Chinese raw material costs stifle production
had to begin scaling down production in response to a spike in raw
Manufacturing plants making APIs for antibiotics, paracetamol and anti-diarrhoea drugs have all been affected, with some reducing production by up to 50 per cent and others shutting down whole units. The move is in response to high raw material costs in China, which have spiked as a consequence of rises in crude oil prices and the implementation of stricter environmental standards ahead of the Olympics. These factors have led to some Chinese suppliers shutting down units. Those that have maintained their manufacturing output have increased prices by up to 100 per cent. Speaking to The Economic Times of India about the situation Arun Patil, commercial vice president of Aarti Drugs, said: "Beside the price increase, there are no supply commitments from China as some companies have stopped production. If things do not improve soon, we will have to stop manufacturing the product soon." The downshift in production has resulted in the cost of paracetamol doubling in India in the past few weeks. Other raw material costs have also risen. The price of yellow phosphorous in particular has skyrocketed in recent years, following an increase in export duties. In June 2005 the export duty rose from 10 per cent to 20 per cent. However, since then a 120 per cent export duty has been imposed, partially accounting for a 10-fold price increase, from $900 to $9,000 per tonne. India annually imports 20,000 to 25,000 tonnes of phosphorous from China. Not all this is for pharmaceutical applications but the price increase has been detrimental to those in the industry. The impact of these increases is being felt beyond India though, with Polish chemical company PCC Rokita attributing rising costs of its products to the cost of yellow phosphorous. In addition phosphorus oxychloride, a liquid used in the creation of key intermediates in pharmaceutical manufacturing, has also significantly risen in price. The Economic Times of India is reporting an 800 per cent increase, taking the cost to $6.40 per kilogram. China has become a major player in the phosphorous market as its significant amounts of rock phosphate and low labour costs allowed Chinese companies to undercut their competitors. Some of these competitors subsequently closed down operations, leading to an increased reliance on imports from China and limited alternatives now Chinese prices have risen. This is perhaps a cautionary tale for the industry as it increasingly utilises the seemingly abundant cheap labour and raw materials that emerging markets present.