LONDON, Sept. 14, 2016 /PRNewswire/ -- Since Jan. 2016, China's market prices of several vitamins have surged, while some have remained low. Affected by this, vitamin producers show different performances. Meanwhile, there are also greater challenges: sluggish demand, fierce market competition and stricter environmental policies. In this context, enterprises are attempting to expand product range, extending supply chains and divesting themselves of low value-added business, to improve their competitiveness and make business transformation.
Intense market competition: Nenter to launch 20,000 t/a VE project Nenter plans to launch a 20,000 t/a VE project, capitalising on its advantages in VE intermediates production technologies. This may further intensify competition in the domestic VE market and even challenge existing leading VE producers. A number of feed manufacturers have predicted financial growth in H1 2016, mainly due to increased demand from the pig farming industry and owing to a larger proportion of highly profitable products being sold and low production costs of raw materials. VD3 manufacturer Garden Biochemical: outstanding H1 2016 financial performance Garden Biochemical recorded large rises in
both revenue and net profit in H1 2016, mainly thanks to increased sales of VD3 and cholesterol.
Vitamin healthcare product manufacturer By-health: fall in H1 2016 net profit Vitamin healthcare product manufacturer By-health reported a fall in net profit for H1 2016, affected by larger expenditure on brand promotion. This year, the company has actively moved into new areas of business and expanded its business layout through setting up joint ventures, constructing an organic farm
and improving its brand image.
Shanghai Pharm, together with Primavera, planned to privatise Vitaco, an Australian listed healthcare enterprise, aiming to march into healthcare industry and carry forward its business layout and development in the international market. On 16 Aug., 2016, Zhejiang NHU announced significant growth in its H1 2016 net profit, mainly thanks to higher sales prices and decreased sales costs over the same period last year. At present, the company is vigorously expanding into new areas of
business, PPS & PPA polymer and amino acids, seeking new sources of profit.
Lanbo Biotechnology offered a private placement to raise funds for the replenishment of operating capital and development of its main business. Given the fact that the domestic nicotinamide price has declined due to production expansion, the company is confronted with great business pressure.
In H1 2016, China's exports of VB1 showed growth in both volume and price, mainly thanks to the high domestic market price of VB1.
In June and July 2016, China's market price of folic acid showed an upward trend, mainly because some producers suspended production and cut down their supply. It is predicted that the price will keep stable or go up slightly in H2 2016.
Intense market competition: Nenter to launch 20,000 t/a VE project
On 1 Aug., 2016, Fujian Guanfu Modern Household Wares Co., Ltd. (Guanfu Household, stock code: 002102) announced that its wholly-owned subsidiary, Nenter & Co., Inc. (Nenter), plans to construct a 20,000 t/a vitamin E (VE) project, given the growing market demand and the company's production advantages in VE intermediates.
Details of the project are as follows:
- Executor: Nenter and Nenter Shishou Co., Inc.
- Construction site: High-tech Development Zone, Jiangzhou City and Dongsheng Town, Shishou City, Hubei Province
- Production scale: a designed production capacity of 20,000 t/a, the sites are to be equipped with plants for VE synthesis, drying, pulverizing, and isophytol synthesis
- Construction Period: ?10 months after administrative approval is obtained
- Total investment: USD86.91 million (RMB576 million), mainly from Nenter's accumulated undistributed profits and bank loans
Based on data about the current domestic VE market, the new project is expected to contribute an annual revenue of USD209.73 (RMB1.39 billion) and annual net profit of USD45.26 million (RMB300 million), payback period (construction period included) for the project is around 3-3.5 years.
Nenter is a leading producer of 2,3,5-trimethylhydroquinone (one of the key intermediates for VE), and has a production capacity of 8,000 t/a. Thanks to its advanced production technologies, the company has developed cooperation with domestic VE producers and realised rapid growth – net profit rose by 8 times between 2012 and 2015.
