Focus: Europe's starch makers cut production as demand drops from pandemic peak
20/03/2024 13:21
*
Slow economy cuts demand for grain and potato-based starch
*
Main drop linked to paper and cardboard industry
*
Starch also used in processed food, pharma, textiles
*
French grain use for starch could hit 21st century low
*
Falling grain and energy costs raise hopes for year-end
By Sybille de La Hamaide
PARIS, March 20 (Reuters) - Starch makers in Europe have
slowed production as a drop in demand - particularly from paper
and cardboard manufacturers - and cheap imports from Asia leave
them with excess capacity, and see little prospect of
improvement before late this year.
Three industry sources told Reuters the European Union's
starch industry is running at about 70-75% of potential
capacity, as demand declines from its pandemic-era peak. The
sources asked not to be named as the issue is sensitive.
Starch and its derivatives, made from wheat, maize, potatoes
and tapioca, are used in products from ice cream to cosmetics,
paints, pills and cardboard due to their sweetening, thickening
and texturizing properties.
Major starch producers in Europe include U.S. groups
Archer-Daniels-Midland ADM.N and Cargill CARG.UL , French
cooperative Tereos TEREO.UL and family group Roquette.
Data from industry group Starch Europe shows EU output rose
25% between 2008 and 2020 as e-commerce grew and consumers
bought more processed food and drinks, before falling back 4.5%
over 2021 and 2022 as people returned to shops and restaurants.
Since the pandemic, Europe's starch makers have been hit
harder than U.S. rivals by higher energy costs and a slower
economy. Asian demand has meanwhile been supported by population
growth and the continent's large textile industry.
In February Tereos reported a 37% fall in core profit at its
starch and sweeteners unit in late 2023 and warned of "a change
in trend from the strong and atypical earnings growth recorded
in recent quarters".
"The last couple of years have been tough and there is no
indication that it's going to be easier this year," said Jamie
Fortescue, managing director at Brussels-based Starch Europe.
PAPER AND CARDBOARD WEIGH
Data is not yet available but Fortescue estimated EU starch
production could have fallen more than 10% last year. The
industry uses roughly 9% of the EU's combined supplies of wheat
and maize.
The paper and cardboard industry accounts for about a third
of starch use. But output across the EU, Britain and Norway fell
13% in 2023 in 2023, industry group CEPI said, citing inventory
destocking as well as economic conditions and spiking costs.
Declining starch production has curbed demand for grains,
with the use of wheat and maize for starch in France, the EU's
largest grain producer, expected to hit its lowest level this
century in the 2023/2024 marketing season.
"At some point, when the market is no longer pulling, you
have to cut production," Marie-Laure Empinet, head of French
starch producer group Usipa, said. Empinet is also the external
relations director at Roquette, but stressed she was not
speaking for the company.
ADM and Tereos declined to comment. Cargill did not reply to
a request to comment.
HIGH COSTS, HIGH IMPORTS
Imports of cheaper starch products from Asia are another
factor: Chinese dextrose exports to the EU rose more than
fourfold last year from 2022 and sorbitol exports more than five
times, Starch Europe data shows. Both are used to sweeten food.
Vietnamese tapioca imports nearly trebled for the second
year in a row, supported by the EU-Vietnam trade agreement that
came into force in 2020.
Although volumes remain relatively small, such rapid growth is a
concern for the European industry at a time when Brussels is
negotiating a trade deal with the world's largest starch
exporter, Thailand.
China and the United States are the biggest starch
producers, mainly from corn. Thailand produces most cassava
starch, called tapioca, and Europe uses mostly grains and
potatoes.
"LIGHT AT THE END OF THE TUNNEL"
In France, farm office FranceAgriMer has cut its forecast for
how much wheat and maize the starch sector will use in 2023/24
by half a million metric tons since July, to 3.86 million, down
9% from last season and the lowest this century.
That partly reflects a halt in production at a Tereos
factory in northern France following a November fire. The firm
has said it rerouted processing to French and Belgian factories
that were running below capacity.
A sharp fall in grain prices due to ample global supply
could help improve starch makers' margins - raw materials are
their biggest cost - although companies typically cover their
needs for several months ahead.
"There is light at the end of the tunnel, but probably not
before the end of the year," said Gustav Deiters, chairman of
the German Cereal Processing, Milling and Starch Industries'
Association.
(Reporting by Sybille de La Hamaide; Editing by Catherine
Evans)
((mailto:Sybille.deLaHamaide@thomsonreuters.com; +336 8774
4148;))