Brazilian pine oleoresin supply is expected to decline in 2024 as producers continue to grapple with tight margins and lower selling prices. The price weakness has forced many smaller tappers to abandon the market.
Brazilian Pinus elliottii pine oleoresin prices fell to 2,900-3,100 reals ($595-636) at the forest in mid-November, down from R6,300-6,500/t during the same month last year. Prices have been on a steady decline since November 2022, with values of gum rosin, a key product obtained from pine oleoresin, softening this year amid weaker downstream activity.
"Many smaller producers have left the industry," a Sao Paulo state pine oleoresin producer said. The exodus is largely because of poor tapping economics. Producers and buyers in Sao Paulo state, Brazil's largest producing region, estimate current production costs at the forest at between R2,400/t and R3,000/t. Lower prices and higher tapping costs have squeezed producer margins and weighed on business sentiment, according to market participants.
In southern Brazil, another key producing region, pine oleoresin supply fell in August-October as lower selling prices discouraged workers to collect the product, according to one producer. A pine oleoresin buyer said he can only acquire only 15pc of the product he needs because of the reduced availability.
With selling prices sometimes below production costs throughout this year, many smaller pine oleoresin suppliers have ended forest lease agreements. Forest owners lease areas for a share of the producer's selling price, which can reach up to 40pc of their revenues. In Sao Paulo state, a producer ended a lease agreement for one of several areas considered unproductive in the current market, a source said.
Official data on the number of pine oleoresin producers in Brazil is lacking. But buyers and producers estimate pine oleoresin supply in the 2023-24 tapping season could drop by 20-30pc. Producers obtaining less than 2.5-3 kg/yr of pine oleoresin per tree are expected to struggle the most. "Areas collecting 2.5 kg/yr per tree will stop," the chief executive of a pine chemicals company said.
Pine oleoresin is processed into gum rosin, and data from Argus' Global Trade Tracker (GTT) show Brazilian gum rosin (BGR) exports have also fallen. BGR exports have been declining since 2020 and are now close to levels seen in 2016. They fell from a peak of 97,425t in 2020 to 74,516t in 2022. Gum rosin processors in Brazil are the biggest consumers of pine oleoresin.
Brazilian Pinus elliottii pine oleoresin prices have picked up slightly since early November levels on the back of seasonally lower supply and higher bids. But the uptick has not changed the fundamentals for pine tapping as selling prices remain close to production costs, with many still sharing a portion of their revenues with forest owners.
Even if pine oleoresin prices increase, allowing for higher margins, it would take time for the producers which left the market to reactivate the forests and increase availability to the market. Reactivating a forest takes about six months as tappers need to prepare the extraction of the raw material months in advance, according to a source. Six-year old forest areas, which could be ready for tapping this year, will likely not add new volumes to the market as forest owners are delaying operations because of the current selling prices, another source added.
Higher pine oleoresin prices in recent weeks led to higher-priced gum rosin offers from Brazilian sellers into southern Europe. But one Brazilian supplier said there is no guarantee that pine oleoresin prices will continue increasing as European gum rosin buyers may push back for discounts amid soft downstream demand, which would again pressure prices and margins for pine oleoresin producers in Brazil.
