Jungbunzlauer increases ingredients prices globally

By Lorraine Heller

- Last updated on GMT

Related tags: Citric acid, Supply and demand, Sugar

Citric acid leader Jungbunzlauer has jumped on the price hike
bandwagon, announcing last week that it is to up the stake on
citric acid, GdL and xantham gum in all markets where it operates

Like its competitors, the Swiss-based ingredients giant has been squeezed by soaring raw material and ingredients costs, forcing it to pass on some of these to the market.

"Even though Jungbunzlauer is constantly striving to improve the efficiency of production processes, cost hikes of this magnitude can not be compensated by efficiency improvement programs fully,"​ said the firm in a statement.

The resulting price increases, which will be implemented immediately or as contracts expire, relate specifically to the firm's ingredients produced through fermentation citric acid, Glucono-delta-Lactone (GdL) and xantham gum as well as derivatives of these.

Jungbunzlauer has not disclosed the level of the increases, as these will vary significantly depending on the region, the customer and the ingredient grade. However, these could be up to double digit increases if the firm hopes to be able to recover its costs.

Although manufacture of fermented products is energy intensive, and has therefore been hard hit by higher oil costs, the largest blow has come from raw material prices and supply constraints.

Main raw materials used in the production of fermented ingredients are corn, wheat and sugar beet.

In North America, where Jungbunzlauer operates a plant in Port Colborne, Canada, the firm primarily uses corn in its production process. However, a poor harvest and increased sourcing of the commodity for ethanol production have resulted in prices shooting up.

In Europe, where Jungbunzlauer leads production at its plant in plant in Pernhofen, Austria, price hikes have resulted primarily from political intervention, with the newly implemented sugar regime pushing down local sugar production and pushing up prices of carbohydrate raw materials.

And although there remains a certain degree of flexibility in the types of raw materials used to produce glucose syrup Jungbunzlauer's main ingredient for its fermentation products the firm has been unable to contend with the market pressures it faces.

But the firm must also deal with continuing pressures facing the global citric acid market. As well as higher market costs, Western citric acid producers have had to contend with the ongoing threat of cheaper Chinese production. These pressures combined have squeezed them into an unprofitable market that has resulted in a string of plant closures and consolidation.

Just last year, US ingredients giant ADM closed its citric aid plant in Ireland, leaving a 60,000-ton hole in European supplies. Solaris also closed a factory in India earlier this year. And in 2003, Aktiva bolted up its plant in the Czech Republic, while a Quimixa Mexama plant in Mexico belonging to Tate & Lyle also closed in recent years.

Even the Chinese are starting to feel the pressure. After China first entered the citric acid market some 15 years ago, the country had around 200 plants of various sizes churning out the ingredient. But heavy consolidation has resulted in only around 20 being left today, with these producing 35-40 percent of the world's citric acid supply.

Last year, attempts by the market leaders to raise their prices were not as successful as expected, as an undervalued Chinese currency ensured aggressive pricing remained in place.

But the industry has warned that the current situation will not hold for much longer.

According to leading supplier Cargill, with firms dropping out of production and reinvestment not occurring in the market, supply will soon become a major issue.

Because the market is currently so unstable, Jungbunzlauer has said that it is not currently in a position to know if it will be implementing further price increases on its products.

"If the market situation permits, Im sure there will be further increases. But it all depends on the supply and demand situation,"​ a company spokesperson told FoodNavigator-USA.com.

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