DSM will quit its Wuxi, China-based citric acid plant after being told by the Chinese government its site is required for urban development.
The closure is slated for early 2009 and the Dutch company will be compensated by the Chinese government with a social plan put in place to assist affected employees.
DSM said it would not relocate to another Chinese site, citing “structural overcapacity” in the global market, and will now manufacture citric acid solely from its Tienen, Belgium facility that has produced citric acid since 1929.
DSM’s vice president of its global citric acid business, Bruno Mueller said it was “not economically attractive” to build another plant in China given productivity gains that had been made at its Belgian facility.
These gains included staff reductions and process improvements.
The citric acid market has been characterised by reduced margins for western suppliers that have struggled to compete with more price-cutting Chinese input.
“The market for citric acid has been under substantial pressure for several years, mainly due to structural overcapacity in China,” DSM said.
Companies such as Archer Daniels Midland (ADM) and Tate & Lyle have closed facilities citing margin pressure that has not been eased by price increases as input costs have continued to surge.
The global citric acids market is valued at about €1.36 billion and growing at between 3-5 per cent yearly.
Spot prices vary between regions and are estimated at between €1690-€2030 in Latin America, €1218-€1355 in Asia and €1500-€1700 ihn Europe.
Citric acid is fermented from carbohydrates derived from sources such as corn and sugar – the costs of which have been rising due to increased demand from the likes of the biofuels industry.
DSM said it decided to concentrate citric acid supply at Tienen rather than finding another site in China because competitiveness at the Belgian plant had been substantially improved “due to restructuring and process optimisations”.
DSM said it had finalised the “carve-out” of its citric acid business, announced in September, 2007, and which would involve it working with as yet unnamed partners.
Citric acid turbulence
The influx of Chinese citric acid on western markets has caused plant closures and provoked accusations of dumping in the US and Europe.
The European Commission concluded in June that Chinese suppliers were dumping citric acid in European markets and slapped a duty of up to 50 per cent on Chinese imports after finding imports were unfairly undercutting local suppliers by up to 21 per cent.
The European Union’s 27 Member States are due to decide later in the year whether to maintain the duties for a further five years.
ADM, Tate & Lyle and Cargill filed petitions with the US government in April alleging Chinese along with Canadian suppliers were dumping the ingredient on the US market and threatening the livelihood of their businesses and the US citric acid industry.
They said citric acid and certain citrate salts were being sold at less than fair value and called for a 65 per cent tariff on Canadian-sourced ingredients and 188 per cent from China – the percentage by which they believed prices were being unfairly slashed.
Tate & Lyle closed its citric acid plant in the UK in 2007. In 2006, Solaris closed its manufacturing plant in India, while ADM closed a facility in Ireland in 2005.
In recent years, Aktiva shut down production in the Czech Republic and a Quimixa Mexama plant in Mexico – also owned by Tate & Lyle – was closed.
Citric acid is used to flavour soft drinks, fruit juices, sweets, jams and jellies. It is also used as a binding agent in biodegradable detergents and in other applications such as antioxidants.