Citric acid tags remain weak, and could edge down further in the third quarter despite an upswing in key markets. Industry observers say citric acid tags have been battered in anticipation of new capacity that will supply North and South America. Demand is expected to grow 3-5% by year end, though it remains uneven.

"Demand for citric acid continues to grow about 5% each year," says Jim Stewart, president, Gadot Biochemical USA, Rolling Meadows, Ill. Markets for foods, beverages, and detergents are experiencing the most accelerated expansion, with pharmaceuticals demand increasing slowly but steadily, say a number of sources.

The North American beverage market has been particularly active, expanding 12-15% in 2001. This market segment will continue to build at a rapid pace due to rising consumption of sports drinks and teas, says Kevin Hayes, global product manager of citric acid, in the recently restructured specialty ingredients division of Archer Daniels Midland (ADM), Decatur, Ill.

There are other applications for citric acid that will show more strength in 2002. Hayes says detergent reformulation will be higher this summer as use grows during warm months, and weak prices will encourage producers to boost their citric acid content. Diet products and candy also are using increased amounts of citric acid, he notes.

Despite the brisk pace of citric acid demand in certain geographic regions and markets, order levels remain uneven. ADM's Hayes says global growth will be 3-5% by year end with lackluster demand in South America weakening overall expansion. Asia, too, is experiencing a slowdown, and Hayes expects flat demand there, or "at worst, a slight decline." Gadot's Stewart notes, "The great unknown is the potential Chinese market for consumer products with citric acid."

New capacity has put downward pressure on citric acid pricing this year. Tags are down almost 20% from last year, according to one industry source. Observers expect prices to stay where they are or fall slightly as the market absorbs new production capability. The most significant capacity increase has been the Q2 opening of Jungbunzlauer's plant in Port Colborne, Ontario. The company says the plant will serve North and South American markets, allowing for maintenance at its Austrian facility.

Industry observers say anticipation of the Port Colborne capacity severely weakened citric acid pricing. One source attributes sagging prices to producers' "knee-jerk reactions" to Jungbunzlauer's new facility. Another industry player notes that producers have been so concerned about securing market share that they have been willing to cut prices.

The buyers' market for citric acid is expected to continue through first quarter 2003. One industry source says citric acid tags have dropped from 58¢-60¢/lb in mid-2001 to 46¢-50¢/lb, with spot prices between 48¢/lb and 52¢/lb.

Buyers surveyed by PURCHASING report a similar pattern of falling prices. Fourth quarter 2001 tags for anhydrous citric acid stayed at 65¢/lb. By March, prices had fallen to 50¢/lb, and climbed back only to 54¢/lb mid-way through the second quarter. Most buyers expect prices to stay the same through the end of the second quarter.

Ulrich Marz, analyst at Business Communication Co., Norwalk, Conn., forecasts a decrease in citric acid pricing from about 52¢/lb to between 45¢/lb and 49¢/lb later in the year due to even more new capacity in China.

Though additional Chinese capacity could depress tags further, the new capability will not necessarily have a uniform effect on citric acid pricing, according to ADM's Hayes. He says imports to North America have "grown dramatically" in recent years, yet citric acid from China usually is aimed at markets such as detergents and industrial use rather than food and beverage.

With citric acid prices at their current low levels and no immediate changes expected, Stewart says Gadot Biochemical, headquartered in Haifa, Israel, has put plans for a plant in Turkey on hold.

Though prices are not likely to rebound this year, there are a few risks to the forecast. For instance, one industry source says Jungbunzlauer's plant won't actually increase capacity as much as anticipated. He suggests the plant is designed mostly to support the company's customer base and "alleviate the need to import." Unexpected demand growth would also be a problem for the relatively balanced citric acid market, according to Scott Fredericksen, president, specialty ingredients, ADM, who says a jump in beverage demand over the summer could cause tags to recover the 10-15% they have declined the past year. Another industry source notes that producers have not passed along higher costs for raw materials (such as molasses, starch and sugar), energy, packaging, and transportation over the last few years.