The annual floods which began in China in early June have been much more severe than in previous years and have now affected almost 15 million people across many provinces and regions in the south of the country. Reports suggest that so far more than 1 million people have been evacuated, over 40,000 homes destroyed and almost 1 million hectares of crops damaged.
Many major rivers and lakes broke their banks with waters rising in most cases to dangerous levels. Those areas feeling the greatest impact are considered the major growing areas for many of our essential oil bearing crops. Our thoughts go out to those affected and we urge buyers of oils from this region not to panic but stay in close contact with their Treatt representative for updates, especially for the following ingredients.
The slight softening in price seen earlier this year has been short lived. Availability of root for processing has improved but this has not helped the supply position of oil. Furthermore the Environmental Protection Order (EPO) in Shandong, which enforced the use of gas for production at a much greater cost than that of the coal originally used, saw more production taking place in neighbouring Anhui province.
It has taken a few months, but once the authorities cottoned on to this they began to phase in the EPO in this area too. So, although production using coal is not yet completely forbidden in the area, it is very limited during the period of transition from coal to gas. With supply reduced and competition increasing for what is available, prices continue to increase.
Prices are now at their lowest level in ten years. With this being the case the expected pattern is emerging with farmers turning to more profitable crops to support their income. Sources suggest a 40-50% reduction in planting area for the 2017 crop compared to last year. Seed export figures for 2016/17 are less than half compared with figures for the previous season and oil producers do not have any carryover of stock.
It is thought that the market is being supplied by oil traders who are holding substantial volumes which were purchased at much higher prices. Expectations are that as normal demand resumes supply deficiencies will become exposed causing prices to increase.
The situation in the market is still precarious. The sudden drop in price last year causing many plantations to be abandoned along with the continuous rain at origin have resulted in a severe shortage of this oil and a steady rise in price for many months now. The excessively wet weather and the fact that farmers/distillers were blending the young fruits (usually used for oil) with the mature fruits (usually used for the spice market) have also caused the levels of key components to vary.
The dry season usually runs from October to April/May but this year has extended into July. Ramadan holidays also saw the country come to a standstill during the last week of June. The hope is that supply will ease once the dry season takes hold when raw materials have had the chance to dry out enough to be processed.
We are told that the collection period is complete with much of the raw material found mouldy and rotten from the prolonged rains in the area. The price of the raw material has increased by approximately 10%, also driven by the continued rise in labour costs. The market has been experiencing a lull whilst buyers waited to see whether there would be any price improvement after the spring collection but it does not appear that the result of any hesitation is going to be positive.
LITSEA CUBEBA AND CITRAL
The market is stable despite low availability with many factories having very little to offer. New season oil should become available by early August. Expectations are that the raw material crop will be good as the berries appear to be plentiful and if current prices are maintained labourers will be enticed to collect meaning the situation should remain stable.
The last harvest in Guatemala was delayed due to the drought in the region which resulted in fuelling price speculation. The knock-on effect is that some of the seeds harvested were not mature enough which then affected the quality of the oil produced. It is believed that the final volumes were 20% less than those seen in previous years cementing the high price for seeds in turn driving up oil prices.
The upcoming harvest, starting October, will not sufficiently restock supply lines to better availability or price conditions a great deal, with some believing that prices could simply continue to rise.