Replies to post #15558 on The Rising Influence of Rising Affluence

[DewDiligence]

Less steel produced in China isbullish for US steelmakers. This, in turn, should be mostly bullish for CLF, as US steelmakers increase their own production and their orders for CLF's iron-ore pellets.

For CLF, there could be an offsetting bearish effect insofar as a lower seaborne price of iron ore lowers the contractual price for pellets that CLF sells to US steelmakers, but this pricing effect occurs with a lag.

[wow_happens28]

Vitamin C prices triple in a year's time

Another off shoot of China shutting down businesses for the winter to control air pollution. So it is not just steel mills.

http://www.foodbusinessnews.net/articles/news_home/Purchasing_News/2017/11/Vitamin_C_prices_triple_in_a_y.aspx?ID={BB9E0421-F76A-4A69-88C7-EA56C5F93EDE}&cck=1


KANSAS CITY — The Chinese government has taken regulatory action to clean up its air, and it’s causing vitamin C prices to go sky high, rising as much as 300% over a year. While vitamin distributors estimate China produces about 95% of the world’s vitamin C, it is used globally as an ingredient in foods, beverages and dietary supplements.

Prices for vitamin C (ascorbic acid) were running about $3.50 a kilogram (2.2 lbs) in October 2016, but they had risen to $11 to $12 a kilogram in September and October of this year, said Steve Watts, vice-president of Prinova Europe Ltd., London. Prinova, based in Chicago, is an ingredient distributor and also manufactures and sells blends, including vitamin blends.

Environmental issues have caused total production volume of vitamin C in China to drop by 30%, said Highway He, vice-president of sales and marketing for the BBCA Group in China. Offenders of the new laws may be put in prison, and plants may be closed, he said. The new environmental laws are stricter than the old ones in which the offenders only received fines.

Before the winter of 2016, the Chinese government put a cap on the amount of energy that power stations could produce, Mr. Watts said.

“Well, this coincided with the Chinese winter, and in the Chinese winter, they turn on the central heating Nov. 15,” he said. “They turn it off March 15. The government gives priority to the residents, which means industry has been rationed on the amount of energy that it gets from these coal-fired power stations because of the cap.”

Air pollution in China
The Chinese government has taken regulatory action to clean up its air.


Some plants also stayed closed for a couple of months in the summer when the companies made environmental modifications, Mr. Watts said.

Now, companies in the food and beverage industry are dealing with the resulting price increase for vitamin C and other ingredients produced in China.

“Outside of being one of the most popular nutritional supplements in the U.S., (vitamin C) is commonly found in juices, soda, soup, enhanced beverages, cereal, breads, meats, jams and jellies, sauces and more, thanks to its preservative, antioxidant and flavor appeal,” said Kara Neville, procurement manager for St. Louis-based AB Mauri North America.

The baking industry has felt the effects, too.

“In the baking industry, ascorbic acid is primarily used as a dough strengthener to improve processing as well as meet consumer trend demand,” she said. “The addition of ascorbic acid to doughs, even in minute, parts-per-million levels, will act to improve baked bread volumes as well as both external and internal baked characteristics.”
Vitamin C powder
In the baking industry, ascorbic acid is used as a dough strengthener.


She added, “It is important to note that extreme escalation of vitamin prices is not limited to ascorbic acid. Many other vitamins used in the baking industry, including biotin, calcium pantothenate, pyridoxine and thiamine, have also been impacted by similar increases.”

Mr. He advised companies to sign a long-term contract with a reliable supplier.

Anhui Tiger Biotech Co. Ltd., which is part of the BBCA Group, will tackle the supply issue by opening a vitamin C manufacturing facility in Anhui, China, with production to begin in the fourth quarter of 2017. Annual production capacity will be 40,000 tonnes. The new plant will occupy about 50 hectares (123.5 acres) inside the BBCA Industrial Park, which has a total area of about 200 hectares (494 acres), Mr. He said.

A presentation on the new facility was given Nov. 2 in Chicago in an event conducted by ingredientsonline.com, La Mirada, Calif. Ingredientsonline.com connects business-to-business buyers and sellers with nutritional ingredients. The company has direct access to several of the world’s leading vitamin C factories and can fill all orders with U.S. inventory from regional warehouses. Ingredientsonline.com also has teams in China that have been able to secure price matching agreements for ingredients.

Mr. Watts recommended companies ensure they buy from a distributor that carries stock in the United States, which Prinova does.

Ms. Neville said food and beverage manufacturers may ensure a consistent and quality supply of ascorbic acid for their product lines in a number of ways. She gave the following recommendations: select only reputable suppliers with proven track records, purchase from suppliers with access to multiple manufacturer options, especially in distributor settings, understand supplier inventories to ensure they are ample enough to maintain supply even if manufacturers cease shipment for extended periods of time, adjust internal safety stock levels, and maintain close communication with the supply base to communicate any changes in requirements and to understand ongoing changes in the supply chain.

Mr. Watts said another cap on energy production this winter in China could have Chinese manufacturers of ascorbic acid working at 50% capacity, which could cause prices to rise higher in the first half of 2018.

“Now I’m not going to predict where that could be, but it could be considerably higher than the $11 to $12 a kilo where we are at today,” he said.

Ms. Neville said, “Current estimates suggest pricing could reach as high as $14 to $15 per kg in the next few months, but we expect pricing to start trending down in the second quarter of 2018, potentially ending up to 150% higher than 2016 levels.”

Ms. Neville said industry expected a market correction for ascorbic acid after several years of deflation before 2016.

“It is well known inside the industry that the market prices would likely increase, but we didn’t foresee it would be this dramatic,” she said. “We had anticipated a much more gradual increase.”
Mr. Watts said, “What we as the world maybe have failed to realize is how much of our manufacturing base has been transferred from the west to the east over the last 10 years. So you are seeing now a huge inflationary surge in prices of many ingredients coming out of China, and we’re not talking 10%, 20% price increases. We’re talking 300%, 400% price increases.”

Coal-fired energy, which increases air pollution, is used to produce vitamin C, Mr. Watts said. The high prices of ingredients from China could be resolved when that country moves from coal-fired energy to gas, which would reduce the air pollution, he said.

“That probably means we’re going to be in this situation, in my opinion, for at least the next two to three years, possibly up to five years,” he said.

[DewDiligence]

Oops:

Many Chinese found themselves without heat this winter as local governments scrambled to meet pollution targets by shutting down coal power plants. Mr. Xi has made a cleaner environment a centerpiece of his agenda.

But the idea that coal-dependent northern China could suddenly convert wholesale to gas for power and heat generation smacks of Maoist magical thinking. Chinese gas demand was still a paltry 6.4% of total energy consumption at the end of 2016. Coal comprised 62%.

https://www.wsj.com/articles/strongman-xi-jinping-now-a-big-risk-for-chinas-economy-1516175212