Chinese vitamin suppliers navigate uncertainties amidst Suez Canal dilemma and rising costs

While trade volumes and demand for specific raw materials witnessed improvements in Q4 2023, optimism is tempered by persistently disappointing prices for producers, necessitating strategic pricing actions, says Kemiex.

The recently concluded China Vitamin Industrial Summit (CVIS) in Hangzhou, a pivotal event in the sector, delved into the recovery, long-term transformations, and challenges facing the vitamin industry, reported the Swiss data provider.

“Approximately 700 experts engaged in discussions encompassing margin compression, low utilization, excess capacity, and uncertain demand, painting a cautiously optimistic, if not somewhat pessimistic, outlook. Despite an uptick in China's Manufacturing PMI in November, the prevailing concerns revolved around consistently low prices, factory utilization, and the emergence of new alternative producers impacting profitability. Zhejiang Garden, a vitamin D giant, historically, announced expansion into B vitamins,” noted Stefan Schmidinger, chief economist, Kemiex.

China's exporters have been striving to bolster prices since November, with some opting to halt quotations, such as in the case of ascorbic acid, in a bid to reverse the price trend and achieve improved margins in 2024. The success of these endeavors remains uncertain, as the interplay between supply and demand unfolds in the mid-term, he added.

“Adding to the market's ambiguity is a discernible asymmetry in certain products, with some experiencing price declines and others exhibiting a clear inclination towards increases. This is reflected in the widening gaps between spot prices and longer-term contracts, highlighting the lack of a definitive market direction,” Schmidinger told this publication.

Suez dilemma 

A recent 'grey swan' event, further complicating market dynamics, involves major ship operators—Maersk, Hapag-Lloyd, MSC, and CMA CGM—avoiding the Suez route due to attacks in the Strait of Bab-el-Mandeb. “This has led vessels to navigate the longer and costlier route around the Cape of Good Hope, adding complexities for supply chain professionals grappling with concerns about lead times and costs. The resulting surge in freight rates, under pressure for the past year, is projected to increase by 15-25%, surpassing US$200-350 per TEU in recent days. The potential resolution through initiatives like the US-led maritime task force 'Operation Prosperity Guardian' or political interventions in the Israel-Gaza conflict by Egypt remains uncertain.”

Looking ahead to 2024, industry participants believe that prices for most varieties have bottomed out, hovering near or even below the cost of production. While an upward trajectory seems likely, a further decline cannot be dismissed due to the ongoing supply surplus, according to the Kemiex​​ lead.

Speculation also arises regarding the possibility of lower corn and corn starch prices in 2024, particularly in China, driven by expectations of large global crops that may alleviate fermentation costs.