The disorderly expansion led to the predicament of avalanche in the overcapacity price.
June 05, 2018
On September 2, the five major domestic manufacturers of penicillin industrial salt, Huabei Pharmaceutical, Harbin Pharmaceutical, Lukang Pharmaceutical, Shijiazhuang Pharmaceutical, and Huaxing Pharmaceutical, held a market coordination meeting in Inner Mongolia. At the meeting, the Big Five jointly formed a consensus of limiting production and insured prices, and agreed on the lowest prices for penicillin industrial salt bulk drugs. However, when the reporter interviewed this, he discovered that there was widespread doubt in the industry about the possibility of this limited production guarantee.
A person in charge of North China Pharmaceuticals told the reporter that the national total production of penicillin industrial salt was around 13,000 tons in the first half of this year. Among them, Huaxing Pharmaceutical, Shijiazhuang Pharmaceutical, and North China Pharmaceutical accounted for more than 70% of the total output. It is entirely reasonable to say that as long as the five giants keep their promises, it is entirely possible to limit the price of insurance. But the problem is not so simple.
It is understood that penicillin industrial salt is a large variety of raw material drugs in China. In recent years, the large-scale expansion and disorderly competition in this field has caused tremendous pressure on the domestic and foreign markets.
Since last year, with the start of Shijiazhuang Pharmaceutical's first-phase 10,000-tonne antibiotic project in Inner Mongolia, the 3,000-ton industrial salt project in Pengzhou, Sichuan, and the 3,000-ton industrial salt project in Huaxing Pharmaceutical Industrial Salt Phase 5 will be put into operation. Domestic penicillin industrial salt will be put into production. The market has been seriously oversupply, market competition has become increasingly fierce, and prices have continued to decline. At present, the average FOB export price of penicillin industrial salt has dropped from US$18/BOU in the early 1990s to US$6.27/BOU in July this year, a decrease of nearly 70%. In the domestic market, prices have fallen every month since the beginning of the year.
In the international market, production companies also face difficulties. It is understood that China's penicillin industrial salt mainly depends on exports, but the supply of the international market is not worse than the domestic market. According to statistics from the China Chamber of Commerce for the Import and Export of Medicines and Health Products, the world's current penicillin production capacity has exceeded the actual demand.
What is even more frightening is that domestic manufacturers have taken a large number of low-cost exports from the international market to cause anti-dumping investigations abroad. In July 2004, India launched a "transitional protection clause for specific products" in disguised form. India is the major exporter of penicillin industrial salt in China. In 2003, penicillin industrial salt exported to India had accounted for more than 70% of total exports. The suspension of imports due to anti-dumping investigations in India has hit a huge blow to the export of penicillin industrial salt products in China, triggering an overall crisis in China's penicillin industrial salt industry.
Because of this, five penicillin industrial salt manufacturers have resorted to the trick of limiting production insured prices.
However, when reporters interviewed related companies about the limited profits of the five giants, they were all deeply unaware of this.
Mr. Liang, deputy director of the Pharmaceutical Marketing Department of Shijiazhuang, denied interviewing reporters that there was such a consensus. People in the North China Pharmaceutical News Center, which together with Shijiazhuang Pharmaceuticals accounted for 60% of the Chinese penicillin industrial salt market, refuted the reporter’s interview on the grounds that “this issue was more sensitive and the interview was not convenient before the results came out”. The person in charge of another company made it clear that this kind of limited production price protection may be difficult to achieve.
In this regard, an expert who has been studying the penicillin industrial salt market for many years believes that companies are unwilling to expressly limit production insured prices because the Big Five who initiated the coalition action knows it too hard.
According to report, last year, the China Chamber of Commerce for the Import and Export of Medicines and Health Products had convened more than a dozen domestic large and medium-sized manufacturers three times to discuss the industry price, production, and self-discipline of penicillin industrial salt, and enabled several domestic giants to reach a "self-discipline agreement." The aim is to form an industry alliance on the guaranteed bottom price and the highest export limit for penicillin industrial salt. But in the end, the agreement was aborted because one of the giants refused to implement it.
"This is similar to the eighth meeting, but it has never worked."
A factory representative who attended the meeting told reporters. An industry source said in an interview with reporters that penicillin industrial salt is a raw material for western medicine. The profit margin for export of such products is not high at all. After two years of sharp price cuts caused by Chinese companies fighting themselves, the export price of penicillin industrial salt has been low. In terms of costs, even the Henan Xinxiang Huaxing Pharmaceutical Co., Ltd., which claims to have the lowest cost, is certainly operating at a loss. In this case, the more companies export, the greater the loss.
However, in the call for penicillin industrial salt production enterprises to suffer “lossy losses,” last year, the export volume of China’s penicillin industrial salt increased by as much as 45.58%. The production scale of domestic enterprises has not been narrowed but has been expanding.
In an interview, the reporter learned that at present, several domestic penicillin industrial salt manufacturers are trying to drag their opponents through price wars, thereby gradually realizing a monopoly on the market.
Driven by this kind of development thinking, it is no wonder that even the five giants do not believe that the limited production price can be successful.
