Kevin Johnson Reports on China Markets

In early November, I completed an extensive trip to China. I met with a number of our current producers and suppliers and also with companies that we hope to do business with in the future. Following is a brief update on market factors that may affect the price and availability of ascorbic acid.

As you may be well aware, the price of ascorbic acid had dramatically dropped earlier this year due to uncontrolled and stiff competition among major Chinese producers. All producers in china suffered substantial losses during this period, and the Chinese government has implemented supervision and coordination methods under a strict export quota system under the China Chamber of Commerce of Medicines and Health Products. The quota is fixed with a certain quantity for each producer which depends on production capacity, export records, and other factors.

In addition, the producers are required to declare the quantities and prices for each scheduled export for the coming month to the Chamber of Commerce in advance to obtain final approval for export of the goods. The Chamber of Commerce has the authority to review each price to see if it is within the range, and if it is extremely out of the range, may reject approval of the export.

The price trend for ascorbic acid has incresed 5 to 10 percent for the last couple of months, and further increases of another 10 to 15 percent are anticipated. Factors contributing to these increases are that all major producers of ascorbic acid recently announced that their plants will be shut down for annual maintenance; there is a strong rumor that the sole Japanese plant will halt production in 2007; there is increased internal demand in China for ascorbic acid, and production and transportation costs have been escalating due to the price of oil.