Probing China's Lysine Market

The lysine sector in China developed further in 2006. Both the
capacity and the output hit new highs and China had a major impact
on the global lysine market. The import amount of lysine
satisfied only a very small portion of the domestic market's
demand. Domestic products gained more influence in the market
price. The market was basically stable. Only one round of price
increases appeared in October 2006 and prices soon returned to
normal.

Review of the lysine market in 2006

  1. Drastic reduction of imports and rapid growth of exports

The inverted relationship between imports and exports of lysine
in China became more prominent in 2006. The imported volume of
lysine in China dropped to 24.9 thousand tons, 54.4% below 2005.
The import value was US$30.4216 million, a drop of 53.0%. The
average import price was US$1.22 per kg, an increase of around
4%.
   Major sources for imported lysine in 2006 included Korea
(32%), the United States (30%), Thailand (21%), Brazil (14%),
Indonesia (2%) and Vietnam (1%). Compared with 2005, Thailand
lysine exports to China grew 4.2% in volume, but the amount
exported to China by other countries dropped by different
degrees - 94% for Indonesia, 63% for Brazil, 49% for Korea and
26% for the United States.
   China exported 143 thousand tons of lysine in 2006, an
increase of 121.3% over 2005. The export value was US$125.417
million, an increase of 92.0%. The average export price was
US$0.88 per kg.
   Major destination countries for the export of lysine from
China in 2006 included the Netherlands (26%), Belgium (10%),
Poland (9%) and the United States (5%). Compared with 2005, the
amount of lysine exported by China to Belgium and the Netherlands
grew dramatically - 296% for Belgium and 79% for the Netherlands.
   Major exit points for the export of lysine in 2006 were Dalian
Customs and Qingdao Customs. The amount exported through these
two portals accounted for 93% of the national total.
   Owing to the rapid export growth, the lysine sector in China
holds a more and more important position in the international
market.

  2. Consumption reduction

Major lysine producers in China in 2006 included Changchun
Dacheng Industrial Group Co., Ltd., Chuanhua Ajinomoto Co., Ltd.,
CJ (Liaocheng) Biotech Co., Ltd., Shandong Juneng Golden Corn
Co., Ltd., Anhui BBCA Biochemical Co., Ltd. and Ningxia Eppens
Group. The capacity to produce lysine in China was already close
to 700 thousand t/a in 2006. Changchun Dacheng Industrial Group
Co., Ltd. alone had a capacity of around 300 thousand t/a. It
is not only the largest lysine producer in China but also notable
on a global scale.
   Due to slack in the livestock/poultry-raising sector in 2006,
demand for lysine in the domestic market was not brisk. The
operating rate of producers was low and some of them even
suspended production or shifted to other products for fear of
loss. Owing to the briskness in export, however, the output of
lysine in China reached around 300 thousand tons in 2006, an
increase of around 9% over 2005.
    The boom of the livestock/poultry-raising sector in
previous years had promoted growth in the domestic consumption
of lysine. Starting from October 2005, however, hog farming in
China declined and failed to make notable improvements until the
end of 2006. Because of this, the demand for lysine was soft in
2006. The market demand for lysine in China was only around 220
thousand tons in 2006, much lower than 2005.

  3. Basic price stability

The price of lysine was basically stable in 2006. The market
price was stable from January to October. The price of imports
was RMB12-13 per kg and the price of domestic products was
RMB10-11 per kg. After the long National Day holiday (October
1st-October 7th), however, dealers used the favorable factors
of a pork price rise and export improvements to increase the
market price of lysine. In a matter of one month, the price of
imports increased from RMB12.2 per kg to RMB17.0 per kg and the
price of domestic products increased from RMB10.4 per kg to
RMB15.4 per kg. The reason for this round of price increases was
mostly speculation. After a short period of prices rising for
one month, the prices started to go down. The price of imports
dropped to RMB14.0-14.5 per kg and the price of domestic products
was less than RMB13.0 per kg at the end of 2006.

Prospect of the lysine market in 2007

  1. Factors influencing the lysine market in 2007

(1) The output and the capacity of lysine will grow further

The capacity to produce lysine in China was close to 700 thousand
t/a at the end of 2006. Several lysine projects including those
in Chia Tai Linghua Bio-Tech Co., Ltd. and Shandong Degussa
Cathay Biotechnology Co., Ltd. are still under construction.
Capacity will continue to expand.

(2) Hog farming will be in a period of slow recovery

Despite a price rise in the pork market after the second half
of 2006, there is little enthusiasm for hog farming and pork is
in short supply due to outbreaks of pig diseases in various
places. No change is expected in the first half of 2007. The
number of hogs being raised will still be in a period of slow
recovery.

(3) Favorable impacts on the price of bean dregs can hardly last

After Spring Festival the market price of livestock and poultry
would increase further and promote the consumption of bean dregs.
The price of bean dregs would likely be higher than in 2006.
According to projections made by cereal and oil agencies,
however, the soybean imports in China will increase to 30 million
tons in 2007. The increase of the supply will restrict the price
rise of bean dregs.
(4) The price of corn as a primary raw material will maintain
its high level

Corn production in China was 130 million tons in 2004/2005 and
consumption was 128 million tons, leaving a surplus of 2.0
million tons. The output of corn was 139 million tons in
2005/2006 and consumption was 137 million tons, with a surplus
of 1.5 million tons. Demand growth reached 4.9% and 7.0% in these
two years. Based on a growth of 6%, the consumption of corn in
the year of 2006/2007 will increase again by 8.22 million tons
to reach 145 million tons. A supply deficit may appear at that
time and the price maintain its high level.

  2. New features of the lysine market in 2007

(1) Rely on technical progress and achieve sustainable
development

Technologies for lysine production in China are still rather
outdated. To achieve sustainable development in 2007, lysine
producers in China will increase investment in technology
development, strengthen research into lysine nutrition, develop
new technologies and new processes for lysine production with
intellectual property rights, highlight environmental quality
and promote a sound development of the lysine sector.

(2) Participate in international competition

With the rapid growth in both the production capacity and actual
output of lysine, the domestic market is already saturated.
Producers have started to aim at the international market. The
amount of lysine exported from China was 143 thousand tons in
2006, and domestic products have gained a considerable share of
the international market. Export will continue to grow rapidly
in 2007.

(3) The lysine sector in