Agar-Agar Market Declines: Oversupply and Weak Demand Drive Down Prices

In May 2024, global Agar-Agar prices experienced a significant drop, reversing the upward trend seen in April. This decline was driven by reduced demand from downstream sectors, seasonal factors, and an oversupply in the market. As a result, sellers were offloading their inventories at lower prices, leading to an overall pessimistic market outlook.

China's manufacturing activity saw an unexpected decline in May, with the official manufacturing purchasing managers' index (PMI) falling to 49.5 from 50.4 in April, as reported by the National Bureau of Statistics (NBS). This drop marked a three-month low and was disappointing, especially after recent strong industrial activity data. The PMI was significantly below market expectations, which had forecasted an increase. The decline was primarily driven by a reduction in new orders and new export orders, both of which returned to contraction after two months of expansion. This downturn also contributed to the decline in Agar-Agar prices.

Additionally, the peak harvesting season for seaweeds, the main sources of Agar-Agar, begins in late spring and continues through the summer. In anticipation of the fresh harvest, market participants cleared their existing stock of Agar-Agar to make room for new supplies. This led to a temporary oversupply in the market, further driving down Agar-Agar prices.

Due to China's prominent role as a major exporter of Agar-Agar, Western markets also witnessed a parallel downward trend. In the USA and Europe, the persistence of high interest rates and stubborn inflation has been weighing heavily on consumer sentiment, which further exacerbated the downward trajectory of Agar-Agar prices in these regions.

In India, despite remaining in expansionary territory, the manufacturing sector experienced a slowdown in May, characterized by a softer increase in new orders and output. A private survey highlighted that companies had to reduce working hours due to an intense heatwave, impacting overall demand for Agar-Agar from end-user food and pharmaceutical industries and subsequently pushing prices down.

Meanwhile, in Japan, inflation in Tokyo picked up pace in May, potentially paving the way for the Bank of Japan to consider a rate hike in the near future, despite ongoing economic fragility. Inflation tends to foster economic uncertainty, prompting both businesses and consumers to exercise caution with their spending habits, further dampening demand and contributes to the decline in Agar-Agar prices. Additionally, the golden week at the beginning of the month slows down or halts many businesses and trading activities, resulting in a temporary decrease in demand for various goods, including Agar-Agar, and further lowering prices.

According to analysis by ChemAnalyst, the downward trend in Agar-Agar prices is expected to persist in the coming months, attributed to a sustained weaker demand from end-users, coupled with ample supply in the market. Market participants likely to remain committed to clearing out old inventories to accommodate incoming stocks, further driving prices down.