September 26, 2003
Unhealthy Price Volatility Seen in China's Lysine Market
An eFeedLink Exclusive Report
Lysine market in China on Friday is seen in a state of price volatility, with quoted prices varying widely from place to place. Quotations in certain regions have hit above RMB30.0/kg, with general transacted prices ranging between RMB27.0-29.0/kg. Undoubtedly, this price level is currently the highest compared to lysine prices worldwide.
Market participants are questioning whether current pricing is reflective of the actual market situation in China. Most are of the view that the current market situation in China is superficial and has been overwhelmed by fears of supply breakdown.
The recent unhealthy price volatility in China's lysine market are analyzed as follows:
1. The sharp rise in quoted prices is not replicated in actual transacted volume. There is a consensus that the fluctuating prices are the result of supply shortage. Local producers in China encountered some problems in production and were forcibly reducing their lysine output. On the other hand, the delayed arrival of imported lysine at Chinese ports also further intensified the severe tightness in supply. There are very few transactions of above 10-ton each. Most of the transacted volumes remain at 1-2 ton per transaction, and are passing through more hands of traders before landing in the final feed production end users' mills. In view of the afore-mentioned, current rising prices are reflective of the pricing to final end users, with substantial mark-up in prices being made in inventory changing hands between the middle-men.
2. Market prices soared relentlessly due to feed millers' fears of supply breakdown, as there is very little inventory in circulation in the market. More often than not, they are willing to buy at the asking prices when there is supply available, sometime even if the prices are far higher than they would be prepared to absorb, for the sake of maintaining normal function in feed production to supply their customers. Accordingly, this has propelled China's lysine prices by a great extent.
3. The cost price of lysine to local distributors remains basically unchanged. According to trade participants, current locally produced lysine, which circulates in the market, is mostly bought before the price hikes, and was transacted at around RMB21.0/kg. At the same time, CIF prices for imported lysine averaged between US$2.0-2.1/kg, translated into offers in Renminbi at less than RMB22.0/kg in China. As such, current lysine selling prices exhibit a great margin in profit gains to the middlemen. Looking forward, several market participants felt that prices will have to ease somehow as supply tightness start to relieve.
Concluding, current soaring prices of lysine in China are the result of a unique market situation. Once supply tightness improves, prices will soon ease, perhaps as fast as it has risen. As such there is a high-risk element in speculating that lysine prices would move higher in China in the near future.