas operations at Solvay in Houston.
One factor that could influence future sodium bicarbonate supplies is tightness in the market for soda ash, a raw material for bicarbonate. Right now, "the soda ash industry is truly sold out," says Siverling. Constraints on soda ash, he adds, "may limit bicarbonate production in 2005," although that should be less of a problem for FMC, which is also a soda ash producer.
Demand drives competition
Growth of the sodium bicarbonate business for most years is "roughly in the range of GDP," says Esposito, with some segments expanding faster or slower. Sales this year are somewhat above GDP, say industry participants, mainly due to the robust economy.
Food applications consume about 32% of the sodium bicarbonate output, animal feed makes up 24%, and pharmaceutical and cleaning products each make up about 9%, according to statistics from the Sentient Group. Other leading applications for the chemical industry are water treatment, fire extinguishers and flue-gas scrubbing systems.
Among the traditional outlets for sodium bicarbonate, one of the fastest growing is animal feed, says Zolotoochin. However, the rival sodium sesquicarbonate product is growing even faster in this application. In fact, sodium sesquicarbonate has already taken over more than half the market for animal nutrition additives in the past few years, estimates Siverling. This is not necessarily a big hardship for companies like FMC and Church & Dwight, since both companies also sell sodium sesquicarbonate products for animal nutrition. But it has left a glut of agricultural-grade bicarbonate on the market and this excess material can't easily be upgraded for high-end applications, Siverling points out.
As is the case in so many other commodities, demand for sodium bicarbonate is very strong in Asia. But little of the bicarbonate produced in North America or Europe is exported to Asia, say manufacturers, because transportation costs are prohibitively high. There is, however, an active import-export market for soda ash, the raw material for bicarbonate.
Overall, demand for sodium bicarbonate is likely to remain vigorous in the year ahead, says Esposito, assuming that economic conditions continue to remain favorable.
Pricing hikes continue
To get a jump on energy and raw materials costs, the major bicarbonate producers have been stepping up their prices at regular intervals. FMC and Solvay, for instance, announced hikes of 4-5% in their rates, effective Jan. 1, 2005. Solvay's increases were for all grades of its bicarbonate products; the FMC rises applied to its animal nutrition products. Those increases were fairly successful. At Solvay, Zolotoochin says the company realized about 75% of the announced increases.
Church & Dwight, which last raised its bicarbonate prices at the beginning of 2004, has not announced any increases since then. But Esposito says that cost pressures "have created a situation where we have advanced pricing as contract terms permit."
While run-ups in energy and raw materials costs are the biggest headaches for sodium bicarbonate manufacturers, transportation is another factor that is eroding profitability. "We've seen our transportation costs, both inbound and outbound, rising as much as 20%" in the past year, says Esposito. The higher freight levies are largely due to increased freight demand and the surging cost of fuel. To recoup these extra costs, several years ago the bicarbonate industry instituted fuel surcharges for its customers. The surcharges are indexed to changes in transportation fuel rates in different regions of North America and remain in effect.
Looking at the year ahead, sodium bicarbonate industry participants see little letup in the upward spiral of energy, raw materials and transportation rates. While no bicarbonate producer is willing to discuss its future price plans, one industry source points out that annual increases in selling prices have been announced by most producers for the past three years. Given present conditions, he adds, there's little reason to believe that pattern will change.
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