Not so long ago, Tate & Lyle had the sucralose market to itself. In recent years, however, the Chinese have emerged as serious rivals. But while demand for the zero-calorie sweetener is rising, new capacity in China has been added even more rapidly, causing prices to plunge 30-50% in the past year.
Tate & Lyle - which produces sucralose in Alabama and Singapore - reckons its average selling prices in fiscal 2015 will be 15% lower than in 2014 thanks to a “significant overhang of unsold Chinese sucralose”, while the market price of Chinese sucralose has dropped by 30-50% in the past year, according to leading manufacturers.
Niutang: Sucralose prices have dropped 40% in the past year
Leading Chinese manufacturer Niutang Chemical told FoodNavigator-USA that sucralose prices have "dropped approximately 40% in the past year", while producers of Quality Grade sucralose are suffering losses.
A spokeswoman said: "Current sucralose pricing is not realistic. It is simply a matter of time before several of the third tier players with heavy debt and low efficiencies exit the category."
She added: "Recent price points have been attractive to end users due to an oversupply situation from new players. The pressure will prove to be too intense for those trying to grab short-term market share. Niutang Chemical has been producing high intensity sweeteners for over 20 years, and we are the most experienced manufacturer of aspartame and sucralose in China. We believe that long-term sustainability is created by quality, and not simply the lowest price."
Asked about its production capacity, she said: "Niutang is one of only two producers in China with 1,200 metric tons of actual sucralose production capacity. Producers trying to make a splash into the category often claim “design” capacity as if it were production capacity."
JK Sucralose: Some small scale players were eager to sell off inventory at very low prices or even below cost price to win volumes
JK Sucralose - which claims to be the largest sucralose manufacturer in China with an annual production capacity of 1,800 metric tons - also predicts a shakeout.
Global marketing director Stella WU told FoodNavigator-USA: "Since the second half of 2013, the sucralose market began to fluctuate due to Tate & Lyle's decision to re-open its Alabama facility in 2012, our capacity expansion at the end of 2012, and yield increases at Niutang.
"Some small scale players were eager to sell off inventory at very low prices or even below cost price to win volumes, and then take advantage when prices returned to higher levels later. It is expected that those manufacturers whose (single line) production capacity is below 1,000t will be forced to shut down."
Meanwhile, tougher environmental regulation in China is also likely to change the game, she added: "In 2015, a new law will be implemented in China, after which the regulation for environmental protection of manufacturing will be more intense.
"And manufacturers, especially, those near rivers and lakes whose environmental protection facilities are not well set up, will face the high risk of shutting down or having to suspend their businesses."
Market was 'horrible' in 2013
Pengfei Mu, regional sales manager at sucralose manufacturer Techno Food Ingredients USA, agreed that the sucralose market was "horrible" in 2013, but said market prices have started to stabilize a little in recent months and Techno has gained three new national accounts since the beginning of the year.
He added: "Several small sucralose manufacturers have decreased their exports.... We’ve heard rumors that a couple of them are shutting down due to the rapid price dive last year. But it is just rumors."
Mothballed production lines
Fellow manufacturer New Trend, which set up a sales office in Los Angeles in 2013 and has warehouses in New York and Los Angeles, says many players are struggling, but that it is in the business for the long-term, having recently secured a strategic investment from Industrial Capital Management Co., Ltd (ICM), the private equity arm of China Industrial Securities.
Product manager Samantha Yan told FoodNavigator-USA: “Second and third tier players are being forced to mothball production lines”.
However, New Trend’s sucralose sales volumes more than doubled in Jan to May 2014 compared with the same period in 2013, claims New Trend, which is also a major producer of food grade glycine, "healthy pricing" for which is helping it weather the storm in the sucralose market.
6,373 new products were launched globally with sucralose in 2013, a 54% increase over 2012
As for Tate & Lyle, while competition from China has intensified, the longer-term prognosis for sucralose is good, said the firm when it unveiled its Q4 results on May 29.
“Sucralose continues to be the high intensity sweetener of choice because the combination of its superior taste profile and heat stability that enable it to be incorporated in a wide range of food, beverage and other applications.
“This provides an opportunity for sucralose to continue to replace other high intensity sweeteners that have already been incorporated into low calorie products in the market as well as replacing sugar.
“In calendar year 2013, 6,373 new products were launched globally incorporating sucralose, a 54% increase over the prior year compared with 3,633 for aspartame (+ 4%) and 2,860 for stevia (+56%).”
Top US beverage companies are actively contacting Chinese sucralose suppliers
While Tate & Lyle says it has the most advanced production process in the industry and will continue to maintain its market leadership position owing to its superior "quality, traceability and reliability", New Trend North America director Edward Wang said that big US customers are now comfortable buying sucralose from trusted Chinese manufacturers.
While some multi-nationals were initially wary of buying sucralose from Chinese suppliers, attitudes have changed, he claimed, noting that New Trend is now working with a couple of “giant” companies.
“More leading beverage companies in the U.S, as well as in many other countries, are now actively contacting Chinese sucralose suppliers.”
Meanwhile, lower prices had also changed perceptions, he said: "Sucralose is no longer a luxury sweetener."
What is sucralose?
Sucralose is around 600 times sweeter than sugar and is used in soft drinks, baked goods, ice cream, tabletop sweeteners, and other products. Unlike aspartame, it does not break down at high temperatures and can be used in baked goods.
While it is made from sugar, the sugar molecule is chemically modified via a multi-step process that selectively replaces three hydrogen-oxygen groups on the sugar molecule with three chlorine atoms to make sucralose, which is classed as an artificial sweetener.