API Export from China in 2016, with Commentary on Major Products

Basic status

In 2016, China’s foreign trade showed some adjustment to the slack global economy and trade conditions. Active Pharmaceutical Ingredients (API) trade declined along with the overall trend for medicines. However, the 14 policies issued by the State Council in recent years to support the development of foreign trade served to disperse the gloom somewhat.
API enterprises in China have certainly made efforts to promote stable growth of foreign trade, but a drastic drop of export prices around 2016 reversed most of the progress, and profits narrowed greatly. The main reasons for the downturn were: (1) Culling of excess capacity for large-volume APIs has been slow. Managers of some small chemical plants, attracted by favorable price fluctuations, began to make pharmaceuticals and chemicals effectively increasing capacity for some APIs. The enduring capacity surplus drove a sustained decline in prices. (2) Global economic rehabilitation had been slow. Russia and Brazil were in recession, so their buying power was limited – discounts were requested again and again. (3) Political turmoil and economic policies of some countries drove considerable fluctuation in currency exchange rates. Some of China’s major API export destinations such as Europe, India and Brazil saw drastic devaluation, weakening purchasing power in those markets. The drop of export prices from major competitors such as India (also resulting from currency devaluation) pulled market prices down further.
Last year presented China with its most severe foreign trade conditions of recent years. API export was in no way exempted. The slowing growth of API exports at the beginning of the year very likely undermined players’ confidence in the rigidity of demand for medical products. Exports recovered a bit mid-year. The growth of API export volume, in particular, eased worries. Falling prices triggered new concerns however. Offset by steadily growing costs – labor, environmental protection and compliance with Good Manufacturing Practice –API export prices could be said to effectively equal those of 2015, and profit rates shrank. Producers and exporters of APIs increased export volumes steadily, but with declining profits.
Moreover, supply-side reform for large-volume APIs advanced slowly – quick results could hardly be achieved. Also, some chemical enterprises adopted foolish tactics. Low-quality, low-grade chemical products dragged down the export prices of APIs in China overall. Capacity for some products grew more excessive instead of being remedied.
Nevertheless, factors supporting stable API export growth still existed. On one hand, the national government had issued policies encouraging export credit insurance and loans, improving processing-trade conditions, piloting new cross-border e-commerce areas and promoting convenient customs clearance – key breakthroughs for trade stability. On the other hand, devaluation of the CNY enhanced export competitiveness.
Still, while API export conditions were severe in China overall, opportunities didexist, trade was expected to recover further in the second half of 2016, and the export value in the whole of 2016 was hoped to equal that of 2015.

Commentary on major API products in 2016

Vitamins: starting with bottomed-out prices, volume & prices both increased

Among vitamin APIs, China mainly exports B vitamins, vitamin C, vitamin E and D vitamins, accounting respectively for 26.5%, 20.2%, 19.9% and 14.4% of vitamin APIs’ total export value. Export prices of B vitamins increased drastically by 32.7%, making the export value 41.52% higher YoY. The volume of vitamin C increased 15.41%, so the export value grew, despite the average export price declining 9.84% YoY. The export price of vitamin E was only 0.28% higher than in 2015. Export of D vitamins was brisk, with the average export price increasing 147%; the export value was up 180% YoY.
Vitamin API export prices rebounded because: (1) Under pressure from both supply-side reform and stringent environmental protection, some small plants suspended or reduced production. Both the operative capacity and actual output of vitamins were reduced. (2) Vitamin demand is rigid, fluctuating little. Vitamins are used mainly in medicines, food additives and feed additives, so demand is quite insensitive to economic cycles. Even though global economic conditions were not favorable in the two preceding years, the demand for vitamins had remained stable. The volume of vitamin APIs exported from China increased constantly. (3) The CNY to US$ exchange rate declined constantly since the beginning of 2016. Foreign trade has benefited, particularly in some export-intensive enterprises. China is a big producer and exporter of vitamins. Some vitamin APIs produced in China such as B vitamins and vitamin C are very competitive in the global market. The export of vitamin APIs is very sensitive to the exchange rate.

Amino acids: Competition is fierce –oversupply & low prices

Trends for amino acids are varied. First of all, corn is a major feedstock for making both lysine and threonine, and corn prices fell, taking production costs of related amino acids down. Corn has been over supplied for years. According to Ministry of Agriculture forecasts, corn production will be reduced during the next five years. Corn prices dropped in 2016 and will likely fall precipitously in the future. Lysine and threonine production will obviously benefit, with production costs and export prices reduced accordingly. Second, amino acid overcapacity is worsening, and market competition is getting fiercer. Owing to a reduction of feedstock fermentation cost, enterprises are running at high loads, and the supply is increasing. Moreover, the world’s capacity to make some amino acids has increased constantly; Zhejiang NHU, Ningxia Unisplendour, Evonik of Germany and Sumitomo of Japan are constructing new methionine production lines and plan to put them on stream in the next few years. Third, the declining value of the CNY has enhanced the price-competitiveness of exported products. Amino acids are among the products that benefit.

Antipyretics/analgesics: overcapacity & low prices

Antipyretics/analgesics are another variety of large-volume APIs with serious overcapacity in China. Due to fierce market competition, their export prices have declined steadily in recent years. Paracetamol accounts for over 1/3 of the antipyretic/analgesic APIs exported by China. It is the only variety that has declined in both volume and price. The export volume for 2016 was 3.21% lower than in 2015, and the export price was 13.9% lower. Ibuprofen, analgin, salicylates and aspirin also earn considerable export value. Their export volumes all grew, with analgin increasing most, up 37% YoY. But their export prices all dropped 3-11% YoY.
The antipyretic/analgesic sector in China has expanded constantly for years, with output doubling and redoubling because of new production lines, growing economy of scale and declining production costs. The old strategy of aggressive growth is not yet shaken off, even though it has brought neither technological progress nor better quality. So the sector is bogged down in intense price wars. Paracetamol is the worst case.
Not only that, but the oil price doldrums have led to a constant slide in the production costs of paracetamol intermediates. And while the production costs of antipyretic/analgesic APIs were generally falling in China, they fell farther and faster in India and some other exporting countries, aggravating the problems of China’s exporters.