Market Overview of Chinese Ingredients and 2017 Forecast
by Tony Xue - February 3, 2017
It's 2017—do you know where your raw materials are coming from? Do you know which ingredients might be in short supply or which ingredients are poised for a price increase? Would this type of market intelligence help you with forecasting and inventory control? Ingredientsonline.com, an innovative online ecommerce platform for supply-chain sourcing, draws from its longstanding relationships with Chinese factories to take the "guesswork" out of many of the popular ingredients coming out of China.
In the first half of 2016, many products were affected by overcapacity and limited growth in demand, which resulted in weak growth. But with the tightening of environmental protection policies, prices rising in basic energy of coal and a substantial increase in domestic freight due to overloading restriction, some factories are looking to increase prices after several years of loss. Factories that produce vitamin C and taurine are seriously considering price increases. From the beginning of 2016, prices of these products began to increase, followed by many other ingredients; starting inQ4, prices began to increase substantially.
Ascorbic Acid Series
Since 2Q16, the price of vitamin C series products has increased steadily for several reasons:
- Vitamin C factories are under funded due to the low price in recent years, resulting in a strong desire to raise prices.
- Inventory was gradually reduced after summer maintenance.
- Coal prices doubled compared with the same period in 2015, and energy costs increased.
- The new corn cannot be dry due to the wet weather in 2016, thus the supply of corn is tight. The price has increased about 7 percent from mid-year.
- The government requested most of the chemical and pharmaceutical factories in Hebei Province stop production to reduce pollution emissions from Nov. 16 through Dec. 31, which is leading to a shortage in vitamin C supply. The two major vitamin C plants, CSPC and NCPC, are located in Hebei.
The speculation is that some new large factories are ready to produce vitamin C and these products will enter the market near 1Q17. The capacity in China is still huge and, in the long term, it is still hard to raise vitamin C prices are. A possible price drop is predicted for Q1 or Q2 of 2017.
Supply was tight in 2016, contributing to slow-rising prices. Among the main factors, production of China's second-largest Ace-K factory decreased because of bankruptcy rumors. The major manufacturers of diketene (Ace-K raw materials) stopped production in the first half of 2016, which lead to the tight supply of Ace-K raw material and rising costs. The increased price of sucralose caused the demand shift to Ace-K, which will basically see stable prices in the first half of 2017.
At the end of 2015, a domestic factory stopped production due to an explosion. The supply was tight in 2016 and the prices stable at a high level. In November 2016, the world's largest producer (CSPC) was affected by environmental policy, so production in November and December may have been subject to greater restrictions. This could lead to supply shortages in caffeine, which would affect the price in Q1 or Q2 of 2017.
Chondroitin Sulfate USP
Slaughter increased in winter, so raw materials are sufficient in the market. Current production has certain environmental protection pressure, but does not affect production. Since June 2016, the price of this product decreased substantially and reached its lowest point in recent years. The current price is still in a low level, but stable. For the 2017 market, price will rise steadily.
Prices decreased in 2016 due to lower raw material costs and fluctuations in the RMB-USD exchange rate. The price will possibly decrease in 2017 due to new production capacity from some new factories.
Under the influence of the national environmental protection policy, the output of L-arginine and L-leucine produced by duck hair hydrolysis has greatly declined, leading to tight supply and a related price increase. But the factory using a fermentation process, CJ, is not affected and its production and supply is stable. In 2017, a sharp price increase in L-arginine and L-Leucine is possible; however, the price should remain stable.
On a related note, as the output of L-arginine has tightened and prices increased, its availability for producing L-citrulline has impacted the market. The main factories for L-citruline drastically reduced production due to relocation or retrofitting, so supply is very tight and the price will continue to increase through 1Q17. Factory relocation, technology transformation or expansion is expected to return to normal by the end of the first quarter, so from the beginning of Q2, the supply will be sufficient and the price should fall.
Environmental costs and raw material costs are rising; therefore, price is expected to rise in 2017.
Niacin, Niacinamide (Vitamin B3)
The price of raw materials increased and product prices also rose slightly in 2016. Production from the major factories is average and some factories plan to expand production. Some new factories are starting to produce niacin, which will further increase global capacity. In 2017, there is a small possibility of a sharp rise in price, but for now, the price should remain stable.
Pyridoxine HCl (Vitamin B6)
In June 2016, a new B6 facility opened in Shanghai and market supply became more abundant; therefore, prices have been declining since mid-2016 and will continue to decrease in 2017.
After continuously increasing from Q1 to Q3 2016, the current price is still at a high level. The supply is beginning to ease and factories basically have stock, but the price is 10 percent higher than the futures price. Factories are working hard to increase production to sell more product under the current hot market conditions. The situation was the same from 2012 to 2013. The price will rapidly decline after one year of rising, beginning to decline in 2Q17.
Taurine supply is stable at present. A number of taurine factories closed in the past five years and the existing factories have no clear expansion plans. The supply has also been effectively controlled. With the rising costs of all aspects, the factories have a strong desire to increase price, no longer blindly pursuing output and sales, and paying more attention to a reasonable profit. The price of taurine has been on the rise since 2Q16—increasing more than 25 percent already—and is expected to rise steadily in 2017.
Thiamine HCL/Thiamine Mononitrate (Vitamin B1)
In 2016, supply continued to tighten and prices rose slowly. Considering the price is already at a very high level and there is the possibility for a newcomer to step into the market, prices may decrease in Q2 or the second half of 2017.
The increased price of raw materials resulted in price increase of products. The price of raw materials will be determined in February 2017.
During the first half of 2016, the supply was abundant and the market was flat. But from Q3 on, at the effect of environmental protection policy, supply of D-xylose (xylitol's raw material) began to tighten in Shandong Province, which is the main producing area of D-xylose and xylitol. Prices started to increase a bit, and from Q4, the price of xylitol increased substantially, with shipment lead-time projected at more than 45 to 60 days. Some factories are accepting orders more cautiously and have refused blanket orders from certain trading companies. Considering current conditions, supply will continue to tighten and prices will slowly rise in the first half of 2017.
A good deal of this information is obtained from the close partnerships that IngredientsOnline.com has with its direct suppliers in China. The ingredientsonline.com e-commerce platform provides complete transparency in supply-chain sourcing, allowing purchasing agents, research and development (R&D) and C-level team members at the manufacturing level quick and easy online access to hundreds of ingredients. These users can view a single screen providing complete transparency of factory of origin, downloadable quality control (QC) documentation, factory-direct tiered pricing quotes and real-time U.S. inventory status. By interacting with the ingredientsonline.com website, team members can save time and money in their everyday workflow with complete transparency and peace of mind.