Feed additive market in wait-and-see mood, M&A momentum building, freight charges add to frustrations

By Jane Byrne contact

- Last updated on GMT

© GettyImages/AvigatorPhotographer
© GettyImages/AvigatorPhotographer

Related tags: freight, typhoon, M&A, covid-19, Indukern Group

The feed and food ingredients sectors continue to be held hostage by the Covid-19 pandemic, says Swiss feed and food additives trading platform, Kemiex.

Purchasers are closely analyzing the demand forecasts and waiting for the right time to buy again, commented Stefan Schmidinger, partner, Kemiex.

Some sellers are complaining about delayed buyer call-offs and perpetual requests regarding prices instead of actual transactions despite the low-price levels for most feed additives, he added.

For veterinary APIs, there is a mixed picture as some products, controlled by only a few manufacturers, such as Doxycycline, remained constrained in terms of supply, said Kemiex.

Kemiex Indices September 2020
Kemiex price indices September 2020 © Kemiex

M&A activity, restructuring

“There are also an increasing number of reports about insolvencies, asset restructuring and M&A,”​ Schmidinger told FeedNavigator.

Commenting on some of that speculation, Kemiex said sources familiar with the matter are reporting that the Indukern Group, a leading global chemical-pharmaceutical group headquartered in Spain, is considering a sale of its chemical distribution businesses focused on the pharma, vet, food and feed sectors.

“Industry participants are speculating if a global chemicals distributor or a financial investor could have raised interest in all or parts of the business. The widely respected owner family could be looking for a ‘white knight’, but also simply evaluating the group’s fair value as part of a recurring strategic review. While the group stopped publishing its financial reports in 2018, sources claim that the price tag is about €100m considering a 10x EBITDA valuation.”

Kemiex said it is closely following these early signs of a new global wave of industry consolidation, asset and debt restructurings that it is starting to observe in Europe, China and elsewhere, with Aliphos​, notably, being ordered to liquidate the company in late August as no buyer was found for its assets. 

Freight charges 

The platform also outlined how a weakening US dollar is hindering imports from China. “With USD/CNY rates at 6.78, it means a +5.5% higher currency conversion cost compared to US dollar highs in late May 2020. We are now at levels last seen in May 2019,” ​said Schmidinger.

An additional layer of frustration for feed and food additive traders, he said, relates to record-high and volatile freight rates amid container shortages and difficulties in returning containers to load at ports in Asia. The situation is similar for air freight, where the supply and demand imbalance of airline capacity is keeping rates at elevated levels. “Average loading rate of ships in Shanghai Port remains above 95%, and some flights are fully loaded.”

Following intervention by the Chinese government, carriers such as OOCL or COSCO abandoned their general rate increase (GRI) and blank sailing plans, while MAERSK and others were said to have reduced trans-pacific rates by 5-10% which, considering current freight rates, means a positive but rather homeopathic decrease, said Kemiex. "Many exporters have yet to achieve lower rates at their forwards."

ASF in Germany, typhoon season

The feed and food additives trading platform also referenced the shockwave experienced by global feed and protein markets when Germany reported its first cases of African swine fever (ASF), earlier this month, resulting in China, Japan, South Korea and Singapore banning pork imports from that country.  

In other developments of interest, this time weather related, Typhoon Haishen, known in the Philippines as Typhoon Kristine, became the first super typhoon of the 2020 Pacific typhoon season, kicking off on September 1 and ending September 10. It hit Japan, the Korean peninsula, and Northeastern China, including parts of Jilin, Liaoning, and Heilongjiang provinces. Kemiex reported no direct impact on the multiple ingredient producers in those areas; however, the typhoon did have some impact on local grain and corn markets, affecting raw materials for production of some feed additives and compound feed.

Chinese holiday week 

The Swiss team says the market is pinning its hopes on trading activity picking up mid-October, following the China National Day Golden Week holiday 2020, which is just around the corner, 2-8 October.

As there are no upcoming major trade fairs, and limited business travel, professional feed and food additive buyers and sellers continue to seek "a new playbook"​ for their negotiations and deal making, reiterated Kemiex.

"For the moment, [Chinese] companies are focused on relationship management, sending Chinese moon cakes to their business partners, a tradition during the mid-Autumn festival," ​remarked Schmidinger.

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