INTRODUCTION
STUDY GOALS AND OBJECTIVES
This report is an update of the BCC Research report, World Markets for Fermentation Ingredients (FOD020B), published in 2005. While the interval between these updates is short, an update is justified because a number of developments took place in the past 4 years that changed the international fermentation landscape significantly.
It was not simply because output for most fermentation products increased more than expected, or that some industries consolidated; it was also because of erratic price development, highly unreliable feed stock and the unexpected popularity of some products in the hope that they could substitute existing materials derived from petroleum.
Two of the most important factors that influenced the fermentation industry landscape in past years were the development of the global bio–ethanol industry and the change of economic conditions in China. Bio–ethanol came on the market as an additional demand driver for the typical fermentation feedstock. Shortages of starches and of sugars developed and led to high carbohydrate prices, triggering price increases across all fermentation derived products and fostering consolidation among manufacturers. China lost its self sufficiency in grains and in carbohydrates and the Chinese fermentation industry started to purchase feedstock from the global markets at standard prices. As energy prices increased drastically and environmental protection laws were more enforced than in the past, competitiveness of the Chinese fermentation industry vis–à–vis Western companies suffered and many smaller producers gave up. For some fermentation products, only one or two manufactures are left now, and they are not necessarily located in China. While such general developments affected virtually all product categories, particular dynamics affected specific sections of the industry.
Basic building blocks for a number of crude antibiotics are still manufactured by fermentation; synthetic substitutes can not enter the market at the scale and speed that is expected. In 2004, pen G or V were sold at $4 to $5 per kg., but in 2006 and 2007, prices temporarily climbed up to over $50 per kg. only to come back down to $4 to $5 per kg. shortly thereafter. The industry is not only thriving in China, it is also doing well in Europe, India and even Latin America where antibiotics plants have been rehabilitated, expanded and, against all announcements and expectations, not closed. The demand for antibiotics is still high and growing not only because of human consumption. In the EU, there has been a ban on in–feed antibiotics for a couple of years, but this is not so in many other parts of the world, where compound feed and the industrial meat production industry is growing.
Study Goals and Objectives (continued)
After a consolidation process, shortages for a number of organic acids developed in the market and prices shot up. Even citric acid, which has not experienced changes for many years, saw robust price levels. Lactic acid has developed into one of the most promising products as it is the starting material for polylactic acid (PLA); a polymer, thought to potentially replace petroleum derived plastic products soon and in large scale. While PLA production is still in its infancy, overcapacities for lactic acid have been built up to an extent not seen before. And even itaconic acid, a product developing sluggishly for many years but also thought to be used for polymerisation, is now enjoying high popularity.
As a direct effect of the increasing demand for cereals used in bio–ethanol programs, farmers planted, on a large scale, corn instead of soy beans. The decreased supply of soy beans and cakes caused their prices to soar. Synthetic amino acids as substitutes for plant protein saw a strong revival and lysine, threonine and tryptophan profited. Prices for such products came down again in 2008 but not to the low levels, prevailing until the early 2000s. Lysine consumption exceeds now 1 million metric tons.
Enzymes, as typical chemical intermediates, continued to enjoy high popularity across all types. While in applications such as food, textile, leather or detergents their usage developed at moderate rates, demand was skyrocketing in applications relevant for bio–ethanol production, relevant for increasing feeding efficiencies or for cellulose and hemi–cellulose cracking. Phytase, an enzyme used for decomposing phytin–phosphate of plants saw its best market development ever. Leading enzyme producers are investing heavily in the development of enzyme cocktails that are able to break down hemi–cellulose and woody material for use in bio–refineries. Novozyme and Danisco dominate the industry more than ever.
Polysaccharides such as xanthan still enjoy popularity in all their applications, such as food thickening and oil drilling. Also for xanthan, the period of lowest prices is over. But as there are no new applications developing, polysaccharides are less discussed in the industry than, for example, organic acids. The xanthan industry, particularly in China, consolidated more quietly. The dominance of Chinese xanthan manufacturers is over and the lead is back to Western producers.
