We have recieved our latest price announcement: Because November’s price was estimated at $60.00 for many of our customers, the new December price increase represents, for some, one of our largest increases ever. Others of you received an amended price list once November’s price had been determined, and your increase in November is not as drastic. Either way, in two months prices have soared.
Price: The price of iodine in February of this year averaged $29.87 per kilogram. The new December price averages $67.65 per kilogram, an increase of slightly more than 126% percent. Although $67.65 represents a huge increase in price, IodiTech suspects that we are slightly behind our competitors, who are paying around $69.00 per kilogram.
Demand: Higher prices have not had a great impact on product demand. IodiTech continues to have more order requests than we have material available, a steady trend since right after the earthquake. The intensity of demand for product has greatly lessened, but not the overall demand. Even markets with direct substitutes, such as skin disinfectants, seem to be using at the same demand rate. This is not a positive sign for future prices.
Supply: It appears that the area of Japan where the earthquake was centered produced about half of Japan’s iodine. Primary among these was Kanto Natural Gas. Those iodine production areas do not appear to be returning to the market. Other areas of Japan seem to be supplying about the same amount of iodine to the market. South American mines are operating at full capacity, and although one new and very large mine came on line in October, new material has not really made its way into user’s factories. Part of this new mine’s production will be used to replace a mine that is closing. Overall, the supply of iodine to the user base appears to be at about 85% of the demand. This is not a positive sign for future prices either.
Outlook: Economics would say that iodine is an elastic demand material. Higher prices should reduce demand. However since iodine is primarily used as a raw material, and not consumed strictly in and of itself, this is not necessarily how the market is being affected. Oil prices directly drive gasoline prices, and gasoline is consumed throughout the world, and especially in the United States, as a direct budget item. High oil prices = high gasoline prices = less driving, and less demand through conservation. Potassium iodide, IodiTech’s largest product line, is typically used at a less than 1% inclusion rate in products. In many of these products, the potassium iodide contained in the product may represent less than 0.01% of the product’s overall price. In these cases, iodine prices could triple, quadruple, or more, without significantly impacting the product it is used in.
Iodine derivatives share a further unique property – they are occasionally inelastic to price in that they simply have no substitute. X-ray contrast media testing is an excellent example of this. The test has to contain iodine, otherwise it isn’t an x-ray contrast media test. Dietary use for food production animals is the same. Dairy and beef cows, poultry production and swine production all require enormous amounts of iodine products, with no substitute. Again, prices can become as high as the suppliers want, and the animal still has to have its daily supply of iodine.
IodiTech is preparing for increased prices in the coming months. Until supply and demand become more balanced, this is the only prudent way to approach the situation. We do believe that eventually some uses with substitutes will finally drop out of favor and that at least some new mining capacity will enter the market. But when those two will reduce the monthly shortfalls remains unknown.