Availability keeps prices flat

By Staff -- Purchasing, 12/10/1998

Average U.S. bulk prices for citric acid will remain flat through most of next year because renewable feedstock availability continues to outpace demand. Results of Purchasing's monthly price survey indicate citric acid contract prices will remain around 68(cent)/lb for at least the next six months, and spot tags will fall slightly to just under 70(cent)/lb.

Contract prices have remained steady at about 69(cent)/lb for the last year, while spot tags have declined only slightly from 71(cent)/lb in first-quarter '98 to 70(cent)/lb in October. Look for prices to deviate little from their current position in '99 barring any major changes in feedstock availability.

SUPPLY: Good

Domestic citric acid supplies are good due to an abundance of feedstock corn, which is the main source of dextrose used to produce citric acid. Other organic sources may be used to provide dextrose, such as cane sugar and wheat, but corn is the most important. Corn accounts for almost all citric acid produced in the U.S.

There are three domestic producers of citric acid with a total capacity of 460 million lb/yr. Archer Daniels Midland (ADM) operates a 180 million lb/yr plant in Southport, N.C. Haarman & Reimer, a unit of Bayer Corp., has citric acid plants in Dayton, Ohio, and Elkhart, Ind., with total capacity of 150 million lb/yr. Cargill has a 130 million lb/yr plant in Eddyville, Iowa.

Imports play an important role in the domestic citric acid market. With only three major domestic producers, imports, especially from China, offer buyers alternative sourcing options. However, Chinese exports of citric acid are now declining and will continue to decline in 1999 as the Chinese government reduces export subsidies and begins to use more of its own citric acid.

Despite the falloff in Chinese imports, the North American citric acid market remains competitive for producers because new plant start-ups in other parts of the world will supplement Chinese import reductions.

DEMAND: Steady

Worldwide demand for citric acid will remain steady through 1999, due to its wide range of end uses as a flavor enhancer and preservative, acidulant, surfactant, detergent, and also due to its environmentally friendly image. In fact, Cleveland, Ohio-based market research analyst, The Freedoina Group, predicts demand for citric acid to rise about 4% annually to 475 million lb through the year 2000.

Citric acid accounts for about 70% of total acidulant demand, mainly because of its solubility, low toxicity, and ability to blend well with other chemicals.

MARKETS: Stable

The largest application for citric acid is in beverage formulations, which accounts for 45% of the market. Together, foods and beverages make up more than two-thirds of citric acid demand. This segment is also predicted to grow steadily at a 5% clip to about 290 million lb by the turn of the century. Citric acid is used in a variety of candies, frozen foods, and processed cheeses. It also serves as a preservative in canned goods, meats, jellies and preserves, and several alternative beverages, such as iced teas and sports drinks which have helped to expand the market. The food industry accounts for about 25% of demand. Detergent applications account for another 20% of the market, and the remaining 10% of citric acid demand--designated as "other" uses--includes chemical processing and pharmaceutical applications.

Domestic producers and capacities

(million lb/year)

Producer Capacity

Archer-Daniels-Midland

Southport, N.C. 180

Cargill

Eddyville, Iowa 130

Harmon & Reimer

Dayton, Ohio and Ekhart, Ind. 150

Total 460

SOURCE: SRI INTERNATIONAL