Figure Out Florfenicol –2023 Why It Fall So Much?

Looking back at 2023, the veterinary APIs market has undergone so many changes - prices falling across the board, manufacturers competing with each other, and production capacity expanding. The China Veterinary Drug & Fodder Trade Center (CVFTC) will conduct a comprehensive review based on the market conditions of veterinary APIs in previous years. We are looking back on the past and looking forward to the future so that we can find the context of the market's future development from the complicated information.

Today, we will sort out florfenicol first.

Let's look at a few numbers to understand this year's florfenicol comprehensively.

As of December 20, the average market price was 211 yuan/kg, a sharp drop of 51.50% from the beginning of the year, and it was about to be cut in half.

Vertically, the average market price of florfenicol has also fallen sharply. As shown in the table below, from 2018 to 2023, the price of florfenicol was significantly lower than the same period in previous years. Compared with the high at the end of 2021, the average price has dropped dramatically by more than 65%.

(211-625)/625 = -66.24%.

Judging from the monitoring data collected by CVFTC, the florfenicol market will decline throughout the year 2023. From the beginning to the end of the year, the average price is not only significantly lower than the same period in previous years but continues to refresh its historical lows.

If we move backwards in time, we will find that the decline started in November 2022. In the following more than a year, the average price of Florfenicol fell by close to 60%.

So what caused Florfenicol to such a sharp fall in 2023, hitting new lows repeatedly and continuing to descend?

Analysts from the CVFTC believe that the combination of factors such as the overall weak market environment, lack of market confidence, sluggish breeding, investment and expectations in new production capacity, and competition among manufacturers has resulted in the continued price decline of Florfenicol this year.

In 2023, the veterinary APIs market remained weak in all aspects, and the price fall of mainstream categories is normal. Among the varieties monitored by the CVFTC, the market prices of almost all mainstream categories have fallen to varying degrees. It's not only Florfenicol that the market price has fallen sharply.

Observing the Veterinary API Price Index (VPi), the index almost shows a unilateral downward line in 2023. The index's highest point appears at the beginning of the year, while the lowest point is at the end of the year. As of this Wednesday (December 20), VPi has fallen by 19.72% for the whole year, and the index continues to refresh its low since the establishment of the VPi. The veterinary APIs market has continued to be weak in the passing year. It is naturally challenging for Florfenicol to rebound in such a continued weak situation and environment.

One of the main problems brought by the long-term unilateral decline in the market is the need for market confidence. The short side is dominating. The terminals maintain rigid purchases and mainly in small quantities. The go-betweens, considering preventing losses resulting from the continuous price fall, are trying to sustain light inventory as much as possible to minimize the risk of losses caused by falling prices.

As far as we know, during the continuous market decline, there were signs of stockpiling at the trade channel at some critical times for operational considerations. But unfortunately, the price was hopeless to stop falling. After a few attempts, the trade channel mainly focuses on light positions and takes the strategy of fast-in and fast-out.

According to data from the National Bureau of Statistics, the pig and poultry industries predominantly suffer a loss. On December 8, the National Development and Reform Commission published the latest weekly price analysis of pigs, broilers, and laying hens, stating that the average loss for pigs was 7.41 yuan per head, and for broilers, it was 0.84 yuan per head.

The downstream breeding industry's downturn directly reduces terminal demand and makes terminal procurement and stocking more cautious. The sluggish demand cannot provide sufficient support for florfenicol prices.

Contrary to the continuous decline in product prices, new and old players of florfenicol are constantly building and expanding production capacity. The commissioning of new production capacity and expectations are crucial factors in the continued price decline. According to incomplete statistics from the CVFTC, multiple florfenicol projects were launched in 2023 alone.

Accompanying the new projects, the new production capacity built in the past few years was gradually and successfully released this year. Guobang Pharma, in response to questions from investors, stated that the current florfenicol production capacity is 2,000 tons, the infrastructure construction for the new 2,000 tons is going smoothly, and the installation is expected to be completed this year to meet the production conditions.

The demand is extremely sluggish. With the commissioning of new production capacity and expectations in the market. Oversupply and weak demand are competing fiercely. Price reductions have become the norm to alleviate the inventory pressure, and the florfenicol price continuing to fall is no wonder.

The investment in new production capacity and concerns about overcapacity due to continued increases in supply in the future have led to intensified competition among manufacturers. Price gaming among upstream manufacturers is also a major factor leading to a sharp price decline in 2023. Price games between upstream manufacturers often occur, but this year's decline has been more significant and lasted longer. Loss-making shipments have even become the norm for a while. The degree of price game among upstream manufacturers exceeds many people's expectations.