However, Nenter is confronted with challenges in challenges in realizing full production capacity and furthering business development, as most leading VE producers have gradually realised independent production of 2,3,5-trimethylhydroquinone. According to CCM's research, Zhejiang Medicine Co., Ltd. (Zhejiang Medicine) and Zhejiang NHU Co., Ltd. (Zhejiang NHU) are already capable of self-supply. Chongqing Southwest Pharmaceutical Co., Ltd. (Southwest Pharmaceutical, former subsidiary of PKU Healthcare Corp., Ltd.) and Jilin Beisha Pharmaceutical Co., Ltd. (Jilin Beisha) are also able to produce 2,3,5-trimethylhydroquinone.
Therefore, to improve profitability, it's vital for Nenter to expand into the VE market and become a supplier to feed additive enterprises at home and abroad.
"This VE project is an extension of the 2,3,5-trimethylhydroquinone supply chain," said Guanfu Household, "By taking advantage of this production line, Nenter can lower its production costs and improve more efficiently utilize its production facilities."
Notably, Nenter has successfully developed a new synthesis technique for isophytol (another important intermediate for VE) and is conducting pilot production at present. "This pioneering technique has a practical reaction mechanism and technical route and the production process is safe," commented an expert. The new technique will guarantee Nenter's safe production of VE and lower production costs.
Nenter's new VE project is planned to be put into production in H1 2017, and will have a marked impact on the domestic VE market:
1. Market competition to be intensified
Since 2013, Nenter has provided VE producers with 2,3,5-trimethylhydroquinone and 2,3,6-trimethylphenol, which eases access to VE industry. As a result, competition among producers has become increasingly intensified and the market price of VE has stayed low due to oversupply.
Under these conditions, a number of small- and mid-sized enterprises suspended production or even withdrew from the market. In H1 2016, the domestic VE industry showed high production concentration: main suppliers included Zhejiang Medicine, Zhejiang NHU and Jilin Beisha.
It can be predicted that, after the large-scale VE project is put into production, Nenter will again break the pattern of high production concentration, and may even challenge the existing leading VE producers.
2. VE price likely to decline
The domestic market price of VE has showed an upward trend since the beginning of 2016. According to CCM's price monitoring, the market price of VE reached USD13.58/kg (RMB90/kg) in July, more than two times the figure in Jan. However, the transaction price was somewhere around USD12.07-12.82/kg, according to some trade sources.
The price may remain high in H2 2016. At present, Zhejiang Medicine and Zhejiang NHU have suspended production due to facility maintenance and the coming 2016 G20 Summit. The two leading producers have also suspended the offering of quotations and may raise their sales prices again.
In fact, Zhejiang NHU and Jilin Beisha have raised their quotations for VE several times this year, which has supported the rise in market price. On the contrary, Zhejiang Medicine increased supply to prevent excessive price hikes, for it desires the market price to remain at a relatively reasonable level and a high price may stimulate small-scale producers to resume production and competition will intensify.
It is said that Southwest Pharmaceutical is likely to resume VE production in H2 2016, and may be attracted by the rising VE price. Yet, it has already missed out on large opportunity. At present, many producers have large inventories. Even if it gets back to production in H2, the company will face great competition.
Moreover, Nenter is likely to win a share of the domestic VE market by taking advantage of its low production costs and large production scale. Therefore, the market price of VE may not continue rising, and may even decline after Nenter's new project is put into operation smoothly in 2017.
Nenter, founded in May 2010, is mainly engaged in the R&D, production and sale of pharmaceutical intermediates, such as montelukast intermediates, 2,3,5-trimethylhydroquinone, 2,3,6-trimethylphenol and 2,5-dimethylphenol.
In Aug., 2014, the company was fully acquired by Guanfu Household for USD271.59 million (RMB1.80 billion), after which Nenter's registered capital increased to USD33.19 million (RMB220 million).
Guanfu Household is a producer of ceramic and bamboo house wares in China. In the past two years, to realise business transformation, the company has gradually divested itself of existing main businesses and broken into the pharmaceutical industry through asset acquisition.
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