The closure of the facility, located in Knowsley, will leave the company with three remaining xanthan gum plants - two in the US and one in China.
The firm said these facilities will be able to absorb the extra production, and confirmed that supply and prices to its customers in the region served by the plant - Europe, the Middle East and Africa (EMEA) - will not be affected.
CP Kelco, which claims to be the global leader in xanthan gum, is also the first firm in the West to be nudged out of the market by the widespread threat of high raw material and energy prices coupled with cheaper Chinese production.
"The plant just wasn't viable any more," said the firm's Biogums product director Ed Gallagher.
CP Kelco says it currently supplies 40 percent of the global market for xanthan gum, which is also used in a number of industrial applications. Other Western suppliers of the ingredient are Danisco, Jungbunzlauer, ADM and Cargill. The major Chinese producer is Deosen.
Xanthan gum, a hydrocolloid, is used in the food industry for its thickening and stabilizing properties. Popular applications include salad dressings, sauces, ice cream, syrups and powdered juice drinks.
The ingredient has so far avoided price increases experienced by other hydrocolloids in recent years, with pricing kept down by competitive Chinese supplies. In fact, the market situation has forced prices down by around 30-40 percent over the last decade, according to Danisco's xanthan gum business director Niels Thestrup.
Currently, the global price for xanthan gum hovers around the $2.50/lb mark, said hydrocolloid consulting company IMR International. According to the group's Dennis Seisun, there is very little premium for non Chinese material.
CP Kelco's Gallagher confirmed that this makes it very difficult for Western manufacturers to raise their prices as customers generally respond by saying they have alternatives. Nevertheless, CP Kelco has announced single-digit price increases every year for the past three years, although these have been "very hard to stick", he said.
Other companies have not even attempted to raise their prices, with Danisco saying it has followed the market down in its pricing over the last eight to ten years.
However, industry players all predict that the situation will shift in coming years, as Chinese producers are expected to be forced to raise their prices in the near future.
Two major reasons for this are the appreciating Chinese currency, which has strengthened some five percent since the start of this year, and a change in VAT regulations for the export of Chinese product. As of July this year, the VAT refund received by Chinese exporters has been reduced by six percent, which essentially translates into a six percent direct increase in costs.
Together with a global increase in raw material costs, these challenges are likely to cause an upward shift in Chinese prices if already-tight margins are to remain profitable.
At the same time, the market will likely see a shift in the supply situation. According to Danisco, the current market situation for xanthan gum does not justify reinvestment in the industry. Indeed, just a few months ago the firm closed its xanthan plant in China.
Currently, global capacity utilization is thought to have already reached the 90 percent mark, while demand for the product continues to increase throughout all industries.
Thestrup estimates that demand for the product from the food market is expected to go up by five to six percent over the next few years. Demand from the oilfield sector will continue to increase by some 10 percent in the period, while demand from other industrial applications will see a five percent increase.
"Within the next two years we think there could be a serious supply issue for xanthan gum. Things going forward from here will look different than the last decade. We think prices will most likely go up in 2008/2009," Thestrup told FoodNavigator-USA.com.
Danisco said it will "very likely" raise its xanthan gum prices for 2008, while CP Kelco also confirmed it plans to increase prices with the renewal of contracts in January. Both companies said they are still evaluating exact levels.
Seisun agrees: "At current pricing, long-term sustainability for xanthan producers is questionable so we're likely to see some price increases."
IMR's next Quarterly Review of Food Hydrocolloids, to be published at the end of this month, will contain a xanthan gum profile, and will include an examination of the ingredient's grades and its manufacturers.