7-ACA Market Competition Is Getting Fierce

1. New-round Investment Craze

The bulk drug production base funded by Joincare Pharmaceutical Group Industry Co., Ltd. with a total investment of RMB510 million has recently begun construction in Jiaozuo, Henan province. The capacity of 7-ACA (7-aminocephalosporanic acid) in the base is 1 thousand t/a and the production is expected to start in 2007.   Shanxi Weiqida Pharmaceutical Co., Ltd., Shandong Jinyi Biological Product Co., Ltd. and Zhuhai Union Pharmaceutical Co., Ltd. have already launched or expanded 7-ACA projects. Leading enterprises such as Shijiazhuang Pharmaceutical Group Co., Ltd. and Fujian Fukang Pharmaceutical Group Co., Ltd. are therefore forced to further expand the capacity upon existing basis.   The international market chief supervisor of Shijiazhuang Pharmaceutical Group Co., Ltd. points out, "the capacity of 7-ACA in our company is more than 1 thousand t/a. The total capacity in China is already around 4 thousand -5 thousand t/a."   According to the estimations, the market demand of 7-ACA in the world is more than 3 thousand tons in 2005. The capacity of Chinese enterprises alone can satisfy the demand of the world market. The 7-ACA market competition will therefore be fierce in the future.

2. Demand Increase Rapidly

In analyzing the reason why the company has such huge investment in the 7-ACA market, executives from Joincare Pharmaceutical Group Industry Co., Ltd. said that the total demand of 7-ACA in the world was around 2.5 thousand tons in 2005, but the demand in the Chinese market alone was 1.2 thousand tons. Facing the stringent requirements on environmental protection and profit margin, some advance countries have gradually stopped the 7-ACA production from 2000 and the product was therefore short in supply since the beginning of 2000. China is most likely going to become a major 7-ACA exporter with the strength of low production cost. According to the projection, the market volume of cephalosporin formulations in China will be more than RMB20 billion in the next five years. The rapid demand growth of cephalosporin drugs will greatly stimulate the development of the 7-ACA and cephalosporin C production. With the constant improvement in people's standard of living and medical care, the market demand of cephalosporin drugs will further increase. As a key intermediate in the cephalosporin bulk drug industrial chain, 7-ACA development has a bright prospect.   Statistical data shows that the output of 7-ACA in China was 868 tons in 2002, 1.13 thousand tons in 2003 and 1.48 thousand tons in 2004 with an average annual growth of 30.6%. As the output of downstream bulk drugs increase rapidly, the demand of 7-ACA in the domestic market will maintain a sustain growth in the next few years.   The deputy general manager of Beijing Dongfang Bit Technology Co., Ltd. (www.healthoo.com) points out that the market demand of 7-ACA in China increased rapidly in the first half of 2005 and the import amount reached 174 tons, an increase of 64% over the same period of the previous year. The import price also rose from US$88.5 per kg in the beginning of 2005 to US$94.3 per kg in June 2005, an increase of 6.55%.   The export amount of 7-ACA also increased rapidly in the first half of 2005. The total export amount in the first half of 2005 was 90.5 tons, an increase of 87% over the same period of 2004. The export amount in Shandong Lukang Pharmaceutical Group Co., Ltd. and Fujian Fukang Pharmaceutical Group Co., Ltd. was 11.5 tons and 16.5 tons respectively in the first half of 2005.   Statistical data in the www.healthoo.com shows that the output of 7-ACA from Shijiazhuang Pharmaceutical Group Co., Ltd., Fujian Fukang Pharmaceutical Group Co., Ltd., Shandong Lukang Pharmaceutical Group Co., Ltd., Harbin Pharmaceutical Group Co., Ltd. and Shanxi Weiqida Pharmaceutical Co., Ltd. alone reached 1 326 tons in the first half of 2005, which was close to the output of 1.48 thousand tons overall in 2004.

3. How long will the investment craze last?

There was a supply deficit of 7-ACA in China from 2004 to the first half of 2005. Therefore, the price maintained at a high level. This price trend was contrary to the sustained price drop of other bulk antibiotics such as penicillin salts, 6-APA and 7-ADCA. The market competition will get fierce as the enterprises, such as Joincare Pharmaceutical Group Industry Co., Ltd., launched their projects.   Experts point out that the market demand of cephalosporin antibiotics is indeed increasing, but the growth is gradually slowing down. As drug resistance with antibiotics stimulates a global concern, the use of antibiotics will become more prudent and the demand growth in the market of cephalosporin antibiotics and even the entire market of anti-infective drugs will decrease.   The 7-ACA production in China is mainly contributed by Shijiazhuang Pharmaceutical Group Co., Ltd. and Fujian Fukang Pharmaceutical Group Co., Ltd. Such market mode is already fixed and other enterprises are difficult to have a powerful impact on the situation. The output of 7-ACA in Shijiazhuang Pharmaceutical Group Co., Ltd. was 819 tons in 2004, accounting for 65.7% of the national total. The company firmly held the first place in terms of the output and there is also potential for further capacity expansion. Fujian Fukang Pharmaceutical Group Co., Ltd. follows closely behind. The output of 7-ACA in the company was 340 tons in the first half of 2005, an increase of 517% as compared with the same period of 2004.   Market demand has limitations. Once oversupply appears, a price competition will initiate. The deputy general manager of the www.healthoo.com said that there will be no oversupply in the domestic 7-ACA market in two years, but it is difficult to foresee the situation after five years.

Major 7-ACA Producers in China in the First Half of 2005  (tons)Producer                                   Output       GrowthShijiazhuang Pharmaceutical Group Co.   589     157.39%Fujian Fukang Pharmaceutical Group Co.          340     517.03%Shandong Lukang Pharmaceutical Group Co.        167     212.37%Harbin Pharmaceutical Group Co.                 165     203.39%Shanxi Weiqida Pharmaceutical Co.               65      -Source: CNCIC Chemdata