Camphor has variety of uses in the world. Especially in the East. Camphor in India has high spiritual value and is used mainly for pious purposes whereas in China camphor is vastly used for medicinal purposes.
Earlier, camphor was produced by distilling the bark of camphor tree. But today, due to cost and abundance reasons it is chemically produced form turpentine oil which is derived from pine trees.
The oleo-resin from pine trees goes through steam-distillation and gives Gum rosin & Gum turpentine. Both of which have variety of uses in different industries. The inter relation and dependence of these 2 commodities make the economics a bit complex. Pine trees are abundant in India but due to lower yield, Indian manufacturers prefer imported resins or gum turpentine because of higher yields ( about 90%). China is the largest grower of pine in the world and as a result is the largest source for resin and turpentine for India.
Camphor has many medicinal properties
( http://www.mangalamorganics.com/camphor.php ) and is also used in products like Vicks vaporub, volini etc for it's anti -inflammatory properties.
Turpentine finds uses in paint, chemical and medical industries.
Rosin is mainly used as a tackifier in rubber, adhesive, paint & ink industries. Although Gum Rosin are being replaced by cheaper crude based substitutes like petroresins.
Turpene phenolic resin is also used a tackifier in various industries.
The various by-products achieved in the camphor manufacturing process like sodium acetate, phenolic resins etc are used in pharmaceutical, flavoring, paint etc industries.
Dipentine, one of the major by-products, is used as a cleaning & decreasing agent in hygiene products & is a substitute for a chemical called limonene. We'll come back to this later in the post.
There are a few factors which may drive a structural change in the industry and present an opportunity for India.
1. Extraction of oleoresin from pine trees is a labour intensive practice. Due to rising labour cost in China, prices of both Gum rosin and turpentene are to go up systematically.
2. China has been shutting down polluting units at a large scale which affect rosin and turpentine prices directly while also presenting Indian manufacturers with an opportunity.
3. As both gum rosin and gum turpentene are each others' by-products, changes in industry dynamics and supply-demand scenarios of one directly affects dynamics of the other. As, mentioned earlier Gum Rosin from pine faces competition from crude based resins. End users of rosin switch between organic and crude based rosins based on price attractiveness. Since we're in historic low-priced crude oil times, all incentive from buying organic gum rosin is going to be snatched away by petro resins. Adding to that, the structural changes China is facing. These factors take incentive away from producing Gum Rosin which directly affect supply side scenario of gum turpentine. Supply contraction of turpentine means higher price, which in turn means higher priced camphor.
4. COVID-19 has caused even more Gum Turpentine supply contraction out of China.
Limonene is widely used as a fragrance in cosmetics, a flavoring in the food industry, and even as a biodegradable domestic degreaser in industrial cleaning. Limonene is a chemical typically derived from citrus fruits, mainly oranges in their juicing process. Technical grade limonene is derived from the orande peel through steam extraction
( More: https://floridachemical.com/index.php/resources/item/30-d-limonene-manufacturing). It has grown popular due to its excellent solvency for cleaning and degreasing, as well as its environmental claims of being all-natural and biodegradable.
The orange and orange juice industry is going through a variety of issues which may interest us.
1. Historic volatility in limonene prices is because of variations in orange production. It is prone to adverse weather conditions, plant diseases and even political issues.
2. U.S and Brazil are the two largest producers of oranges in the world. But, due to adverse weather conditions like hurricane Irma etc and new plant diseases
(More: https://www.washingtonpost.com/climate-environment/2019/11/09/end-florida-orange-juice-lethal-disease-is-decimating-its-citrus-industry/), their production has suffered.
As clearly visible, United States' orange production is on a downward trend since years.
3. Since D- Limonene is a citrus by-product, it is dependent on another production stream ( Food & Food additives). As mentioned, limonene is extracted from orange peels. Thus, demand and consumption of orange juice in developed economies directly affect dynamics of processing industry & the orange processing industry sets the supply-demand dynamics for limonene producers. Interestingly, although rated as the favorite flavor of Americans, Orange juice consumption is falling systematically over the years in the U.S.
4. The COVID-19 pandemic has caused all sorts of supply-side issues causing orange juice price to rise ( More : https://www.bbc.com/news/technology-52030133 ). Transport restrictions, labor shortages and inefficiency due to social distancing norms in orange fields are one of the many reasons for the price rise.
All the factors above point towards supply-side complications and volatile increased prices for end users of limonene. This can present a great opportunity for dipentene. Dipentene can be used as a substitute or extender for Citrus d-Limonene in many applications, such as household and industrial cleaner fragrance and deodorizer, solvent carriers for paints and adhesives, an excellent replacement for toxic chlorinated solvents, degreasing and wax removals, pesticides and oil extraction. Dipentene is a least expensive alternative to citrus d-limonene with high solvency.
(Reminder: Dipentene is a by-product in camphor manufacturing)
ALL IN ALL
The factors presented above indicate a strong possibility of increased camphor prices with no substitute and robust demand with little flexibility. Also, one of the major by-products in manufacturing camphor, Dipentene, can see a surge in demand. Indian producers are now at a place where they have begun exporting camphor and turpentine to China. This proves Indian players have a major cost advantage to supply camphor and related terpene products to the world.
With camphor being underutilized ( in our opinion ) there's a long runway for Indian producers to grow. For example, 90 % of Chinese camphor consumption is for medicinal purposes while 90% of Indian consumption is for pious purposes.
There can be significant opportunities in this space.