As far as we know, the ex-factory price of florfenicol is currently severely inverted. The ex-factory price has generally been lower than the production cost. The vast majority of manufacturers are in a negative profit state. Some manufacturers have shut down some production units due to losses. So, if only from the perspective of production costs, florfenicol prices should have stopped falling a long time ago, but unfortunately, the pressure brought by production costs, the willingness of manufacturers to raise prices, and the reduction of supply cannot stop prices continuously sliding down when manufacturers are fiercely competing.

No competition, no price descending.

Overall, the florfenicol market 2023 has shown a pattern of both weak supply and demand. Upstream manufacturers reduced production and lowered prices for more orders. Procurement at the trade channel was cautious. Inventories remained low. Fast in and fast out. Downstream breeding was struggling with losses. Procurement remained strictly upon necessary demand. Throughout the whole year of 2023, neither the veterinary APIs market nor the supply/demand of Florfenicol itself have any apparent upward driving force. Therefore, there is no way to speak of stopping the decline and rebound.

It should be noted that in mid-to-late December, there were some new changes in the florfenicol market. First of all, manufacturers are increasingly firm in their price-support mentality. Some manufacturers are strongly willing to raise prices, and ex-factory prices are stable. Secondly, from the price point of view, Florfenicol ended its consecutive decline and began its first rebound this year. On December 20, the average price rebounded 1.44% from the year's low, ending the continuous decline. Finally, from the perspective of shipments, the shipments and searches for goods have increased significantly, and large orders have been closed occasionally. There is the possibility of buying and sweeping goods at the bottom from the middle and downstream reaches.

In the short term, analysts from the CVFTC believe that the rebound is temporary and unsustainable. Under the background of extremely fragile market demand, the overall weak external environment of the veterinary APIs market, or the weak supply and demand of Florfenicol itself, do not support a sharp rebound. We are more inclined to believe that Florfenicol's situation will remain in box fluctuation in the short term.

As such, how will Florfenicol perform next year?

In 2024, it will focus on market repair in the first half of the year, and the market may expand in the second half.

First of all, favourable macro factors will provide sure support for prices. The market environment for veterinary APIs will undoubtedly be better than this year. The warming of the overall climate will offer solid external support for restoring and expanding the florfenicol market and provide an incentive to restore market confidence.

Secondly, pressure on the supply side will continue. In 2024, the pressure on the supply side will continue to have a specific impact on the price of florfenicol, and the supply will exert a more significant suppression on the restoration of product prices. However, judging from manufacturers' willingness to stabilize prices, manufacturers will not rule out any possibility of reducing production and supply.

Thirdly, considering cost and profit factors, the price game among manufacturers may be sustained. Still, the scale and intensity will shrink compared with 2023, creating a space for the rebound of florfenicol.

Finally, among all factors, the degree of demand restoration is the most crucial factor affecting the trend of florfenicol. The degree of demand recovery, however, depends on the improvement of the breeding industry. As far as the pig industry is concerned, the analysts currently generally believe that 2024 will be more optimistic than 2023. Prices may not hit a new low in the year's first half. Profits are expected in the year's second half; the current breeding losses could be ended. From the capital market perspective, the capital will also be buoyant over the pig market next year. Since the end of October, pork concept stocks have risen in shock. So far, New Wufeng and Tiankang Biotech have increased by more than 30%. Muyuan Stock, Wen's Stock and other top stocks have also rebounded significantly. From the perspective of capital games on the secondary market, the turning point of the pig market in the capital market may have arrived, which may mean that the turning point of the actual market is not far away, as the stock market is a leading indicator of economic trends.

As for poultry, cattle, sheep breeding industries and aquaculture, according to multiple brokerage research reports, they are widely optimistic about restoration expectations next year. They believe the market is expected to improve in 2024, ushering in a recovery gradually. From the perspective of demand alone, the improvement in the breeding industry next year will significantly benefit the downstream demand for florfenicol, which will provide vital support to break away from the current range.

Overall, there is a high probability that the trend of florfenicol next year will be better than this year. Although the pressure on the supply side will continue, the buoyant demand will support the recovery and rebound of product prices. The trend of florfenicol is positively correlated with the recovery of the breeding industry, and it moves with the breeding industry. Restoration will be carried out in the year's first half, and progress will be made in the second half.

This article is a translated version of the original text of the same name, please click here to read the original article.