In 2023, China's API production declined for the first time since 2019. According to the data released by the National Bureau of Statistics, the output of chemical drugs in industrial enterprises above designated size in 2023 was 3.427 million tons, down 7.6 percent year-on-year. From the quarterly data, Q1/Q2/Q3/Q4 was +15.5 percent/-10.6 percent/-11.4 percent/-3.9 percent year-on-year respectively.
Looking at the statistics, China's API production decreased year-on-year in 2023, until Q4 in 2023 gradually showed marginal improvement. From the monthly data, from April to November 2023, the output of chemical drugs in China's industrial enterprises above designated size declined year-on-year, but the output of raw materials in December has returned to year-on-year growth. The output of raw materials in December was 401000 tons., An increase of 2% year-on-year. According to the quarterly data, in 2023 Q1/Q2/Q3/Q4, the output of chemical drugs in industrial enterprises above designated size in China was 932000 tons/819000 tons/713000 tons/963000 tons respectively, +15.5%/-10.6%/-11.4%/-3.9% year on year respectively. In 2023 Q4, the output of bulk drugs decreased significantly year on year with a high base in the same period last year.

Currently, the prices of most APIs are at historically low levels, and the supply and demand relationship is expected to be reshaped in the future as the inventory cycle is adjusted. In addition to sartan, other major API varieties such as heparin and progesterone are also at low prices. Taking heparin as an example, the heparin bulk drug industry has been affected by: the supply of environmental protection pressure, the repeated shortage of epidemic situation and the destocking of downstream enterprises. In the past ten years, the average export unit price of heparin bulk drug has shown a steady rise-sharp rise-downward trend. In December 2023, the average export unit price of heparin bulk drug was 5356 USD/kg.

From the global supply-side map, China occupies an important position in the global API and intermediate industry chain, the number of enterprises accounted for 48% of the world, production capacity accounted for 30%, most enterprises are still stuck in the upstream low value-added links. In terms of stock production capacity, China's head enterprises in the capacity expansion performance is positive, the trend of industrial upgrading is clear, Chinese enterprises in the global API market to show sustained vitality and potential. It is expected that Chinese enterprises are expected to continue to maintain a significant competitive advantage in the global API market in the medium and long term by virtue of their unique chemical engineer dividends, perfect industrial chain and high-end production capacity investment and construction speed. For the head enterprise stock capacity, India's head API enterprises in the scale and volume of the leading, domestic enterprises are still in the catch-up stage, showing positive capacity expansion signals. The current positive capacity expansion trend reflects the continued vitality and huge potential of Chinese companies in the global API market, laying a solid foundation for future industry competition.

The current API industry is expected to enter a new round of growth cycle. Sales affected by the expiration of downstream preparation patents in 2023-2026 were $175 billion, up 54% from the total in 2019-2022, and a number of blockbuster product patents will expire one after another, including large varieties of chronic diseases such as shaban, Finnet and Littin, which will usher in a large number of new API demand.

With 2023Q4-2024Q1 overseas destocking gradually nearing the end, 2024 API sector demand is expected to take the lead in the recovery, is expected to usher in the beta market.

Demand side: Global API destocking began at the end of 2023, short-term factors such as new capacity in India have led to pressure on the API sector's 2023 performance.

Cost end: With the current bulk, stone chemical and other raw materials prices began to stabilize, 2023-2024 sector profitability overall recovery.

Supply side: high-quality companies gradually land new production capacity, increase the global market share. In the medium and long term, Q2-Q3 destocking is expected to end in 2024, and China has a very strong cost, industrial chain and other advantages in the intermediates and API industry, and is not afraid of competition.