MARKET REPORTJanuary 2018

M A R K E T O V E R V I E W :

The current Flavor & Fragrance market can best be described as “chaotic.” Farmers and producers have faced an array of setbacks over the last year including heavy rain in the growing regions, new strict environmental regulations, and rising fuels costs. Due to the continuous rise in demand and an unfortunate drop in supply, many natural items such as Eucalyptus Oil, Citronella Oil, Star Anise Oil, Litsea Cubeba Oil, and Ginger Oil are in very tight supply with some producers not even able to offer quotes for material.

The Aroma Chemical market has been in crisis since the largest global Citral producer sent out a Force Majeure notice informing the industry that they were forced to close their plant due to a fire that destroyed key electrical components needed to direct production processes. Prices of multiple aroma chemicals have increased by as much as 400% during the last few months with little to no availability over many products. In their advisory, the company has indicated that their operations will not be fully repaired until the end of March at the earliest. It may take several months for them to ramp up production, with priority given to critical aroma chemicals.

Gum Turpentine, another crucial starting raw material in aroma chemical production, is also in a very short supply situation making it very difficult for producers to secure adequate raw material feedstocks for the manufacture of products including Alpha-Pinene, Beta-Pinene, Terpineol, Terpinyl Acetate, Camphor Powder, etc. Gum turpentine itself is a by-product of Pine Gum which is traditionally collected for the extraction of both Gum Rosin and Gum Turpentine. Due to the emergence of a cheaper viable alternative, there has been a reported dramatic loss of business in the Gum Rosin industry. Suppliers who would normally garner between 50 – 70 percent of their total value from Gum Rosin are now facing a significantly reduced return on profit and the current situation offers little incentive for the producers to continue to collect and farm the Pine Gum. Pricing for Gum Turpentine has understandably increased quite dramatically and has in turn influenced pricing on all aroma chemicals that rely on this as their starting raw material. Availability continues to remain very scarce.

Further impacting both the aroma chemical and essential oil supply, China has started to implement and enforce new environmental protection regulations. This has forced many of the producers to cease operations as they are no longer in compliance with the law. Some of these producers are making the necessary investments to get their plants up to standards but even once the improvements are complete, they will still need to undergo inspection and receive approval by the appropriate authorities. Other producers have opted to simply close their factories which has decreased immediate and future availability.

C E D A R W O O D O I L -Due to a slowdown of demand, prices of Cedarwood Oil have shown a slight decrease. However, prices of Cedrol continue to rise as there is only a small supply of the material available.

C I T R O N E L L A O I L - Both China and Indonesia, the world’s two major suppliers of Citronella Oil, have experienced lower than average production after receiving heavy rainfall. Faced with unfavorable conditions, China’s annual output has dropped to around 1500MT, an almost 50% reduction from peak production. Similarly, excessive rains in Indonesia led to some growing areas flooding which resulted in much lower yields than average. Carryover material is getting very low, and those who do have some small levels of stock available are reluctant to sell, anticipating being able to sell their stocks for a higher price in the near future.

E U C A LY P T O L -Due to the very short supply of crude oil, factories have been forced to devote all resources towards their previous orders. As of now it looks like they will not have the raw material necessary to fulfill any new orders. This material is expected to be extremely tight, if there is even any available.

E U C A LY P T U S C I T R I O D O R A O I L – Prices in China have slowly risen over the last few weeks. Due to the low prices over the last 2 years, many farmers have given up distilling this oil. Due to stable demand, prices weren’t expected to rise dramatically but demand may increase as the supply of Citronellal, both natural and synthetic, becomes even tighter. Natural Citronellal is made from Citronella Oil and Eucalyptus Citriodora Oil. If demand does in fact continue to increase, higher prices can be expected. Alternate origins seem to be a little more stable and more competitive on price.

E U C A LY P T U S G L O B U L U S O I L –

Prices for this material are currently at record high levels and continue to rise even as we enter a new harvest season. Last year total output declined around 20% and is expected to decline once again this year. So far no one is committing to any concrete figures as any speculation will lead to further increases in price and leave buyers rushing to secure any material available. The new crop is not expected to bring any relief with prices dictated by market demand and those buyers in dire need to secure stock.

E U C A LY P T U S R A D I A T A O I L – Current market pressures remain in place and prices have been rising as buyers start to get anxious trying to secure material. It is estimated that Australia produces a little over 7MT of Eucalyptus Oil Raidata per annum, however global demand is thought be around 20MT per annum. There are currently several companies investing in new plantations who are projected to be up and running for 2018. Hopefully once these new plantations enter the market, supply will be able to start catching up with the demand.

G A R L I C O I L – Over the past 18 months, there has been very little production, putting pressure on supplies and leading to a much-increased cost. Recent indications have show some decrease in price. This is due to the closure of one of the main dried garlic processing factories, freeing up large volumes of raw material to be diverted to oil production.

