Due to concentrated production and a stabilised market supply, prices are expected to continue on a lofty trajectory, according to industry analyst CCM.
Zhejiang NHU raised its sales price of 500,000 IU/g feed-grade vitamin A to US$55,760 from US$45,690per tonne on May 9, just two months after the company last increased its prices, according to CCM’s price monitoring.
“The reason why Zhejiang NHU raised its vitamin A quotation is that Chinese supplies are likely to get tight in China over the coming period,” said Shi Xuejian, chief editor of CCM’s Vitamins China News.
So far, the transaction price has reached US$46,460-48,010 per tonne in the China’s market, which is higher than the company's previous quotation.
“Zhejiang NHU, a leading Chinese vitamin A producer with strong voice in its pricing, holds an optimistic attitude towards the development of the market. It is believed that this price up-regulation may continue boosting market price of vitamin A,” added Shi.
Thanks to price growth in 2016, the company announced a net profit surge by 75%-95% in its first-quarter 2016 figures to US$24.29m.
Faking the short supply?
Since the beginning of the year, Zhejiang NHU has raised its quotation for VA several times, while other mainstream vitamin A producers, including Zhejiang Medicine and Xiamen Kingdomway Group, alongside leading dealers, responded by raising their sales prices.
At an average cost of US$49,560 in April, the vitamin A market price is up by 100% over January, according to CCM's price monitoring.
“The up-regulation of the vitamin A price makes purchasers believe in the short supply of VA. It may be a virtuous circle, to help boost the market price,” said Shi.
However, some producers and dealers are continuing to take a wait-and-see approach to the trend.
“At present, China’s top three producers are all running at normal production, yet, the supply is getting tighter,” said Shi, leading him to speculate that these producers might indeed be cutting down their trade volume.
In the first-half of May, actual transaction prices were in chaos. Some were set high in new orders while some remained low at around US$44,920-46,460 per tonne.
Hit by an anticipated price rise, dealers and distributors purchased large amount of the vitamin from producers in advance at a relatively low price, currently allowing them to quote lower prices than producers.
However, as their inventory runs down, they will be forced to accept the high quotation from the producers for new orders.
“In fact, large-scale feed makers, who have a small inventory of vitamin A, often prefer to purchase from producers at preferential prices, which makes it easier for leading suppliers to control price regulations,” said Shi.
Multinational producers have little effect on Chinese market
DSM has exported little of its production to China and thus has limited influence on the market there. And Bluestar Adisseo Company has already withdrawn from China's market.
“Chinese producers who rely on imported citral may confront the risk of short supply,” said Shi. "Yet, the supply of raw materials has little influence on that of domestic vitamin A.”
Given these factors, it appears that Zhejiang NHU, Zhejiang Medicine and Kingdomway are the real leaders in China’s vitamin A market.
In the short-run, few new producers will enter the market due to the complicated technology required to produce vitamin A; thus, the analysts expect that there will be no relief for the tightening supply.