Decision reflects global economic pressures, and the highs and lows of current supplies
Dutch ingredients supplier DSM is to close its citric-acid manufacturing plant in Wuxi, China, by the end of the year. The decision followed a request from the local government for the company to relocate the plant from its current location, which, the government said, was needed for future urban developments.
But in a statement, DSM said: "The market for citric acid has been under substantial pressure for several years, mainly due to structural overcapacity in China. As the structural overcapacity is expected to remain, DSM has decided not to rebuild the capacity elsewhere but concentrate its production at the site in Tienen, Belgium, whose competitiveness has substantially improved lately due to restructuring and process optimisations."
DSM said it would receive compensation from the Wuxi government for the shutdown and added that it did not expect to incur a book loss as a result of the closure.
As reported in June in Functional Ingredients magazine, the citric-acid industry has been in a state of flux. In June, the European Union slapped anti-dumping duties of at least 50 per cent on Chinese citric acid after discovering that imports were slicing into domestic prices by a bit more than 20 per cent. The duties are expected to last through at least the end of year, with officials deciding in the coming months whether to extend the corrective tariffs for another five years.
The EU isn't alone in its dissatisfaction with citric-acid prices. In April, Tate & Lyle, ADM and Cargill filed petitions with the US government alleging that Chinese and Canadian suppliers were flooding the US market with citric acid, and charging less-than-fair prices. The petition called for a 65 per cent tariff on Canadian-sourced citric acid, and 188 per cent from the Chinese ingredient source.
The DSM plant shutdown is one of many indications of an ongoing fluctuating citric-acid market. According to Kassel Chemical Engineering, Gadot plans to build a $30 million, 60,000 tonnes/year Chinese citric-acid plant with Jiangsu Nuobei Biochemical. The primary clients will be in North America and Europe. While in recent years, ADM, Aktiva, Tate & Lyle, Solaris closed citric-acid manufacturing plants in Ireland, the Czech Republic, the UK, Mexico and India, respectively. These shutdowns were largely due to overcapacity from 2003 to the spring of 2008.
Now, though, oversupply is decreasing and the market is once again thriving, according to Kassel. Kassel is predicting a growth rate of 3-5 per cent annually, with a 10 per cent increase in price due to increased energy costs and demand for biofuels squeezing supplies.