February

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1 Market Intelligence February 2016 Orange The orange oil market remains very firm as we await offers for new crop Florida Valencia oil, expected to be at an all-time high. Lemon The 2016 Argentinian crop, which will start next month, is forecast to be circa 15% higher than the 2015 crop. Organic Bergamot Following the conventional market the situation for organic oil this season is very bleak and accounts for less than 20% of the total bergamot market.

2 In this issue 4 - Citrus oils 8 - Essential Oils 10 - Organic Update Vegetable Oils Essential Oils 12 - Aroma Chemicals 14 - Specialty Chemicals 16 - Nature Identical Essential Oils 18 - Earthoil 2

3 Welcome The volatility that marred the second half of 2015 has continued unabated into the New Year. We will likely be talking of another year with very few markets moving in line with conventional expectation as the dynamics behind this unpredictability are driven by such a diverse range of factors. The effects of severe movements in raw material and energy costs, currency rates, extraordinary weather conditions and whims of Production Planners restricting supply will, in cases, be negated but in others may have a very pronounced effect. Whilst there is continued growth in the global F&F, consumer goods and cosmetics sectors presenting a positive outlook, the ongoing variability in market conditions will mean straightforward business at any point in the supply chain will be hard to find.

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5 Orange The orange oil market remains very firm as we await offers for new crop Florida Valencia oil which, are expected to be at all-time high prices. Orange terpenes and D Limonene have also climbed to near historically high levels, particularly in the first few weeks of the New Year. Prices for both in Europe are particularly bullish and expected to remain so at least until August when 2016 crop Brazilian oil starts to hit the shores. As prices have risen and financial risk has grown, stockists appetite for that risk, the world over, has at least reduced if not completely gone and Europe is no exception. The last time the orange market reached the price levels they are today was in 2011, when a series of factors collided creating a very chaotic environment. We have recommended that customers should cover their oil needs for the next 6 months but would not go out further than that until we have news of the 2016 Brazilian crop which, hopefully, will give some clarity and stability. Lemon The 2016 Argentinian crop, which will start next month, is forecast to be around 15% higher than the 2015 crop, producing some 1750K tons of fruit (compared to just under 1500 tons last year). However, fresh fruit exports are also expected to be greater so fruit available for Argentina, we could see prices for oil remain quite stable, or even firm, over the next year. There certainly is a lack of good quality oil at origin currently. We will be watching this market closely in the next couple of months. Today, causes for price increases are much more easily explainable simple cause and effect of supply and demand. With a heavily reduced crop in Brazil and the smallest Florida crop in almost 50 years, there is simply not enough orange oil or limonene to fulfill standard worldwide demand. Florida s orange crop alone has been reduced by more than 48% since 2012/2013 and is wreaking havoc on these markets. Adding fuel to the fire is a degree of panic buying, particularly on the limonene side of the business. processing could be 10% higher for 2016 at most. Spain s crop is heavily down from 2015 with expectation of processing only 100K tons of fruit. The price for lemons in both Sicily and Spain is very high at the moment, also fuelled by a 25+% reduction in crop. Due to many European lemon processors being behind on their juice contracts, they have been forced to buy fruit to run through their factories but the high prices are certainly making the decision a difficult one. South Africa and the US are also expecting reduced crops, mostly due to drought, and Turkey is experiencing conditions similar to that in Spain and Italy with the same effects. We have all been waiting for lower lemon oil prices, however, with worldwide crop shortages, except in

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7 Distilled Lime This market has been somewhat subdued over the last few months. The 2nd surge of fruit in Mexico was delayed by heavy rains in late October/early November (predominantly caused by hurricane Patricia), and prices for industrial limes are up 35% from November to January and continue to rise. The crop in Peru is similar to last year though there remain concerns over the impact of this year s El Niño. This market is likely to remain stable in the mid-term. the grapefruit crop due to citrus disease, particularly greening, which has been a significant contributor to a 41% reduction in Florida grapefruit production since the 2012/2013 season. new trees. As the amount of mandarin oil produced declines we expect to see a rise in prices. We have welcomed stability for all tangerine variety oils as well as Persian and Tahitian expressed lime oils. Blood orange oil has risen slightly at origin but with the strengthening of the US dollar, cost is very similar to that in Every year we hear about the decline in the grapefruit juice demand. Now, we have heard that in the last few months, the global demand for juice has surpassed the supply of fruit available to generate it. Bergamot Higher than average temperatures and lack of rain in Reggio Calabria, Italy, has resulted in a later crop, limited amounts of fruit and very poor yields. It is feared that the season will be very short and may almost be over with production volumes at least 40% down on last year. With 2015 providing less than typical production the lack of carry-over has resulted in a serious absence of oil being offered and prices are starting to reflect this. Grapefruit Florida is in the middle of an El Niño winter which is bringing very wet and cold weather with increased chances of tornadoes. These conditions do not bode well for citrus groves. We are also facing drastic reductions to Expect to pay premium prices as good quality, high nootkatone material is becoming very difficult to source. Mandarin The warm, dry conditions in Italy contributing to the ongoing problems with bergamot are affecting mandarins in the same way. However, another factor in reduced mandarin fruit availability is incessantly increasing costs to harvest and cultivate the fields which is hindering growers from planting

