Feed additives tracker: Raw material markets hit by energy crunch and environmental push

So says Swiss trading software and information platform operator, Kemiex, following its recent in-depth analysis of headwinds in relation to food, feed, and pharma ingredients flow. 

“Global manufacturing and supply chains for additives and chemicals are affected by reduced availability and a surge in prices for energy, natural gas, coal, phosphorus, and other feedstock. ​

“In China, policies concerning energy usage and emissions are creating additional, severe near-term supply risks,”​ Stefan Schmidinger, partner told FeedNavigator.

Dysfunctional freight markets​

Those additional supply pressures come on top of the long-standing dysfunctional freight markets, he said.

The industry has been faced with escalating freight prices for a year now. Few industry insiders expect an improvement in shipping costs before mid-2022, said Schmidinger.

“These days there is an increasing number of ships waiting in Shanghai, Ningbo and elsewhere in China to load export cargo. ​Slower loading rates during Golden Week (October 1-7) may ease pressure on busy US and European ports, however, that event may result in a surge of delayed cargo later.”​

And schedule reliability has dropped to historic, all-time lows of late, noted Sea-Intelligence.

Amino acid prices rise ​

Meanwhile, the Kemiex amino acids index continues to rise, driven by DL-Methionine and somewhat tight spot markets for Lysine and Threonine, Schmidinger reported. Its vitamins index is trading sideways with a diverse price movement for the 14 vitamins it tracks.

Suppliers are in wait-and-see mode, he said; they are pulling back their offers or restricting them to 24 hours only, due to the volatility and insecurity around raw materials and energy supply.

“​Major Chinese suppliers have started to shorten the validity of quotations, or suspend quotations, in some cases for the remainder of 2021.”​

The factories are also exposed to energy curbs, shutdown risks, freight space availability and unpredictability in pricing for raw materials and energy sources, he stressed.

The feed additives and API market specialist said that one of several examples of surging raw materials is yellow (or red) phosphorus. That is mainly used in fertilizer and battery production as well as in crop protection and phosphates mixes. It is also used, but in lower quantities, in vitamin C 35%, or as intermediates for active ingredients such as vitamin B6 or the antibiotic, Florfenicol.

“In previous months, prices reached CNY 60-75,000 per ton from average prices of CNY 16,000-26,000. Energy consumption policies for heavy industries were one reason, but Chinese authorities also initiated an investigation into hoarding and price collusion.​

“Lower production of fertilizers is not only hurting growers, but also end-users of by-products such as carbon-dioxide (CO2) used to narcotize animals for meat processing or for injection in packaging to extend shelf-life.”​

Global energy crunch​

Other market pressures include the hike in US and European natural gas prices, he said.

Prices have jumped to new multi-year highs, with some market analysts making comparisons to oil price shocks of the 1970s, said Schmidinger.

Companies such as Dow or LyondellBasell have announced several price increases, or even force majeure declarations for upstream chemicals in previous weeks.

BASF announced it was to curtail ammonia production at its Antwerp and Ludwigshafen sites. “We will not be surprised if similar announcements for other base chemical chains will follow in the coming weeks.”​

China: Stricter air pollution management, electricity curbs​

China’s leadership, in previous years, has shown itself to be resolute in trying to reach its goal of decarbonizing the economy; the government is now in acceleration mode as part of its 14th Five-Year Plan, but also to ensure blue skies at Winter Olympics in Beijing in February 2022, noted the Kemiex lead.

This year’s autumn and winter action plan for air pollution management is affecting twice the areas compared to last year, he added.

“Following the National Development and Reform Commission’s (NDRC) last quarterly ‘dual-control’ targets achievement report, 19 underperforming provinces started to strictly ration power supply in the hope of meeting their annual goals.​

“Simultaneously, China's demand for thermal power has never been as high as in 2021, following an unprecedented post COVID-19 boom in manufacturing, consumption, and a warm summer.​

“Meanwhile, domestic thermal coal futures have more than doubled in price in the past year following the surge in energy demand, coupled with the supply crunch triggered by reduced coal imports from Australia following diplomatic spats.”​

Those trends, taken together with the ongoing restructuring of local property developer giant, Evergrande, has forced investment banks in China to revise downward their economic outlook for 3Q and 4Q, he said.