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Hangzhou DE Mark Industrial Co Ltd - China

Hangzhou DE Mark Industrial Co Ltd
Hangzhou DE Mark Industrial Co Ltd

Lost in the Market Uncertainty Caused by the Outbreak

Published on: 6/10/2021
Author/s : Ronnick FONG. Co-founder @ 20 years experience in supplying vet APIs & feed additives.

Lost in the Market Uncertainty Caused by the Outbreak - Image 1

From 2Q onwards, the chemical industry upward trend was verified as a set one. Prices of more than 40 critical chemical raw materials showed an increase. At that time, there were also some raw materials with market prices falling. As of May 20, the market for chemical raw materials was mixed, but like other bulk raw materials such as metals, it is fundamentally rising.

Since mid-April, the outbreak in India has rebounded sharply and continued to ferment, triggering a surge in the market, particularly in the pharmaceutical market.

The substantial rise of the pharmaceutical sector in the stock market is probably a common phenomenon in every stock market. In addition to COVID-19 testing, vaccines and other anti-pandemic-related concept stocks, the stocks of pharmaceutical API manufacturers are booming. Global supplies of API are heavily dependent on China and India. The worsening COVID pandemic continues in India, is undoubtedly disrupting the global supply chain and exacerbating supply shortages of medicines. Some API products will maintain relatively high prices in the state of supply and demand imbalance. According to the data, about 50 pct of India's API is for export, particularly speciality API (mainly cardiovascular, infectious, oncology and diabetes). Therefore, it's worthy of more attention for more opportunities.

On May 7, The US government declared a state of emergency in response to a ransomware attack that forced Colonial Pipeline to shut a critical fuel network supplying populous eastern states. International oil prices immediately responded because the incident raised concerns about the shortage of spot gasoline, diesel and aviation fuel oil. The oil-based raw materials industry chain and derivatives market have also been boosting. Some leading companies have been the first to announce price increases.

Before the Spring Festival, it was generally believed that international shipping prices would slowly decline in March-April. However, the Suez Canal blockage, ports congestion, the shortage of crews and the existing shortage of empty containers were ultimately reflected in higher freight rates and difficulties in booking the containers and became a global problem. There is, however, a different view. With the contraction of maritime trade in 2020, the most significant drop in the past 35 years. Global container traffic is estimated to continue to decline in 2021. Both supply and demand have diminished as a result of the outbreak, leaving excessive shipping capacity. It’s the last choice for the shipping companies to reduce lines and voyages. In any case, for importers and exporters, the current headache is that freight rates are outrageously high, and shipping spaces are difficult to confirm.

How long will this phenomenon last? It’s an unknown.

For the export suppliers, the shipment can result in losses due to increased freight. How to avoid the same losses later? If the freight at the time of the quotation (which is already very high) is calculated and accepted by the buyer, then after 2-3 weeks (the usual lead time), the freight rate has been increased a lot because the shipping companies are now updating freight rates every week. If the price is calculated with an estimated freight rate at the time of shipment, the quotation deviates from the buyer's expectation, and the transaction may not be reached. At the same time, additional trade risks from the outbreak are increasing. So the export suppliers are stuck in a dilemma. Negative responses are probably a forced choice to minimize business losses.

For the import demand side, it is eternal to the pursuit of high quality and low price. Many buyers do not fully understand and accept the rapidly changing market, are not preparing for such market risks. They are waiting in hesitation and looking at the losses and risks expanding but do nothing. Some buyers want to pass on risk by changing the trade terms, making it more challenging to close transactions. There are still many countries where the COVID-19 outbreak has not been effectively controlled. Manufacturers and businesses have to spend a lot of energy and time on anti-epidemic activities. They are pessimistic and powerless for the short-term economic outlook.

International trade distorts and opportunities will take care of the industry's deep understanders/players and red-eyed speculators.

 
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