8 Essential Oils Cassia Chinese The autumn crop from both Guangdong and Guangxi province, which is currently in progress, is said to be much lower than that of the previous year. The price for leaves and branches has increased but it is the reduced volumes of raw material harvested combined with the continual increase in factory running costs that will be the cause of higher prices for the oil as demand becomes greater than supply. Geranium Chinese Demand for pure Chinese geranium oil has been driven down by the high prices seen in recent years, with figures showing that exports out of China almost halved from 2014 to This has resulted in reduced production and an expectation of lower quality oil. Prices are set to remain stable until the new harvest which usually commences around April. 8

9 Eucalyptus and Eucalyptol Chinese It seems that a number of issues are combining to encourage the recent firm prices we are seeing. Adverse weather conditions in the Yunnan province, which is the main growing area for this product, ever increasing demand and pre-chinese New Year speculation being some of the major contributing factors. We do not expect to see prices softening in the near future and are more likely to see the opposite with currency being the only moderator in a buyers favour. seeds has spread to a further 10% of the pods, resulting in a drop in overall oil yields. India - The recent harvest has also had a yoyo effect on prices of seeds from this origin and with the season drawing to an end, prices are expected to bounce back in the near future and remain firm until the next harvest. Petitgrain Paraguay El Niño really has taken its toll on this product. Availability remains extremely low with buyers queuing up for allocation regardless of the steadily increasing price. It seems unlikely that there will be any relief in the short or medium term as, even if supply conditions were to improve, it would take a long time to satisfy the backlog of demand. then the current situation remains precarious as any large spike in demand may prompt firmer prices. Cardamom Guatemala - The recent harvest has caused the usual waves of volatility with seed prices changing almost daily but thankfully, this seems to have stabilised for now. Volumes of this recent harvest are yet to be confirmed but are expected to be around the same as last year which was around 30-32mt. This being said, the ongoing impact of the Thrips pest on the quality of the Nutmeg Indonesian Recent low market prices and the ongoing wet season at origin have resulted in collectors and processors reluctant to do the necessary for production of this oil to even meet current commitments. The situation is expected to continue until at least March when the weather conditions improve allowing easier collection and drying of raw materials. Until

10 Organic Vegetable Oils Evening Primrose The price of evening primrose oil is at a historic high right now and that trend is set to continue well into Poor harvests in China and increased demand for this highly-sought after oil, mainly used in health-food supplements as well as cosmetics, has led to soaring prices. There is oil available on the market but be sure to cover your requirements for 2016 whilst you can. Pomegranate The harvest in one of the main production areas, Turkey, has finished, the seeds have been carefully separated, cleaned and dried before being packed into bags and shipped to our pressing facility in Kenya. We re expecting another year of high-quality oil at a stable price, which will be available in Europe in a few weeks. Contact us now for samples from the new harvest. Sesame The beginning of the calendar year is a good time to be looking at your yearly requirements for sesame oil. Pricing has remained stable from last year and there is plenty of availability in Europe, whether you require crude or refined oil. Why not increase your market impact and reassure customers by switching to Earthoil s fully traceable, organic and Fair For Life certified oil. 10

11 Organic Essential Oils Lemon A lack of rain and high temperatures in recent weeks has led to an expectation that organic lemon oil production in Spain will be reduced this season by around 30%. The quality of fruit is reported as very good however, resulting in the fresh fruit market willing to pay good prices, further reducing the volume of raw material going for processing. The Italian forecasts are also looking low. Dry weather during November and December resulted in very small fruit and while the number of lemons on the trees looks healthy, the yield is expected to be drastically reduced and the season expected to be completed by April instead of June. Blood Orange Yet another fruit harvest adversely affected by weather conditions in Italy as without any cold weather the anthocyanins that are responsible for the red colour have not been able to develop and so the colour is completely lacking. The market price though remains stable. Bergamot Following the conventional market, the situation for organic oil this season is very bleak. Production of organic certified oil accounts for less than 20% of the total bergamot market and we expect that demand will continue to far outweigh supply this year.

