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AN OVERVIEW OF TRENDS IN CHINA’S ESSENTIAL OIL INDUSTRYAN OVERVIEW OF TRENDS INCHINA’S ESSENTIAL OIL INDUSTRY
Winnie Yeung Kallin International Room 2305, OTB Bldg, 160 Gloucester Road, Hong Kong, PR China [ winnieyeung@kallin-intl.com ]
Good morning ladies and gentlemen.
In the preceding lecture, Ms. Ni from Yunnan described in some detail the changes experienced in the essential oil industries of the provinces over the past 10-15 years since the commencement of the economic reform program inChina.
My aim this morning is to extend the discussion to an overview on the changes in production and exports of essential oils at the national level. Considerable differences have been experienced from province to province – as may be expected in a country as large and varied asChina– but there are some common threads that I believe will emerge.
My viewpoint and conclusions can be reasonably regarded as objective in that I am based in Hong Kong with no need to beat any particular drum – either commercial or political. Also, I have the benefit over foreign visitors in making very frequent trips to the mainland and as a native Chinese speaker being better able to question and understand the local situation. ESSENTIAL OIL PRODUCTION TODAY
The production scale for major Chinese essential oil and the trends since 1990 are illustrated in the following table.
Overview of Recent Oil Production and the Trends inChina
This table displays a very mixed trend between individual oils at the national level.
Various influencing factors have been at play and their significance within individual provinces has differed. Before discussing particular oils in any detail, let me briefly run over some of the more common factors.
Factors Influencing Change
First, we should briefly consider the political and economic history of the essential oils industry inChinaas a backdrop to the more recent changes.
The industry was established by the state in 1950s under centralized economy principles with the aim of creating wealth and rural employment, particularly in the more underdeveloped countryside. In those days, ruralChinawas unbelievably poor.
Initially, bartering against imported goods with other members of the socialist bloc was the order of the day. By the mid-1980s, trade with other parts of the world developed strongly, and this phase being marked by an aggressive pricing strategy to gain market share of certain oils against equivalents from the more established suppliers; for example, mint oil / menthol versus that from South America, geranium versusEgypt, and medicinal eucalyptus versus all other producers. Most of these marketing initiatives were successful but highly dependent upon the absence of a market economy inChina. Acquisition of foreign exchange was the driving force, production costs being of lesser importance.
The introduction of the economic reform in the early 1990s upset the prior cozy economic applecart. This brought many changes seen since that time and which are still in the process of having an impact today in some provinces.
So, let us make a crude listing of the major economic changes for the oils since 1990:
Initially, overproduction occurred with some essential oils through over optimism and lack of understanding of the mechanism of a true international market economy by growers and the newly emerging private sector traders. This was followed by a period of over reaction: cutback in output and the passing of a few years before stabilization between supply and demand was evidenced.
A reduction in output of some cultivated oils as farmers adopted true market economics and found that returns were unfavourable versus other alternative crops, while for the first time experiencing price competition from foreign producers. In the “Special Economic Development Zones” of the southern coast, there was the additional factor of rural dwellers started voting with their feet and relocating to the better employment and life-style opportunities offered in the rapidly developing industrial areas and cities.
Output of some oils primarily dependent on harvesting of a wild forest plants reduced along with exhaustion of the natural resource or from collectors finding more income opportunities.
The resultant reduction in domestic output meant thatChinahad to import certain oils to ensure an adequate supply of feedstock for its rapidly growing aroma chemicals industry.
The development of the aroma chemicals sector also resulted in a marked change in the make-up of exports. Some oils that were previously exported are today further processed by the domestic industry for value-added purpose and then exported. The Individual Oils
Let us now consider individual oils in some greater detail and try to untangle the drivers at a local level.
M. Arvensis Oil and Menthol
This slide displays the production trend for M. arvensis oil, which is the feedstock for menthol isolation.
Domestic Production of M. Arvensis Oil (tons)
Imports of Menthol Powder
This was formerly a major industry province of Jiangsu, Anhui, and Henan.
In the late 70s,Chinaenjoyed the largest production and trade. In 1979, crude oil was over 9,000 tons and until 1980 mostly exported. However, profitability was reduced by entry of very competitively priced Indian material and output consequently reduced.