G E R A N I U M O I L –

Many people expected to see prices decrease for Geranium Oil as Chinese farmers made a significant increase in the growing area for this product. Unfortunately, heavy rains negatively impacted the harvesting of this material and led to a 20% reduction in total production. There is also very little if any carryover stock and some suppliers are completely out of material. Egyptian Geranium however shows some easing in price due to slow purchasing from Europe and the USA. It is possible that some may consider using Geranium Oil to extract Geraniol & Citronellol but Lemongrass Oil, Litsea Cubeba Oil, and Citronella Oil are cheaper starting materials for this extraction.

G I N G E R O I L - Currently, material is in very short supply. Additional environmental regulations have caused some of the main producers to cease production and they will not be able to restart production until they pass inspection. Other producers are stuck waiting for raw materials. Prices will remain high for the immediate future. There have been recent concerns with the quality of oil available in China and Indian origin Ginger Oil may be the better option currently.

H O W O O D O I L –Howood Oil is used in the production of natural Linalool and Linalyl Acetate. Due to the current aroma chemical shortage, some of the larger consumers who typically only purchase synthetic have been forced to place orders for large volumes of both natural Linalool and Linalyl Acetate. Expect to see increased pricing for Howood Oil, Natural Linalool, and Natural Linalyl Acetate.

L E M O N G R A S S O I L - While there does not seem to be any extreme shortage of this material in the market place, supplies are tight throughout the industry. Demand for this product continues to increase and the lack of surplus stocks has helped maintain the current price levels. Prices will most likely stay at this level unless there is a decrease in demand. Unfortunately, it is likely demand will only increase due to the lack of synthetic Citral in the marketplace as Lemongrass Oil can be used as a raw material to produce Natural Citral and recent reports from India indicate a very strong demand.

L I N A L O O L N A T U R A L – Recent government initiatives in China have encouraged the planting of the dwarf Camphor Tree, used in the production of Natural Linalool, with some of the first harvests now ready for production. Unfortunately, market demand has outpaced this increase in supply and prices are still expected to rise.

S A N D A L W O O D O I L -Recently, the supply of Sandalwood Oil has started to stabilize, with a new producer normalizing production at a high level of output. With this, prices of Sandalwood Oil seemed to be decreasing. Unfortunately, word has come out that Quintis, one of the two largest Sandalwood Oil producers in Australia, has been forced into receivership and are expected to start selling off assets. It is still too early to predict the full impact of this recent development but it cannot be viewed as good news.

L I T S E A C U B E B A O I L – Prior to this year’s harvest, heavy rains led to concerns that the crop would once again be impacted. Prices increased towards the end of the season as it became apparent that supplies would not meet demand. Currently, there is very little to no availability for this oil. Since Litsea Cubeba Oil can be used to produce Citral, the current shortage of synthetic Citral has put additional pressure on what little supply the market had to offer. Some consumers have already been forced to substitute synthetic for natural Citral. Expect to see higher prices and very limited supply for this material for the foreseeable future.

S T A R A N I S E O I L -Even though the new crop has just been harvested, there is a limited amount of raw material available in the marketplace. Many farmers are opting to sell the fresh fruits direct instead of processing them for the oil. It is expected to see output continue to decline over the next few months. As material remains tight, prices are expected to remain firm. The same applies to Natural Anethole as it is produced from Star Anise oil.

V A N I L L A E X T R A C T – Market continues to be stressed with demand outstripping supply and high prices continuing to prevail throughout the market. There was some softening in price in December of 2017 which provided a ray of hope for buyers. Unfortunately, the devastating impact of Cyclone Ava, which hit Madagascar on the 5th and 6th of January, wiped out any potential price relief. The Cyclone killed 29 people, displaced 17,000 from their homes, destroyed crops, and has made many roads inaccessible.

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T E A T R E E O I L - 2017 saw an overall decrease in Tea Tree Oil production even as the demand for this oil continues to increase. Due to heavy rains in both Australia and China, as well as pre-season flooding many Tea Tree plantations were under water for a substantial amount of time, with some of the younger plantations being washed away completely. This has had a significant impact on output, with the Australian crop down about 25% and the Chinese crop down about 20%. Before the end of the last crop season, prices had already risen 10-15% as many of the farmers and harvesters are not in a rush to sell and held onto material. As buyers face limited options for supply, they were forced to pay these higher prices. For 2018, there is very little carryover stock and we will see immediate pressure on whatever is available. Prices are expected to rise until at least June when the next season begins.

V A N I L L I N N A T U R A L – Due to the new environmental regulations in China, many factories are not currently able to produce Natural Vanillin. Expect this material to be short in supply along with a higher price.

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