12 Aroma Chemicals Crude oil prices are continuing to fall with Brent crude now trading below $35.00 per barrel. Furthermore, the removal of international sanctions on Iran is opening the market up to yet further supply in an already saturated market. This could be good news for buyers of materials derived from petrochemical sources. This should also provide manufacturers with some respite on their energy as well as other indirect manufacturing costs. However, it remains to be seen exactly what the impact will be product to product and what the lag will be between media headlines and real market prices Mar 01, 2014 Apr 01, 2014 May 01, 2014 Jun 01, 2014 Jul 01, 2014 Aug 01, 2014 Sep 01, 2014 Oct 01, 2014 Nov 01, 2014 Dec 01, 2014 Jan 01, 2015 Feb 01, 2015 Mar 01, 2015 Apr 01, 2015 May 01, 2015 Jun 01, 2015 Jul 01, 2015 Aug 01, 2015 Sep 01, 2015 Oct 01, 2015 Nov 01, 2015 Dec 01, 2015 Jan 01,

13 Citral Derived Products As reported back in September the situation with citral derivatives still remains a problem with no end in sight. Products affected are such industry staples as Geraniol, Hydroxycitronellal, Citronellyl acetate, Citronellol to name a few. Due to the volumes concerned there are very few alternatives for a large customer base to approach and we actively discourage panic buying as this will only exacerbate the problem. Methylcyclopentolone The biggest manufacturing facility in China has reopened following an enforced relocation due to Governmental land redevelopment. The plant can produce approximately 15 tons per month which has improved supply. in line with material availability (Palm oil) problems. The amount of C8 and C10 obtained from the manufacturing process is much smaller than the C12/C14. Due to concerns surrounding the current global demand situation of palm oil derivatives, especially C12/C14, processing has decreased. With demand outstripping supply of C8/C10 derivatives, the market has become very tight and has caused pricing to increase. RMB Devalued The RMB continues to devalue and has done so by about 5% during the past 3 months adding further pressure on Chinese manufacturers and exporters to lower prices. It should be remembered, however, that the same circumstances make materials being sold into China (raw materials for production in some cases) more expensive (see chart below). Gum Rosin The Gum Turpentine market remains weak and allied with the weakness being experienced in petrochemical feedstocks, there is every reason for us to see the price of most aroma chemicals follow the same trend in the coming months. In fact the price for Gum Turpentine is actually half of that seen 2 years ago with prices steadily moving over that period. However, this means we would not expect to see a major correction to materials such as Terpineol, IBA, Borneol or their derivatives. Vanillin Availability has improved with the opening of a new factory in Jiangsu province. It is reassuring to note that despite the turmoil in economic conditions there is still incentive enough to fill a supply vacuum. Musk Ketone Due to the continued efforts to reduce pollution issues in China there is now only one factory producing. Pricing is increasing accordingly at the same time as supply is restricted. Fatty Acids Pricing remains relatively stable for this range of materials except Octanoic acid which continues to rise 6 Jan 15 Feb 15 Mar 15 Apr 15 May 15 Jun 15 Jul 15 Aug 15 Sep 15 Oct 15 Nov 15 Dec 15 Jan 16

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15 With the Summer Olympics in Rio fast approaching, the consumer interest in tropical beverages is set to peak in the coming months. High Impact Aroma Chemicals are very useful for adding that final sulphurous top note to tropical flavour applications. 3-Acetylthiohexyl Acetate Ethyl-3-(methylthio)butyrate Fema 3816, Cas Buchu-like catty aroma suitable for mango, papaya, guava and passion fruit flavours at 1ppm. Fema 3836, Cas Over-ripe tropical fruit aroma perfect for mango and kiwi flavours at levels up to 2ppm. p-mentha-8-thiol-3-one 3-Mercaptohexyl Hexanoate Fema 3177, Cas Blackcurrant tropical aroma used in tropical fruit flavours at levels up to 1ppm. Fema 3853, Cas Ideal for passion fruit and other tropical flavours for its strong guava-like notes. 3-Mercaptohexyl Acetate Ethyl-2-mercaptopropionate Fema 3851, Cas Used in passion fruit flavours for its characteristic profile at levels of 0.5ppm. Fema 3279, Cas Powerful alliaceous green tropical notes suitable for over-ripe durian and mango flavours.

16 Nature Identical Essential Oils In recent times obtaining essential oils from their natural source has become increasingly challenging. This is due to various factors, one of which being the decline in availability of several key raw materials. The seasons have given rise to some of the most volatile markets in the history of citrus oils. [1] The United States department of agriculture recently revised their orange crop forecast down by 8% and we saw record prices for lemon, distilled lime, expressed lime and tangerine [2]. Coupled with the fact that obtaining raw materials with the purpose of using them for oils is not usually the primary reason for their purchase, this makes for a very volatile price landscape. Around 75% of global citrus crop is consumed as fresh fruit. Any decrease in the fresh fruit crop has a profound effect on availability and price of these citrus oils. Demand is high for citrus flavours in the beverages and dairy sectors. In fact, these two sectors accounted for 62% of the citrus market in terms of value in Orange, lemon, lime and grapefruit are some of the major citrus flavours used in end-use industries across the globe, orange being the most popular. [5] 16 [1] [2] [3] [4] [5]