Ascorbic acid is still the main vitamin derived from fermentation and was one of the products for which prices degraded so much during the early 2000’s that even a number of Chinese manufacturers gave up. Now, vitamin C prices are back to $15 to $20 per kg., a level not seen since the 1980s and the few producers remaining are enjoying high margins. Similarly riboflavin saw an extreme price peak in 2006 and 2007, to some extent resulting from the shut down of Chinese production. Prices came back but are still higher than during the late 1990s. Due to technical and marketing reasons, carotenoids produced by fermentation could not develop into serious competition for synthetic carotenes. Consequently, many promising leads in astaxanthin disappeared. Market development of fermentation derived carotenoids over the past 4 years has been largely disappointing.
There are some new products under development and about to start up on a larger scale, all of which will either be used for manufacturing bio–plastics as fuels or as intermediates for bio–fuel manufacturing; in brief, as substitutes for petroleum derived products. Succinic acid, propanediol and butanediol are only some examples.
This report focuses now on the quantitative description of the latest developments in major fermentation products. It explains why the markets developed as they did, and extrapolates data, although it has to be realized that any kind of prediction may be variable in light of erratically changing macro–economic coordinates all over the world.
REASONS FOR DOING THE STUDY
The report reviews the global fermentation industry with emphasis on major fermentation derived products used in food, feed, pharmaceutical and technical applications. It provides the most up to date information on quantities manufactured, prices and market value developments and on industry structures. It enables the reader to understand the industry in general, provides in particular insight into the inter–relationship between the ethanol and other carbohydrate using industries. Therefore at the end of this report, a separate section is devoted to the dynamics of the global starch and sugar markets and how the fermentation industry is affected now, and will be affected in the future.
The report is designed to assist decision makers in the fermentation industry by providing background information to be considered in capacity enlargements, when entering into or exiting from the business of fermentation products and ingredients. It should also support selection of sites and of manufacturing processes for future plants. In view of the dynamics of the global carbohydrate markets and constantly changing economic framework conditions for fermentation products, the determination of the most appropriate production site for specific products becomes more important than ever before.
SCOPE OF REPORT
After categorizing the main fermentation products, each individual product is described by first highlighting the most important developments that occurred during the past 4 years; then by estimating current volumes produced, prices obtained and by industry structure. Cautious outlooks for the period through 2013 conclude each product section. Building on carbohydrate conversion rates and production sites, the demand for carbohydrates is estimated for specific regions and contrasted with availability. Those regions and products that may experience tighter production due to restrained raw materials are also identified. Finally, in conclusion is a review of the most important companies that are active in the fermentation processes.
METHODOLOGIES
The methodology applied in this report is based on:
- Highlighting major developments per product group first,
- Analysing and describing volumes, prices and market value trends,
- Profiling changes in the industry structure, and contrasting actual production with installed capacities,
- Providing market outlooks for the years through 2013,
- Estimating carbohydrate demand by product and production site and benchmarking demand with carbohydrate availability, identifying future regions for which raw material supply might become tight.
- Synoptic review of major players in the fermentation industry and their strategies for the future.
INFORMATION SOURCES
There is abundant information on virtually all fermentation products available. However, most of it does not show the inter–relationship between technology, market developments, strategies of producers, and particularly, raw material supply. Understanding such inter–relationships is essential in comprehending the future development of the industry. By exploiting established intimate relationships between relevant companies, the author of this study provides the basis for the high value of this report.
ABOUT THE AUTHOR
Dr. Ulrich März graduated in 1984 as an agro–economist from the University of Stuttgart, Germany. After 10 years working in the fine chemical industry, Dr. März started an independent consulting business for the food, feed and agro–processing industry. His specialities are the evaluation of the food, feed, and supplement ingredient markets, the design and market introduction of bio–technologically derived products as well as the economics of fermentation processes. Over 10 years Dr. März has authored a number of BCC technical market reports.
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DISCLAIMER
The information developed in this report is intended to be as reliable as possible at the time of publication and of a professional nature. This information does not constitute managerial, legal, or accounting advice; nor should it serve as a corporate policy guide, laboratory manual, or an endorsement of any product, as much of the information is speculative in nature. The author assumes no responsibility for any loss or damage that might result from reliance on the reported information or its use.
Report Code: FOD020C, Published: June 2009, Analyst: Ulrich Marz
