Optical brightening agents (OBAs) are used in large quantities to increase the brightness or whiteness of paper and board products and for details of what optical brigthening agents are and their raw material composition, please refer to an earlier blogpost. Recently, there has been a number of changes in the market which have impacted on the supply and demand for these products.
Demand has been in a state of flux, with further consolidation in the industry and closure of paper mills in Europe and the USA countered by the increased demand in Asia and South America. When demand shifts to Asia and South America, there are different options for the sourcing of OBAs as there are strong regional manufacturers of the products which are usually more competitive than the European or international producers.
On the supply side, there have been three significant effects. First, the Chinese government has belatedly chosen to clamp down on the polluting producers of the diamond-stilbene (DAST) raw material and as China is the major producer (> 40%), removing a significant amount of DAST increased raw material prices significantly. The remaining DAST producers in India and elsewhere could not pick up the deficit and DAST prices increased from below $1.50 to over £5.00 only to fall back to around $3.50. This supply shortfall is not too dissimilar to the situation that occurred before the Beijing Olympics when the Chinese government prevented a number of DAST and OBA manufacturers from producing in order to cut down on the pollution wafting over the Olympic sites.
Second, to compound things, exchange rates have been volatile – especially the devaluation of the Euro against the dollar.
Third, oil prices fell dramatically only to recover somewhat but it is unlikely that prices will return to the $100/barrel level in the near future.
So, what of the product producers? Those that were back integrated and produced DAST had some relief, and tried to take advantage of the situation, increasing DAST and OBA prices; however, the OBA market in Europe was saturated and there was little upward movement in pricing and this situation is likely to remain.
From a European perspective the situation is:
- European manufacturers of OBA face much higher higher material costs but have lower product logistic costs.
- As the raw materials are based on oil, the oil price fluctuations we have seen recently have reduced raw material costs although DASDA pricing is not entirely dependant on oil pricing.
- Chinese, Indian and Indonesian manufacturers importing into Europe are having to either absorb the dollar and raw material increases or find a way to compete with current European pricing. Most paper mills look at the delivered cost of OBAs (DDP) and the supply chain costs from India or China are significant, even when importing companies ship powder OBAs and dilute them in Europe.
- Chinese, Indian and Indonesian manufacturers do not offer the more innovative OBAs and are therefore competing with what are essentially ‘commodity’ OBAs.
- The OBA market is very competitive and there are too many suppliers. Aside form the manufacturers, the market is further fragmented by European suppliers which source from India, China and Indonesia. These suppliers are also subject to the same effects that their suppliers (importing manufacturers) are facing.
- A number of importers seem to flout both REACH and patent compliance for short-term gain.
- New entrants into the market seem to struggle with both the compliance and basic service requirements of their customers.
The outlook for price increases in the OBA market in Europe is bleak and the market will remain fragmented. The question is how long all the players in the European OBA market will be able to live with very low margins – there will be some exiting the market in 2015/2016.