17 Our Solutions To combat the increasingly volatile and unpredictable raw material markets, Treatt has combined its in-depth knowledge of essential oils with its innovative skills to develop two unique ranges of Nature Identical essential oils. The Simplus range, which imitate their pure and natural counterparts and the Apphia range, which possess enhanced flavour properties as well as varied flavour profiles. Simplus Range Products in this range are produced using synthetic ingredients and have been carefully crafted to behave, perform and look like the pure materials found in nature. The main purpose of this range is to offer our customers Nature Identical (NI) alternatives to pure essential oils, especially citrus. These products can be solely used for their flavour properties, but can also be used as building blocks for further flavour formulation and hence offer our customers an off the shelf flavour base solution. As part of this range we also offer NI alternatives to folded oils, especially Orange, Grapefruit and Lemon with others being developed as demand requires. Due to their synthetic origin, these products do not encounter many of the problems their natural counterparts do, amongst the most important being price volatility and availability. As a result we are able to offer them at a lower price than naturals and with a price stability which allows us to enter markets such as Africa and Asia which may not have been able to cope with the volatile prices of the naturals. This comes at perfect timing as the African and Asian markets continue to experience economic growth [3] & [4]. Product Highlight Orange oil 5 fold and 10 fold NI Both of these products have been formulated to exactly mimic 5 fold and 10 fold pure orange essential oils and their performance. In application they are used in the same way as pure essential oils with the same dose rates. 5 fold materials would normally be dosed at around 10ppm and 10 fold at 4 ppm, but different applications will have different requirements. Both of the products have much fewer wax issues than would be expected in pure essential oils and hence decrease any need for filtration. Apphia Range Products in this range are again produced using synthetic ingredients and have been crafted to behave and perform like pure essential oils but their flavour properties have been modified to produce varied flavour and aroma profiles. Many of them have more of a fantasy type flavour top note which means that generally the flavour is still very much recognisable but the top note of the flavour has been finished to further satisfy consumers imagination, rather than what nature would normally offer. As these products are again nature identical the span for creativity is vast and products are being developed mainly to fulfil customer briefs for their specific application. Product Highlights Orange oil Primera This high impact flavour ingredient can be used in beverage, ice-lollies and general confectionary application, but these uses are not exclusive. It has a powerfully fruity, full bodied, juicy aroma with light peel notes accompanied by slight floral characteristics. Lime oil distilled This flavour oil is more of a fantasy type lime oil NI. The dry lime flavour is combined with sweet pine and cardboard notes. The aroma and top notes however remain delicate, light and fruity. When tasting this product the consumer is given a strong reminder of one of the all-time childhood favourite sweets - citrus gummy bears.

18 Earthoil What s been happening at Earthoil Africa? New cold press machine We are delighted to share that Earthoil have made considerable investment into a new cold press machine in our Kenyan Facility. The objective of the investment was to increase capacity in order to meet growing demand for cold pressed oils. Earthoil Africa capabilities are a key part of Earthoils growth strategy. Installation of the new Major Max is complete. Safe practices were strictly enforced and installation was planned so that production on the existing Major Max was not disrupted. The new machine has created 11 new jobs. We plan to produce several oils on the machine including vegetable oils such as macadamia, moringa, almond and sesame with a working schedule 24hrs/7 days a week. The machine is currently producing conventional macadamia oil. It is hoped it will improve our production volumes by 40%. 18

19 Tea tree project update Earthoil s commitment to its tea tree project continues with a massive investment in seedlings, an increase in the number of local farmers in the producer group and the installation of a second still to produce top quality, organic fair trade oil. We anticipate being able to accommodate new customer requirements in the months ahead as the scale up bears fruit. Earthoil pays a Fair Trade Development Premium not just for the tea tree bought from our contracted farmers but also for the tea tree grown on our own plantations. This Fair Trade premium is then administered by Earthoil workers in the Plantation and the Distillation unit near Nanyuki. So far the Earthoil workers have spent the premium on the following projects: Scholarship for two children to attend primary school and secondary school, respectively. One of the supported children, Lynnet, is the daughter of a former Earthoil worker who sadly died two years ago in a car accident. This showing a great deal of compassion and demonstrating the sense of family among the Earthoil workers. The other child, Catherine, was selected by the Earthoil workers from the community where they live and has no relationship with the workers families. Lynnet Waithera Kuria Courses for five Earthoil employees to get additional skills including gaining a driving license and computer literacy. They also have other projects in mind such as buying equipment for local schools or repairing a damaged bridge, which the children have to cross every day in one of the areas nearby. We will keep you updated during 2016 as they develop. Catherine Wairimu P L A N T A T I O N S

20 For more information on all our products and services please visit our website.