Kaiyuan Securities: Raw Pharmaceutical Ingredients Industry Expected to Usher in Price Increase Cycle

Open Source Securities points out that the domestic raw drug industry has experienced a prolonged supply clearance cycle. Due to geopolitical tensions, crude oil and upstream chemical raw material prices continue to rise. The raw drug industry is expected to enter a price increase cycle. It is recommended to focus on targets with thorough supply clearance and expected price increases.

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Rising crude oil prices and the implementation of anti-inflation policies are expected to drive price increases in the raw drug industry

1. By 2026, veterinary raw drug prices are expected to experience a cyclical rebound

The China chemical raw drug industry’s PPI index has been declining, while upstream raw material prices show an upward trend. Driven by demand recovery, the antibiotic industry chain prices are gradually stabilizing and rising, with 6-APA and penicillin industrial salt prices clearly bottoming out and rebounding. Downstream raw drugs like amoxicillin and ampicillin are also stabilizing and rising. Due to oversupply and weak downstream demand, veterinary raw drug prices have been declining in recent years, with the average price of florfenicol dropping from 400-700 yuan/kg to 100-200 yuan/kg, and tetracycline prices falling to historic lows. Some companies have experienced consecutive losses, accelerating industry clearance. By 2026, veterinary raw drug prices are expected to experience a cyclical rebound.

2. Heparin and iodine contrast agent raw drugs are at cyclical lows

The heparin raw drug industry experienced a peak from 2019 to 2021, with an overall oversupply. In 2023, heparin raw drug prices showed a downward trend, with a sharp decline in Q4 mainly due to falling non-standard market prices. In recent years, heparin API prices have stabilized. From 2021 to 2022, factors like earthquakes in Chile and Japan and the pandemic caused a significant contraction in iodine raw material supply, leading to a rapid increase in iodine raw material prices, reaching a peak in 2022-2023. Driven by strong demand from other industries (electronics), iodine raw material prices have rebounded in recent years.

3. Geopolitical influences have led the vitamin industry into a price increase cycle

The global vitamin industry is mainly supplied by DSM, BASF, and Chinese companies, with DSM and BASF focusing on vitamins A, E, D3, K1, and B-group vitamins. Due to geopolitical tensions, crude oil prices have continued to rise, causing major industry players to suspend reporting and signing. Recently, prices for vitamin A and E have increased rapidly.

4. Investment recommendations

The domestic raw drug industry has experienced a long supply clearance cycle. With geopolitical tensions, crude oil and upstream chemical raw material prices continue to rise. The raw drug industry is expected to enter a price increase cycle. It is recommended to focus on targets with thorough supply clearance and expected price increases.

Recommended targets: Guobang Pharmaceutical, Puluo Pharmaceutical, Aoruit, Federal Pharmaceutical, Jianyou Co., Ltd., Huahai Pharmaceutical, etc.; benefiting targets: Menova, Chuanning Biotech, Zhejiang Medicine, Yifan Pharmaceutical, Tianxin Pharmaceutical, Garden Biotech, Tianyu Co., Ltd., Tonghe Pharmaceutical, Xianju Pharmaceutical, etc.

(Source: First Financial)