China’s Excess Capacity for Avermectin Technical

By China Crop Protection Industry Association

1. Production and market
According to the statistics of China Crop Protection Industry Association, the total capacity in China’s 18 avermectin technical enterprises is now 3 285 t/a and the 2011 output was around 3 000 tons. Shijiazhuang Xingbai Bioengineering Co., Ltd is a large avermectin technical producer in China with a capacity of 600 t/a, and basically operated at full capacity in 2011. In the face of China’s excess capacity and market saturation, Qilu Pharmaceutical (Inner Mongolia) Co., Ltd was registered as a producer of avermectin technical on March 30, 2011 (the starting date of registration certificate is June 20, 2011, and the expiring date is June 20, 2016) and its avermectin technical capacity is 1 200 t/a, having a great impact on the original market share of avermectin technical producers.
   China’s avermectin technical plants are mostly built in Northwest China’s Ningxia region, Inner Mongolia and Hebei province. Especially in Ningxia region and Inner Mongolia, the temperature is more suitable for fermentation. The west has a great energy supply advantage compared with the south, and this is one of the reasons for the new site selection.
   In the first quarter of 2012 China’s output of avermectin technical was 830.3 tons, the domestic sales amount reached 526.5 tons and the ex-factory price of avermectin technical changed little. According to the General Administration of Quality Supervision, Inspection and Quarantine of China, the provinces conducted the law enforcement inspection of some avermectin technical enterprises in May 2012. The Department of Planting Management, Ministry of Agriculture also further regulated the production of abamectin formulations in June 2012. Avermectin technical output in China slowed down and was only 598.629 tons in the second quarter of 2012.
   After the use of fipronil was prohibited in rice paddies in 2009, Rynaxypyr of DuPont, Virtako of Syngenta, Belt of Bayer CropScience and Alverde of BASF further dominated the domestic market. China’s demand for chlorantraniliprole has increased constantly, and chlorantraniliprole has occupied a large market share in southern China. Pesticides of multinationals already hold a 30% share of the domestic market. The penetration of international pesticide giants to the domestic pesticide end market also makes domestic enterprises face enormous challenges.
   It is predicted that in 2012, purchases of foreign products will account for over 30% of domestic consumption of rice insecticides – DuPont will sell around 600 tons of Rynaxypyr, Syngenta will sell around 300 tons of Virtako, Canadian Rotam will sell over 200 tons of flubendiamide, and Bayer will sell more than 500 tons of Belt.

2. Major domestic producers
In 2011 Hebei Veyong Bio-Chemical Co., Ltd's (SH: 600803) net profit decreased by 5.49 percentage points from the previous year due to factors like the low price of avermectin, reduced demand and rising prices of raw materials. The fierce competition in the avermectin sector also reduced the company’s profit level in 2011, avermectin being a leading pesticide product of the company. Hebei Veyong Bio-Chemical Co., Ltd launched a series of new products to make up the sales decline of avermectin formulations. Inner Mongolia New Veyong Bio-Chemical Co., Ltd, a controlled subsidiary of Hebei Veyong Bio-Chemical Co., Ltd, was founded in September 2004 and is mainly engaged in the production and sales of fermented varieties like avermectin. The company suffered a loss of RMB3.7513 million in 2011.
   Zhejiang Shenghua Biok Biology Co., Ltd (SH: 600226) saw an annual decrease in both operating income and operating profit. External reasons include the sector’s serious overcapacity, the drastic price decline of avermectin, increased investment due to the pesticide formulation business being in a growth process, and pesticide trade being easily affected by the market and RMB appreciation. Inner Mongolia Biok Biology Co., Ltd's net profit fell drastically in 2011 because of the increased production cost caused by the price rise of raw materials, rising labor cost and the market factors, and the drastic price reduction of avermectin.
   Major products of Shijiazhuang Xingbai Bioengineering Co., Ltd include avermectin technical, avermectin formulations as well as the technical and formulations of avermectin derivatives. A private equity fund, Infinity Group completed an equity investment in Shijiazhuang Xingbai Bioengineering Co., Ltd in February 2011. The consortium invested RMB120 million to support the development of new pesticide products and construction of related production capacity.
   Shandong Qilu King-Phar Pharmaceutical Co., Ltd, an antibiotic fermentation production base being built by Qilu Pharmaceutical Co., Ltd in 1987, mainly produces antibiotic APIs as well as premix. The company produces more than 800 tons of various antibiotics (100% active ingredient) each year, and its plants have been approved by the U.S. Food and Drug Administration (FDA), EDQM of Europe and APVMA of Australia. The products of the company are exported to more than 30 countries and regions like North America, South America, Europe, the Middle East and Southeast Asia.
   Ningxia Dadi Fengzhiyuan Biological Pharmacy Co., Ltd is the largest modern high-tech biological pesticide enterprise in Northwest China with a total investment of RMB152 million, and produces 160 tons of avermectin each year.

