CCM: How does the increasing Fed interest rate affect China's sucralose industry 03-17-2016

The United States Board of Governors of the Federal Reserve System announced interest rate increase, which depreciated RMB against USD. CCM believes that it will help expand China’s sucralose export to further ease domestic overcapacity, but will cause trade friction also.


On 17 Dec., 2015 (Beijing time), the United States Board of Governors of the Federal Reserve System (the Fed) announced the federal fund rate increased by 0.25% to a target interval of 0.25-0.5%. This marked the first time for the Fed to increase the interest rate in recent ten years.


Correspondingly, the RMB was depreciated. According to statistics from the China Foreign Exchange Trade System, the USD/RMB middle rate was 6.4814 on 18 Dec. (the uttermost in recent four and a half years), after RMB’s deprecation for a consecutive ten days.


About 80% of sucralose in China was for export. The settlement is mainly based on USD and EUR. Such a surprising depreciation indicates that the domestic-made sucralose’s competitiveness is enhanced, which would increase the export and to relief the oversupply of sucralose in China.


In 2015, China’s sucralose market is facing overcapacity and export price decline. According to CCM, the rate of capacity utilisation was about 45% in January-November. Meanwhile, the average export price of China’s sucralose decreased from USD4,520/t in 2014 to USD3,713/t in 2015, with the decrease of nearly 19%.


“Under this circumstance, most of the sucralose companies suffered financial loss. Due to the declining prices and high cost, many companies decided to suspend the production of sucralose, some of which even tended to permanently quit the industry,” stated by Wu Hulian, editor of Sweeteners China News.

 

 

Companies Decided to Suspend Production or Quit the Industry

 

Yifan Xinfu Pharmaceutical Co., Ltd.: it halted its 150 t/a production line in August 2014, with an intention to restart when the market recovers. In 2015, however, the sucralose price continues declining. In May 2015, it officially announced the suspension in production.

 

Hubei Yitai Pharmaceutical Co., Ltd.: it suspended the production in May 2014, and quit the sucralose industry in May 2015.


In addition, some competitive sucralose companies intended to ease the overcapacity by the means of expanding export. According to China Customs, China exported about 2,130 tonnes of sucralose in the period of January-October, up by 20% YoY. The top 3 are JK Sucralose Inc., Changzhou Niutang Chemical Plant Co., Ltd. and Ji'an New Trend Technology Co., Ltd.. The  exports of these three companies totaled 1,572 tonnes with the year-on-year growth of 16%, accounted for 74% of the national figure.


What is noteworthy is that the outstanding up-and-coming Beijing VitaSweet Co., Ltd. made up 8% of the national exports druing the period of January-October in 2015 and ranked the top four in terms of the sucralose exporters.


“Actually, the merits and demerits from the depreciation of RMB against USD co-exist,” said Wu.

 

Favorable Balance of Trade May be Expanded


In general, the RMB depreciation will further highlight the advantage of low price and thus to continuously expand the favorable balance of trade. This situation may cause anti-dumping investigation or lawsuit.

 

In recent years, the export price of sucralose from China has all the way been falling. If RMB continues depreciating, the trade conflicts would arise and the loss of China’s sucralose exporters would be extremely huge.


However, “After RMB’s list in the SDR (=Special Drawing Right) basket, the People’s Bank of China accepts certain RMB depreciation, but not sharp depreciation, since they are worried about the excessive depreciation will whittle the effect of RMB internationalization away”.

 

“What’s more, China has already had big trade surplus.” analyzed Ding Shuang, economist from Standard Chartered Bank, “Honestly, RMB has no basis for long-term depreciation.”

 

Consequently, it is reasonable assume that the continuous deprecation of RMB against USD will not be a “new normal”.

 

If you are looking for more information about the sucralose industry in China, you could visit CCM’s Online Platform.




About CCM:

CCM is the leading market intelligence provider for China’s agriculture, chemicals, food & ingredients and life science markets. Founded in 2001, CCM offers a range of data and content solutions, from price and trade data to industry newsletters and customized market research reports. Our clients include Monsanto, DuPont, Shell, Bayer, and Syngenta.

 

We will attend FIC in the coming week. If you would like to meet us for consultancy in FIC, please get in touch with us directly by emailing econtact@cnchemicals.com or calling +86-20-37616606.
 


 


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