FEED Business Worldwide - July 2012

 

 

by HUANG Qisheng in Shanghai

 

 

Over the last five years, China's lysine sector has experienced two highly volatile market cycles, with record-high prices exceeding by a factor the two rock-bottom lows. The market submerged to historic low levels following late 2008's economic crash, which was marked by the collapse of Lehman Brothers. It then stayed on a plateau for one whole year before raising its head during Q4 2009.

 

A volatile early 2010 gradually built the platform for lysine's strongest bull run since 2003 starting Q3 2010, which catapulted prices to over RMB20/kg (US$3.13/kg) by middle of 2011. Prices fell from grace during Q4 last year, tumbling all the way down to pre-2011 levels, and as of this report is written, showed no signs of rebounding. With a focus on supply and demand, this article analyses China's lysine industry developments in the context of macroeconomic influences.

 

 

 

Other than the first three quarters of 2009, the prices of lysine in China hovered mainly in the range of RMB12-14/kg (US$1.75/kg – US$2.05/kg) between January 2008 and August 2010, moving out of this narrow range only occasionally. [Note: currency conversion factors vary with the change in China's exchange rate over time]. The one year long low pricing of lysine during 2008 and 2009, where prices plunged to around RMB10/kg (US$1.47/kg), fed the appetites of users. According to eFeedLink statistics, the demand for lysine in China expanded 15.9%, from 345,000 tonnes in 2008 to 400,000 tonnes in 2009. In 2010, domestic lysine consumption increased a further 15.5% to reach 462,000 tonnes.

 

There were two main drivers of this sharp rises in domestic consumption. First, China's livestock and feed industries had been growing robustly. This created a solid foundation for the expansion in lysine demand. Second, an improvement in the technology of China's livestock farming and feed formulation, in conjunction with shortage-driven price hikes of corn, increased the usage of amino acid-based enzymes, lysine included.

 

To a certain extent, as substituting feed wheat in place of scarcer corn became more popular, demand for lysine rose amid higher wheat inclusion rates in feed formulations. The result was a much steeper rise in lysine consumption than its production.

 

Outside of China, overseas demand for lysine was decimated in 2009. According to eFeedLink statistics, in 2008, the China's lysine export volume amounted to 152,000 tonnes, an increase of 11.3% from the previous year's 137,000 tonnes. However exports dipped in 2009 due to global economic slowdown, falling 13.2% from 2008 levels, to 132,000 tonnes.

 

In 2008, the production capacity of China's lysine industry was at 626,500 tonnes, with the operation rate around 80% of capacity. In 2009, the production capacity of the industry totalled 670,000 tonnes, while the operation rate dropped below 80%. Taking into consideration lysine imports, which did not exceed 20,000 tonnes a year, China's actual lysine industry operation rate was in fact lower.

 

Within these two years, China's lysine industry was under consolidation. The number of lysine enterprises decreased from eight enterprises during late 2007 to six by the end of 2009 - two main producers, Chuan Hua Ajinomoto and Chia Tai-Linghua, with capacities at 32,000 tonnes and 20,000 tonnes respectively, were squeezed out of the market. With the exception of CJ, most major producers maintained their capacities during this period.

 

With fewer but well-capitalised manufacturers, the economic recovery's fast rising demand meant that at the start of the new decade, it became a sellers' market.

 

 

 

From mid 2010 onwards, China's lysine market entered a ferocious, 14-month bull run, resting for breath at times only to fuel further rallies. During this period, the capacity of the global lysine market stayed stable, hence increasing its dependency on China's production as demand recovered from early 2009's recession. This led to the tremendous rise in China's 2010 lysine exports, amounting to 195,000 tonnes, a jump of 47.7% from the previous year. Meanwhile, China's domestic demand for lysine rose to 462,000 tonnes, while imports shrank to 8,000 tonnes, an indication that China could only rely on herself for supplies.

 

*Note: All lysine price and volumes discussed in this article are converted to the equivalent of 98.5% lysine.