Indian menthol powder is imported by Chinese factories in big quantity since 2000. The cheaper Indian powder helps the Chinese factories simply to keep in business and to serve domestic market demand for menthol. But, this has greatly affected the Chinese traditional factories; some closed, some merged and others switched to production of alternative synthetic materials. Currently, the largest producers are mainly in Anhui, Jiangsu (Kunshan), and Zhuhai.
Citronella
Domestic Production of Java type Citronella Oil (tons)
Imports of Citronella Oil fromVietnam
From these data, you will note that starting from the 80s production has begun to decline. Main reasons are:
1) Unattractive returns in the new economic development zones. - In the 80s, the largest production is mainly in Guangdong and Hainan. After reform, many farmers in Guangdong change their production to alternative materials offering better earnings than Citronella. Land under cultivation was also being converted to industrial use. Hainan’s oil was low in aldehyde and alcohol content. Therefore, these two provinces have been replaced by Yunnan.
2) Increasing production cost in less developed provinces (e.g. Yunnan and Guangxi) plus price competition fromVietnam. - Growing consumption by the domestic aroma chemical industry will further reduce the volume of oil available for export. At its peak demand,Chinaneeded 400 tons for isolate production. Currently, one of the top three multinational companies is also preparing to process by themselves at their new facility inChina, which is under construction. Therefore, imports fromVietnamandBurmawill grow to supplement the industry’s needs.
Eucalyptus Citriodora
Domestic Production of E. Citriodora Oil (tons)
During the 80s,Chinahas reached its highest capacity, about 1,000 tons of Eucalyptus Citriodora Oil per annum. Because supply was greater than demand, its price had once dropped below USD3.00/kg. This resulted in farmers to lose interest to grow more Eucalyptus Citriodora.
In the early 90s, most of the trees were cut down to make wood chips and exported toJapanandTaiwanto make paper. After the trees were cut down, farmer started to plant fruit trees and sugar cane, which are more profitable. Therefore, the Eucalyptus Citriodora trees were reduced largely. Currently, the annual production of the oil is only about 300 tons.
Growing consumption by the aroma chemical industry has also reduced the volume available for export. South America has increased their production. Prices are cheaper, and the oil is richer in aldehyde contain 85% versusChina’s 75%.
Sassafras
Estimates of Domestic Production of Sassafras Oil (tons)
Imports of Sassafras Oil (tons)
* In 2004, the Vietnam Government prohibited export.
Exports of Sassafras Oil vs. Consumption by Domestic Aroma Chemicals Industry (tons)
Chinawas the major world producer at the end of 1980s and at that time virtually all production was exported.
However, production was dependent on destructive harvesting of wild forest trees and supplies have rapidly diminished.
This was accompanied by development of heliotropine and PBO production to extent thatChinahas now become a dominant international supplier of heliotropine.
This development, together with reduced sassafras availability, led to competition for supplies with domestic processors ultimately winning out over crude oil exporters.
Attempts to develop significant scale of production using newly domesticated species, especially in Sichuan. However, this objective has as yet proved unrealized.
Growing imports fromVietnam,Laos, and most recentlyBurmaare evident.
Currently inChina, Heliotropine production stands at around 1,000 tons and PBO 400 tons. Helional production is around 100 - 150 tons. The estimate of sassafras oil requirement by the industry today is more than 2,000 tons.
Future of naturally derived heliotropine depends on greater progressive in developing plantations of sassafras oil yielding new species, either from the Chinese Cinnamon species or the Amazonian Piper hispidinervium.
Mr. Huang from Sichuan will speak in greater details about this topic in the next session.
Litsea Cubeba
Domestic Production of Litsea Cubeba Oil (tons)
Litsea Cubeba production was started on harvesting wild trees but which seems to reduce.
Because recent year price has increased, farmers cut the whole tree to conveniently gather its berry. Therefore, wild tree has reduced a lot. Earlier this year during spring, the weather is very cold and still snowing so many flowers have died. When it was blooming, the weather is too hot. This year the availability is estimated to be less than half of usual.
Growth in extraction of citral inChinahas reduced the quantity of oil available for export. Currently, about 5 factories are processing the 95% and 96% of Citral. However, the ability to process the citral 97% by GC has recently succeeded in the laboratory but mass production has not yet been perfected inChina.
Wild litsea cubeba is becoming scarcer in the established plantations of Sichuan, Yunnan, Guangxi, Guangdong, and Jiangxi. This year limited supply has proven that the large plantation development is not yet likely to result in overproduction. This year because of its shortage, the price of the Litsea Cubeba oil is rising greatly.
