E-DRUG: Global Penicillin API market (4)
Dear Mr Sesay
I couldn't agree more with regards to your comments about the
significant increases in the prices of Penicillin API's. In addition to
shedding some light concerning the 'extreme' developments in this
market, I would also like to mention a couple of other factors that
are/will come to affect the general price levels of pharmaceuticals and
medical devices. We continually monitor the global markets for both
finished products and API's, and if we take the most prominent API of
those affected ,Amoxicillin, the price of this particular API has risen
more than 106% since December 2006.
The prime reason for this is due to the increase of PENICILLIN G prices
from China. This is down to two factors. Firstly because of a general
shortage of the type of CORN used in the production process, but
primarily because of the closure of Pen G producing factories in China
because of strict pollution measures imposed by the Chinese government.
One of the world's largest producer of this particular API ,United
Laboratories, was ordered to cease production by the Chinese authorities
earlier this year as a result of serious breaches of the Chinese
Environmental laws. United Laboratories are actively working on
improving their waste management system program, but at this point in
time, prices are escalating and there is little indication as to when
this will prevail.
There is another factor that could have an immediate effect on the
prices of both pharmaceuticals and consumable items from the 1st July
2007. The Chinese Government has announced that is going to reduce the
VAT subsidies currently available to Chinese manufacturers upon the
exportation of their products. This applies to manufacturers of API's.
Furthermore, Indian manufacturers using Chinese API will also be
affected. The general reduction is expected to be in the magnitude of
6-8% points which will have a marked effect on prices from one day to
the next.
The other major factor affecting price levels is the weakening of the
US Dollar, which has been losing value at a considerable rate since
February 2007. The weak dollar has had a direct negative influence on
manufacturers cost structure. This effect has been most noticeable in
India, where several manufacturers have already indicated that as a
result of the weakening dollar, they will be forced to increase their
prices between 4% - 10%. The extent of the price increases is largely
dependent on the origin of the API they are using. Domestic APIs are hit
hardest because the cost of those APIs is in rupees whereas imported
APIs are typically paid in US dollars. The negative trend influences
both the Indian Rupee and the Chinese Yuan Renminbi. However, the major
impact right now is on the rupee vs. US dollar. The Rupee/dollar ratio
was 1:44 end March and now it is 1:40. Some sources think it could to
drop further to 1:38 in the not too distant future.
It will be interesting to monitor the developments over the coming
months.
Best regards,
Sune Svenningsen (Mr)
Supply Chain Manager
ssv@missionpharma.com
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