3. Raw materials

Corn starch is the major raw material for producing avermectin. In the second quarter of 2011, the domestic market price of corn starch was low and the inventory of the starch producers was high. However, due to the high price of corn, some starch producers suffered losses and some reduced operating rates. In the second half of 2011 the price of corn starch rose slightly. In mid-June 2012, the corn price once again increased, the price of corn starch climbed slightly, some shut-down production lines resumed production; however, market demand was insufficient, and some enterprises sold their products at low prices. In August 2012, domestic starch prices rebounded slightly.
   In addition, energy consumption is an important factor affecting the production cost of avermectin. Energy consumption accounts for around 1/3 of the total production cost of avermectin, so most of China’s new plants are built in western and northern regions, which have relatively low power prices. For example, Qilu Pharmaceutical (Inner Mongolia) Co., Ltd constructed a new plant in Inner Mongolia. Domestic power prices have risen constantly, further increasing the cost pressure for avermectin enterprises.

4. Market situation in the first half of 2012
The relatively serious capacity surplus affects the normal operation of enterprises. In 2011 the demand for avermectin technical was around 2 500 tons. In 2012, dumping at low prices makes enterprises face a domestic supply surplus of avermectin technical. Ningxia Qiyuan Pharmaceutical Co., Ltd has already suspended its production. The temporary registration certificate of Qingdao Hansen Biologic Science Co., Ltd has expired.
   Avermectin is used for the control of rice leaf roller in rice paddies. From March to April 2012, rice leaf roller plagued around 20 million hectares of land in the southeast coastal regions, up 15% year-on-year, and promoted avermectin sales.
   In recent years, the market for avermectin in some developing countries has been saturated. For example, the volume of avermectin imported from China by Southeast Asian countries like Singapore, Vietnam and Thailand has stopped growing.
   Due to the recent prohibition of the use of ointments and the output reduction of technical and formulation enterprises, the problem of avermectin overcapacity has been temporarily eased. However, domestic enterprises are relatively small in scale with scattered distribution and are not very competitive in terms of technology, service, product and brand.
   Over the years, Chinese farmers are accustomed to sustained use of the same pesticides, which can increase pests' resistance. Farmer’s unscientific application and the overly heavy application of avermectin have shortened the life cycles of avermectin and accelerated pests' development of resistance to the pesticide.

Table 1  China’s Avermectin Producers in 2012
Location    Producer    Capacity (t/a)
Inner Mongolia    Qilu Pharmaceutical (Inner Mongolia) Co., Ltd    1 200
Hebei province    Shijiazhuang Xingbai Bioengineering Co., Ltd     600
Shandong province    Shandong Qilu King-Phar Pharmaceutical Co., Ltd    500
Ningxia region    Ningxia Qiyuan Pharmaceutical Co., Ltd    300
Hebei province    Hebei Veyong Bio-Chemical Co., Ltd     300
Shandong province    Shandong Zhicheng Chemical Co., Ltd    300
Heilongjiang province    Daqing Jefene Bio-chemical Co., Ltd     220
Inner Mongolia    Inner Mongolia New Veyong Bio-Chemical Co., Ltd     200
Ningxia region    Ningxia Dadi Fengzhiyuan Biological Pharmacy Co., Ltd     160
Hebei province    North China Pharmaceutical Group Aino Co., Ltd     120
Zhejiang province    Zhejiang Shenghua Biok Biology Co., Ltd    120
Inner Mongolia    Inner Mongolia Biok Biology Co., Ltd    120
Zhejiang province    Zhejiang Hisun Chemical Co., Ltd    80
Zhejiang province    Zhejiang Qianjiang Biochemical Co., Ltd    80
Jiangsu province    Jiangsu Fengyuan Bioengineering Co., Ltd     80
Hebei province    Shijiazhuang Huashu Pharmaceutical Corporation     40
Shandong province    Shandong Shengli Bioengineering Co., Ltd    40
Shandong province    Qingdao Hansen Biologic Science Co., Ltd     20
Hubei province    Wuhan Nature's Favour Bioengineering Co., Ltd    5

5. Pesticide residue
Environmental regulations will be increasingly stringent, standards for limits of pesticide residue in agricultural products will continue to improve, and pesticide production will be faced with more and more challenges. The United States has formulated avermectin residue limits. Recently, the Ministry of Agriculture and the Ministry of Health jointly issued the National Food Safety Standard GB 28260-2011 to regulate maximum residue limits of 85 pesticides, including avermectin in food. The acceptable daily intakes (ADI): 0.002mg/kg bw. The residue: avermectin B1a and avermectin B1b. The maximum residue limit shall be in accordance with table 2.
                              
Table 2 Maximum Residue Standard of Avermectin in China
Name of the food    Maximum residue    limit (mg/kg)
Cereal Brown rice    0.02
Vegetable Radish    0.01
Fruit Apple    0.02