Cassia
As you can see, the production has been steadily increasing. By year 2000, it was 4 times more than in the 80s because these areas are poor mountain area. In order to improve the farmers’ living standard and income, the local Government has greatly promoted and assisted in the expansion of plantations. As a result, supply has gradually outpaced demand with price for Cassia Oil declining year on year. This has once again affected the farmers’ incomes and contributed to the closure of many Cassia Oil factories. Below you will note the decline in the Cassia Oil price trend.
The quality also has changes over the years.
Starting from last year, many Cassia Oil samples has been rejected because the cinnamic aldehyde content is too high. During the 80s, the standard quality has a total cinnamic aldehyde content of 85%, with trans-cinnamic aldehyde at around 76 - 79 %. Now, the regular Cassia Oil has a content of 90 - 95%, with trans-cinnamic aldehyde at 82 - 88 %. This results from the introduction of new processing methods.
In the 90s, Chinese factories which produced the isolate brought crude oil from farmers paying them according to the percentage of the cinnamic aldehyde content. With this emphasis on higher aldehyde content, the equipment also under went change. By the mid 90s, factories had switched to an upgraded processing method as below.
As you can see, new processing method use lesser energy and time but obtain more oil. Therefore, for the past few years, big capacity factories (10 tons above), have already upgraded their equipment to the new technology. Today, only a few rural plantations using the traditional method still exist, resulting in very little production of standard Cassia Oil.
Actually, the Cassia Oil odor is composed of many components. When increasing the cinnamic aldehyde content, the other components will correspondingly decrease, such as Cinnamyl Acetate, Methoxy Cinnamic Aldehyde. Traditional Spring oil has a higher cinnamic aldehyde content so its odor is sharper while Fall Oil will have a smoother odor. However, with the new processing method, the cinnamic aldehyde content of both Fall and Spring Oil have been greatly increased, the resultant quality not being suitable for direct use in flavor and fragrance compound.
Therefore, while buyer (which make isolate) that needed high cinnamic aldehyde welcome the new processing method, compound users preferred the traditional oil. Base on these different requirements, we may have to persuade some factories to switch back to use the traditional method.
This year, the price for Cassia Oil has been rising. South China suffering from too many rainstorms so farmers are not able to harvest the leaves from the maintains, those that are being waterlogged with oil yield being obviously affected. Because the price has continuously decreased over the past few years so farmers were not motivated to collect the Cassia leaves causing this year’s supply will be almost halved while the price will have doubled.
Tea Tree
This is a product new toChina. Tea tree oil (Melaleuca, terpinen-4-ol rich) originating fromAustralia.
In 1996, projects in Guangxi were based on unselected seed brought fromAustralia. The oil produced gave a inferior quality oil in which the terpinen-4-ol was below 35% and the 1,8-cineole was higher than 8%.
In 1998, Guangxi reintroduced the natural higher quality seeds and improved agricultural methods. This work has resulted in the establishment of commercial plantations in Guangxi that provide oil of a quality matching that of Australian oil. Current oil production is about 80 tons per year.
Plans to rapidly increase output have been put on hold because of the global market oversupply and low prices of tea tree oil.
However,Australiaprobably should be worried about retaining its position as the unchallenged major supplier of tea tree oil beyond the medium-term. The new Chinese oil is of a high quality and the production costs in Guangxi are competitive.
If you are interested in learning more about the Guangxi development, please read the article in the latest issue of Perfumer and Flavorist.
CONCLUSION
In the next 10 years, the essential oils may have the trend inChinaas follow.
1) Production reduced.
a) Resources for the following essential oils, which main source is from the wild mountain, will get lesser as harvest become more. i. Sassafras ii. Cedarwood iii. Litsea Cubeba
b) The following cultivate essential oils will have lesser production. i. Peppermint ii. Spearmint iii. Lemongrass
2) Increase production.
The following essential oils have the potential to have more production as interested buyer increase. i. Lavender ii. Tea Tree iii. Clary Sage iv. Rose
3. Stable future.
The following essential oils have the trend to be stable for the next ten years and continuously to remain its large capacity for export. i. Eucalyptus Globulus ii. Geranium iii. Cassia iv. Star Aniseed v. Citronella
As economy reform develops and improves, the type and quantity of essential oils inChinawill continuously to change according to the global and domestic demand. This will placeChinain an important position within the international market.
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