'Tate & Lyle was caught sleeping at the wheel while we captured its market share,' claims Chinese rival

Sucralose demand continues to rise, but profit margins have fallen though the floor, says Tate & Lyle

By Elaine Watson

- Last updated on GMT

Tate & Lyle's sucralose plant in McIntosh, Alabama was mothballed in 2009 and then re-opened in 2012
Tate & Lyle's sucralose plant in McIntosh, Alabama was mothballed in 2009 and then re-opened in 2012

Related tags Sucralose

For a long time, Tate & Lyle had the sucralose market to itself. It discovered it, patented it to the hilt, and perfected the process of producing it on an industrial scale, generating operating profit margins of almost 50%. But you can only have the market to yourself for so long, bosses conceded Tuesday.

In a statement (click HERE​) outlining a realignment of its business, Tate & Lyle said profits from sucralose had plummeted 75% to £16m ($24m)​ in the year ended March 31, 2015 as industry overcapacity (the steady addition of new production capacity in China) had decimated margins.

In response, the company will close its Singapore factory (which only opened in 2007) and consolidate production in McIntosh, Alabama (a site that it mothballed in 2009 and then re-opened in 2012​) by spring 2016.

While demand for sucralose remained strong, said Tate & Lyle - which a decade ago said sucralose accounted for 3% of its sales but a whopping 18% of its profits - supply remains “well in excess of demand​… and we do not expect this to change materially in the medium term.”

In a call with analysts, CEO Javed Ahmed said that sucralose “continues to the most incorporated high-intensity sweetener used in new products launched globally” ​owing to its “superior taste and functionality,​ but said the imbalance between supply and demand had destroyed profitability.

He added: “The key issue in the market is not demand, it’s supply.” 

Supply remains well in excess of demand

Ahmed - who observed last year​ that he was struggling to see “how we or frankly anyone else can make any money”​ at some of the sucralose prices being quoted in the market – also predicted that things would get worse before they got better.

“We continue to anticipate further price erosion in the year ending 31 March 2016," ​he warned analysts. "As a result, we expect this business will be around breakeven in the year ending 31 March 2016 with some anticipated transition costs offsetting a lower depreciation charge… In our 2017 financial year, we expect this business to return to modest profitability.”

In the year ended 31 March 2014, adjusted operating profit for SPLENDA Sucralose was £62m ($93m), said Ahmed. But he added: “As a result of the significantly changed industry economics over the past 18 months, profits are expected to fall by 75% to around £16m ($24m) in the year ended 31 March 2015.”

sucralose chart

Niutang​: They know and we know, this is their last chance for survival  

Speaking to FoodNavigator-USA late last year, Nancy Hughes, VP sales & marketing at the US division of Chinese manufacturer Niutang, told us​: "We have said before, and we say it again, the market is unsustainable at today’s prices.”

Today, she told us: "The closing of Tate & Lyle’s Singapore facility is no surprise to us. The sucralose market is extremely competitive. It is unfortunate that Tate and Lyle continues to mislead the market in believing that their sucralose is superior to all​ China based competitors.

"They know and we know, this is their last chance for survival.T&L was caught sleeping at the wheel while we (Niutang) captured their market share.   

"Anytime a major producer announces they are closing a facility end users should take note. We have enjoyed the competition and feel we have demonstrated our quality and marketing capabilities on a global level."

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