November 3, 2003
Major Vitamin C Producers in China Have No Intention to Manipulate Prices
Sometime ago, it was reported in Japan that vitamin C producers in China deliberately reduced the export volume this year, to manipulate prices in the global market. And this has caused vitamin C prices in Japan to skyrocket for a while.
Is this the real reason that resulted in the upsurge of vitamin C prices in Japan? A fact- finding effort to investigate the matter was reported by a Chinese newspaper. Their findings are recorded here.
Allegation Said To Be Completely Untrue
Perhaps, the allegation has come too suddenly. Vitamin C producers in China appeared to be at a loss.
Through telephone inquiries, some of the producers remarked that they were "unheard of" or "not clear" about the allegation.
The person-in-charge of vitamin C production in Shijiazhuang Medicine Manufacturing Group, Mr Feng Zhenying, turned down a request for a telephone interview. According to the explanation given by a secretary of the company, Mr Feng felt that it was media's responsibility to guide the public towards a correct diagnosis of Japan's allegation, and that he had nothing much to say.
The secretary to the General Manager of Jiangshan Drug Manufacturing Company in Jiangsu province, Mr Shi Yaru was very positive that the report in the Japanese media was untrue. His answer was straightforward: "Currently, the market price is good. If there were a profit to be made, no one would refuse such an opportunity! Everyone will try to produce as much as possible."
To clarify the matter further, an interview with the head of the Import & Export Business Association for Medicine and Health Products in China, Mr Qiao Haili, has been made. His stance was very clear-cut: "The report in Japan is not true." To prove his point of view, he cited a series of figures. At present, the annual output of vitamin C from China has reached 40,000 tons, accounting for half of the global annual demand of 80,000 tons. From January to June, the vitamin C export volume from China was 24,202 tons, which has exceeded last year's volume by about 10 %. Out of this, the total volume of vitamin C exported to Japan reached 1850.8 tons, which has increased by 104 %, compared to 905 tons for the same period last year.
Let Statistics be The Judge of The Fact
As it is, what then is the motive behind the report in Japan, which alleged that vitamin C producers in China have tried to manipulate vitamin C prices in global market by regulating the volume of supply?
By analyzing the export volume of vitamin C from China for the first half this year, one can see that the increase for the export volume to Japan is 104%, which is far much higher than the increase for the country's total export volume which is only 10%.
The rapid increase of vitamin C export to Japan is due to the fact that some food and beverages manufacturers in Japan have increased their imports of vitamin C from China. In the past, these manufacturers utilized vitamin C products from European manufacturers. For the past few years, the Japanese importers have come to regard vitamin C products produced by China are both competitive in price and not less inferior in quality from manufacturers elsewhere. They also want to increase the import volume from the Chinese source so that they would be in a better position to bargain for better pricing. Consequently, there was evidently step up efforts by Japanese buyers to import vitamin C products from China.
According to industry insiders, the interests of some concerned industries in Japan will be detrimentally affected due to the increase of vitamin C products from China into Japan by a substantial margin. The accusation of Chinese vitamin C producers regulating their export volume is foreshadowing a likely event of Japan proposing trade protectionist measures against vitamin C products from China.
Taking a Rational Approach Towards Vitamin C Market
As China's manufacturing industries are not as advanced, when compare to those in developed countries, in terms of organization scale, marketing and globalization, they usually take on a passive stance in the global market. Those strong and powerful international corporations are usually the ones who have the means to create a monopoly in the global market. They are capable of forming some form of pricing alliance to manipulate the global market.
In this particular instance, when vitamin C producers in China were accused of manipulating the global market, the situation may be best described by using the analogy of a child who has all along been bullied by others in the game were suddenly being accused of committing such act himself.
People in the industry believe that when the production output of a few large producers exceeds more than half of the global output, it is certain that they have the capacity to control and influence global pricing. But the premise is provided that these producers united together, take a common action and formed a pricing alliance or cut down production output to manipulate global pricing.
However, the fact is that vitamin C producers in China are far from having such a unified connection. They usually strive as individual companies in the global market. Their capability to take a common action is comparatively lower. As it is, in the long run, it will be disadvantaged to Chinese industries, when they try to compete and grow in the global market.
This untruthful reporting from Japan is certain to arouse vigilance among vitamin C producers in China. It serves to warn them to strengthen their connection within the industry and to create a linkage in information. They should place paramount importance to the overall market situation, adjusting the overall production level, instead of competing with each other by reducing prices.
In fact, the vitamin C industry in China once had an unsavory reputation in the global market for a certain period. During the beginning of 1990's, there were tens of vitamin C manufacturers in China engaged in an internal strife of lowering prices. It not only raised numerous alarms in the domestic vitamin C market, which was highly competitive, but also affected the stability of the global vitamin C market.
Fortunately, after going through the ups and downs in the market, the vitamin C industry in China have become more organized. They have gradually grouped themselves into four major groups, namely Shijiazhuang Medicine Manufacturing Group, Northern China Medicine Manufacturer, Northeastern China Medicine Manufacturer, and Jiangshan Medicine Manufacturer in Jiangsu province. They are now the four major vitamin C producers in China.
In recent years, the price of vitamin C in the global market has fluctuated greatly, from the price of US$3/kg in the beginning of last year rising to a peak of US$13/kg in May this year. Currently, it has dropped to approximately US$4/kg. Compared to a supposedly lowest production cost of US$2.3/kg, there is still room for profitability at the current price.
Market analysts warned that vitamin C industry in China should be more rational, when facing such market situation at the present time. Currently, quite a few Chinese vitamin C producers tried to produce as much as possible with their maximum capacity as the limit, when they see that the pricing in the market is attractive. Some of them even expanded their facilities to speed up output in the hope of exporting more products. Mr Qiao Haili, who is familiar with the import and export of medicinal products, believed that these producers were putting themselves under the peril of high-risk market speculation.