FBA Issue 5: November / December 2005
On firm ground
by Daphne TAN
THE YEAR 2005 may be nearing an end but activities at Degussa Feed Additives are showing no sign of the usual year-end slowdown. Production of L-lysine at Degussa Cathay Biotechnology, a joint venture formed in January with China's Cathay Biotechnology, is on track to begin by year-end. DL-methionine, for which Degussa holds the market lead, will see production shifting to a new plant in Antwerp, Belgium and on schedule to start within the year. As for L-threonine, a de-bottlenecking project at its Slovakia plant and successful launch in Hungary has fast-tracked 2007 production plans to 2005.
Degussa's feed additives business can be summed up in two words--amino acids. The only producer of the full range of feed-grade amino acids, feed additives clinched sales of EUR530 million in 2004 for its fine chemicals division, and a 5 percent average growth worldwide with the markets of Asia, Latin America and eastern Europe recording the highest growth rates. The third largest German chemicals company also has business units in five other divisions¡ªconstruction chemicals, performance materials, coatings and advanced fillers, and special polymers.
"Feed additives is a strategic business unit of Degussa and will continue to be so," declares Julio Vrbanić, regional director for Asia Pacific during an exclusive interview with FEED Business Asia at Degussa's Singapore office. Difficulties in the current business climate notwithstanding, the emphasis on product and service solutions, and a focus on its core business of providing the full portfolio of amino acid products and services worldwide appear to be the main thrust of Degussa's reach across all markets.
Six amino acid production sites provided Degussa a joint capacity of 230,000 tonnes of dl-methionine, 90,000 tonnes of L-lysine HCl equivalents and 20,000 tonnes of threonine in 2004. Of these, four of the plants are in Europe and two in the US. The soon-to-commence joint production with Cathay Biotechnology will add the seventh amino acid facility to the list and the first for the company in Asia, in China's Shandong province.
Scheduled for an initial productive capacity of 40,000 tonnes of Biolys (Degussa's L-lysine brand), the Shandong plant will cater primarily to the Chinese market. And if recent trends are anything to watch, the good news for producers on the mainland is that lysine prices, which have trailed breakeven levels in the last two years, appear to be picking up once again. Judging from the tremendous growth opportunities in commercial hog production in China, demand for lysine, a first limiting amino acid for swine, can be expected to rise significantly in the near term, reasons Degussa's technical service manager Stefan Mack.
The swift entry of numerous small-scale Chinese producers may have flooded the lysine market to excess capacity but Mack sees their long-term decision to grow in China as being in direct relation to the size of the market. "Significant differences in production technology will not allow all players to keep up in such a competitive environment," he says, pointing to the new producers in the Chinese market for fermentative amino acids. "And besides, it remains to be seen if the market can sustain this rapid succession of new entrants." Expertise in chemical synthesis and a market position in amino acids that is no.1 or 2 in most regions are further reasons why Degussa may be better placed to withstand the intense fight for the market, Mack adds.
It also helps that there is considerable government support for technology development in China. A strategic project, the joint venture aims to utilise the strengths of both companies in biotechnology know-how and expertise while tapping on Cathay's experience in China. Synergies that result from this partnership, says Degussa, is expected to push the venture, and Degussa's position as a leading amino acid producer, forward. Capacity at the Shandong plant may be further increased to 120,000 tonnes although there are no plans for now to export out from here to the rest of the Asia-Pacific and the world.
Degussa's biggest investment project yet is a world-scale methionine production plant involving an overall investment of about EUR300 million by 2006. Originally planned for an annual capacity of 150,000 tonnes, output at the new Antwerp harbour site plant has been scaled down to 120,000 tonnes following record high oil prices which have affected the company "significantly", and the temporary demand slump from the Asian bird flu crisis of 2004. Demand growth for methionine, unlike other amino acids like threonine and tryptophan, is only expected to rise marginally and in line with an already well-consolidated broiler industry.
As such, taking the older 80,000-tonne-capacity plant, also in Antwerp, out of production will "keep production capacities in line with current demand", say Degussa's executives. However, the emphasis is not so much on lowering production than on the process improvements that come with the new facility. The older plant will be similarly upgraded after an extensive overhaul, adding up to huge savings in operational costs.
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