Discussion created on 10/28/2017
---The causes and prediction
Until the end of October, we will no longer feel astonished at the extensive and frenzy price rise starting since July / August. Whether it is vitamin or pharmaceutical raw materials (antibiotics for example), the price curve is exactly consistent looking like a "Cobra" with the head up, threatening and whirring.
In early August, when the supplier told me to schedule a temporary shutdown before the arrival of the Central Environmental Inspectorate, and the delivery has to be postponed. I was not aware that supply shortages and soaring prices had been kicked off. The supplier said the production would resume after the inspection team withdrawn some two weeks later. But when we constantly see the WeChat friends circle refresh the market information, and then look at the reports at industry journals, our heart slips tightly.
In order to supervise and inspect the implementation of environmental protection policies, including the exhaust, drainage, industrial dust, etc., the Central Environmental Protection Inspectorate,starting from July/August of 2016, were sent in batches and groups throughout the country. So far it was the fourth batch, after the completion of this batch,the first round of nation wide inspections will be ended.
During the inspection period, tens of thousands of manufacturers were ordered to suspend production for rectification, and more manufacturers choose to stop or shut down in advance, resulting in tight supply. Cumulative effect passed so far to today, is gradually enlarged, the entire supply shortage even makes the ordinary dealers feel the pressure. The most direct response to the market is the daily change and rocket rise of the prices.
Withholding offer by the manufacturers from time to time,in return, further increases the downstream panic, and allows for the continuous price boost.
A top important meeting is held in the middle of October in Beijing, as well as Atmosphere Control mainly for the north (particularly the Beijing-Tianjin-Hebei-Shandong-Henan region) during the heating, is equivalent to once more severe production curtailment and regulation, exacerbated the shortage of vitamins (such as vitamin C, vitamin B12, calcium pantothenate) and most antibiotics. The industries hurt covers cement, ceramics, wooden boards for furniture, paper and chemicals and etc.
In this round of market adjustment, some enterprises of weak resistance were instantly eliminated, productive forces are thus further integrated. Some large enterprises open up the upstream and downstream product chain, or optimize the product structure. This leads to the formation of part monopoly, and makes the strong more stronger.
Market turmoil is a good time for speculators. Some dealers have hoard goods for sale, and push the price going even higher, on the other side.
Major accidents or shutdowns of industry-led players can lead to temporary adjustments in supply and prices. This is very meaningful in the analysis of individual goods, but not too much suitable for explaining this wave of price soaring.
Enterprises remaining in the production chain are motivated to take measures to meet the environmental requirements under the new situation, the funds for the necessary investment can be extracted from the extra profits come from the price increase. Those who stay are real victors.
Before the start of a new round of environmental investigation, we will see autumn and winter atmosphere control effect in north of China. In case of gaining more large and more days of blue sky, the people will naturally forgive the current market difficulties. Heating is generally due in the following March / April, the market currently does not yet have any signs and conditions to compromise, the market price is still upward prior to the inventory and replenishment is balanced off. Once the price is newly fixed, it is impossible to be mentioned in the same breath of that before July/August. It is estimated to be as high as above the clouds, being unimpeded for the aircrafts.
Demands in the market economy have the right to speak after all, and can not accept the endless price increases, but they are now so weak, only stand by and look on in despair, only pass down the new cost then.
The new added production will cut prices. The increase by the current manufacturers is easier to achieve, the new player to join,however, is not possible to complete overnight. Therefore, the new balance between supply and demand, the price stability have to wait for a quite long time.