One of the most challenging task of the F&F materials Buyer is to monitor the market evolution and keep updated about key figures.
Among significant factors that condition availability and price of raw materials, any change in sector-specific industrial assets and operations have to be registered and carefully analyzed within the overall market evolution. Furthermore, there are some “devious” aspects and less evident cross-industry interactions the Buyer has to be aware of, and that make his work more difficult.The aim of this synthetic note is to highlight —among the industrial factors affecting prices and availability — the most relevant and the most undervalued ones.
Accordingly, this note will touch the following subjects:
The supply chain of F&F materials can be sometimes subject to industrial accidents and other unexpected events that force capacity reduction and shutdown of plants undergoing extraordinary maintenance and revamping projects. The impact of these circumstances and their dynamics over time are difficult to understand and can vary depending on many “boundary conditions”, including the following: the concentration of production, the international logistics, the financial strength of the company hit by the accident, the extra-costs or losses sustainable within the specific product management, the stocks currently available on the market, the “trust” in alternative materials or reformulation services/possibilities, the market “jitters” and so the sensitivity of the market and the whole supply chain to a lack of supply.
For instance, in late October 2017, BASF Citral plant —one of the largest production site in the world — was hit by a major fire that obliged the world largest producer of the mentioned F&F chemical to declare “Force Majeure”. As a matter of facts, Citral is a key feedstock for the production of many other flavor and fragrance ingredients, such as Geraniol, Citronellyl Nitrile, Hydroxycitronellal, Citronellal, Linalool, Linalyl Acetate, Beta Ionone, Alfa Ionone, Methyl Ionone Gamma 70, all Acetates, etc.
BASF plant has stopped the production and the Company immediately implemented all possible measures to limit negative consequences. However, a general feeling of uncertainty spread throughout the market, while prices were almost out of control, rising considerably. Six months after the fire, BASF restarted the production, giving a clear sign of the responsiveness and the competence of the Company. Anyway, after emergencies like this, it always takes time to the market to settle down, while totally or partially restore previous dynamics.
Another example involves the Indian company Anthea Aroma Chemicals, part of the French multinational group DRT. In early 2018, a fire involved the production plant of Roha Raigad, specialized in the production of Dihydromyrcenol, Iso Amber, Piperonal, Geraniol, Nerol, and other fine chemicals for flavors and fragrances. The fire, probably related to a failure of the sophisticated control system, has razed the entire plant, a key source for the fragrance industry worldwide.
Even if companies do implement the most reliable processes, the most advanced control and safety systems, and operate plants according to the highest standards, accidents can still happen. Although they remain exceptional events, their possibility leads the Buyer to directly or indirectly run a multi-sourcing procurement, which is tuned on the specific supply continuity needs.
Company reorganizations, such as mergers, acquisitions, stock quotes, share transfers to investment funds, spin-offs, etc. are (almost) daily protagonists of the industrial landscape and the markets along the whole supply chain. The Flavor and Fragrance Industry (raw materials and compounds) doesn’t make exception: a higher level of efficiency or a greater market share through M&A operations represent, indeed, interesting development opportunities.
However, development means change, and change means adjustment, often imbalances: an event chain that brings new challenges and involves —more or less — all industry players. The Buyer must be able to keep up-to-date and to use the information in the most effective way to seize any new opportunities.
An emblematic example everybody remembers and (directly or indirectly) experienced is the merger of Dragoco and Haarman & Reimer, two great players of the Flavor and Fragrance Industry. Apart from the merger success for the newborn Symrise, the operation contributed to a general rise of industrial and quality standards, leading the most efficient and flexible players to a substantial organizational and technological growth.
Mergers and acquisitions can disclose opportunities and threads to the Buyer.
In order to identify relevant factors influencing the availability of F&F materials, and finally to design a comprehensive “control map”, supporting reliable decisions and strategies, the Buyer has to analyze all industries and production chains with “cross interference” with those of F&F materials. In other words, the Buyer has to study the dynamics of the industries producing flavor and fragrance materials as by-products, the industries competing with those of F&F materials because requiring the same feedstocks, the industries producing materials that are in competition —almost substitutes — for the same use in flavor or fragrances, and more.
For instance —although it may sound weird — what happens in the petrochemical and paper industry can have significant implications on the availability and price of Menthol and Mint essential oils.
In fact, Menthol comes from:
These 3 processes compete on an economic level and have different characteristics in terms of sustainability, energy efficiency and the critical feedstock supply they require.
As a general rule, with reference to each F&F material to be assured to the business, all possible origins and supply chains should be monitored by the Buyer.
Now, let’s drill down into the above key points. First, the availability of plants (Mints) depends on the competition of crops in terms of profitability, sustainability, risks, and many other factors, including local policies about biodiversity protection and food resources safeguard.
Second, M-Cresol and Propylene are of mineral origin, and that means they follow the dynamics of the petrochemical industry, the agreements between crude oil and gas producing countries and the international politics.
Third, Beta Pinene from "Gum Turpentine" is scarce and its cost is currently much higher than the one obtained through “Kraft process”, i.e., as a by-product in the production of paper from wood. Thus, the production of Menthol from Beta Pinene pyrolysis depends on technical and economic factors of the paper industry, and paper-recycling policies have to be considered an incognita for the availability of an affordable raw material, namely Beta Pinene, for the synthesis of Menthol.
Finally, it is easy to understand that the availability and price of synthetic Menthol can condition the market request for their natural counterpart and, accordingly, the use of Mint essential oils.
Proceeding with spot or low-periodicity large orders at the top of the supply chain can generally give a negotiating advantage to the Buyer, but increase the effect of the above-mentioned “industrial factors”. For a complete and effective analysis, the Buyer should evaluate the (positive or negative) impact of them, while considering their direct link with:
Sometimes, the most useful information for the Buyer's activity is only partially available on the web, unstructured and often fragmented because mostly spread by companies along the supply chain. The Buyer should acquire and organize all information he “catches”, in order to understand if it can turn useful, and define key parameters for his decisions, procedures, and strategies.
As for the industrial factors affecting their job, some Buyers use apps like Feedly and Flipboard, which allow to easily collect all information released on the network about specific topics in a single “storage”. These apps let the Buyer create a set of folders corresponding to the topics he wants to follow and to select the most reliable sources on the web, from which to receive information. Every day the app will provide him with a list of articles on the topics of his interest, published on industry association portals and corporate web magazines (previously selected sites), in a sort of "personalized newspaper”, updated in real-time and able to offer a general overview of all the key factors influencing his job.
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