The Chinese citric acid market is seeing a sharp rise in price on account of tight demand as well as supply-side constraints. The food and beverages, pharmaceuticals, as well as cosmetic industries, among others, are becoming more reliant on citric acid owing to its multi-functional uses. The higher usage is seen as producers balance the increased market demands. Supply bottlenecks combined with rising production costs are also boosting prices. Producers are being tested with feedstock prices and logistics, which have been limiting supply. Seasonal demand fluctuations in periods of peak consumption also add to the vagaries of the market. Market forces in global trade also feature prominently in shaping the dynamics of the citric acid market. With growing demand for the product in the global market, participants are keenly watching such movements in order to stay attuned to the changing landscape. Firms in this industry need to be flexible and reactive to such changes in order to capitalize on emerging opportunities while braving possible risks of cost and supply chain fluctuation.
Key Highlights
Citric acid prices escalated sharply in recent months, and September quotes are at USD 685/MT (FOB Shanghai), 1% higher than last month. Food and beverages are the biggest users of citric acid due to an increase in the demand for convenience foods and soft drinks. In addition, pharmaceutical demand for citric acid has grown since it is used as an acidulant and preservative in numerous health products. The seasonal factors, such as manufacturing cold beverages more during the hot season, have also contributed to the surge in demand.
At the production end, firms are coping with increased feedstock prices, which have hit their cost of production. Volume of production remains steady despite such issues, but inventories are now falling. Citric acid imports have remained volatile due to supply-side pressures across the globe. Firms are grappling with higher raw material costs, but they have used strong demand to support prices. Balance between supply and demand is important since excess supply would require a correction of price.
The cost of energy in citric acid is in direct relation with the cost structure, which is mainly natural gas and crude oil. Recent trends in energy prices have impacted manufacturers in two ways. Although decreased energy costs have relieved some pressure, increasing raw material prices are still putting pressure on margins. Manufacturers are responding by making changes to meet these impacts, emphasizing efficiency and cost control.
Quantitative Analysis:
Annual Trend: In the last two to three years, prices of citric acid have been rising each time in August-October in line with seasonal demand. The price movement this year follows precedent, and that is indicative of a healthy market response.
Current Market Outlook: In the near future, the next two to three months are expected to see firm growth in prices of citric acid on the strength of strong demand fundamentals. Energy prices, tariffs, and inflation will be the prime drivers of market forces, and growth is expected to be steady and not steep.
Freight Market:
Freight and shipping terms of citric acid exports and imports are holding steady, though some minor interruptions at major shipping channels are reported. The logistics industry is honoring the challenge, adapting supply chains to be efficient sufficient to respond to the increasing demand for citric acid by both domestic and international markets.
