Rhodia raises vanillin prices to fund Chinese ambitions
increases, unveiled today, are absolutely necessary for the
business to progress - and why so much attention is being focused
on China.
The flavour arm of the French chemical giant is increasing prices across its vanillin and ethylvanillin range by 6 per cent, effective as of today.
The firm argues that, as the global vanillin and ethylvanillin leader, it needs to guarantee capacity in order to be to invest in the future.
Synthetic vanillin is a cost effective alternative to natural vanilla. Global demand currently hovers around 16,000 tons a year. By comparison, total world demand for natural vanilla is about 40 metric tons.
The reason for this is that synthetic vanillin costs one-hundredth of the price of the natural product. It not only substitutes for vanilla, but also supplements adulterated vanilla extracts.
"We need to demonstrate to management that we can pass on our costs," said Sebastien Meric, global business director of Rhodia's flavours and fragrance business unit.
"The key is that in the past, people have been over-investing, and this led to a price collapse. But as we are in this for the long haul, we need to generate a return to justify our decision to invest.
"There were no other options than readjusting our pricing policy."
The hike also comes in direct response to current energy prices. There have been strong increases in both oil and gas prices, and the raw materials used in the production of vanillin are all high energy users.
But undercutting both these concerns is the issue of China. With vanillin growth in the mature markets of Europe and the US, annual growth is stable at around 2 per cent.
But in China, this growth is set at over 10 per cent.
"Two things happening," said Meric. "First, the Chinese love vanilla flavour. This is not only an item of export that is used to flood western markets.
"They like it. And every year, new consumers are converted, and this is driving growth."
The second point is that vanillin is in short supply. This has created a situation whereby prices have been increased repeatedly. Meric says there is a clear indication that this is going to carry on, and that the shortage is here to stay for this year at least.
Rhodia has therefore pinpointed China as the market for the future. But in order to capitalise, it must invest. And in order to invest, it must generate capital.
Today's price increase is therefore inextricably linked to the company's future in Asia.
"We firmly believe we need additional capacity," said Meric.
"The main problem is that catechol (the raw material used by Rhodia for vanillin) is in short supply. This is why we have decided to invest in China, by building a brand new catechol plant near Shanghai that should be online next year. "
At present, catechol is imported from France and the US. The completion of the plant should result in huge cost savings and again underlines the firm's commitment in China.
In addition, the construction of the Chinese catechol plant shows how Rhodia is revolutionising the production of vanillin in this part of the world. There are a number of techniques to make synthetic vanillin production, but Rhodia is confident that the catechol method is by far the best.
"There are three main techniques in synthetic vanillin production," said Meric.
"The lignin process for example uses tree pulp, but we abandoned this 20 years ago because it is energy and capital intensive.
"The second method uses ONCB (ortho nitro chloro benzene), and a number of Chinese producers use this. But this is associated with health and safety issues. We believe it won't be long until producers are forced to switch from this."
The third route is the catechol route. Adopted 30 years ago, Meric says it has been improved six times since then. This process is used throughout Rhodia's French and US operations to produce Rhodiarome: a boosted version of vanillin, and Rhovanil Extra Pure.
The method is also partially used in Rhodia's Chinese operations for its Snow Orchid brand. In a bid to enter the burgeoning Chinese market, Rhodia acquired Xuebao, a vanillin Chinese facility, in 2000 to create Ruohai Fine chemicals.
"When we acquired this plant, they were using the ONCB route," said Meric. "Through reinvestment, we've done away with this. The idea is to completely convert to catechol by building a grassroots plant in China."
Meric predicts that this will happen in the next two or three years. He claims that, as the industry leader in vanillin, Rhodia is ideally placed to satisfy growing demand.
