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Vitamins China E-News VOL.1 Issue 10, October,31, 2014 Copyright © Guangzhou CCM Information Science & Technology Co.,Ltd

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Vitamins China E-News

VOL.1 Issue 10, October,31, 2014

Copyright © Guangzhou CCM Information Science & Technology Co.,Ltd

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Contents

HeadlineEditor's NoteMarket Dynamics

China's VA Market Riding High After an Extraordinary 2014China’s Breeding Industry Recovers in Q3 2014Retail Prices of Vitamin Tablets with Same Specification Differ Considerably

Company DevelopmentsGuanfu Household Takes Over VE Intermediate ProducerGarden Bio-chemical Listed in Shenzhen Stock Exchange GEMXinfu Pharmaceutical Entering into Fast Development Period by Combining Two SubsidiariesChangjiang Industry Investment Group Lends Money to Guangji Pharmaceutical

Import & Export AnalysisChinese Vitamins Imp. & Exp., Aug. 2014Exports of China's VC Rising in Jan.- Aug. 2014China’s VE Witnesses YoY decline in Export Price during Jan.–Aug. 2014

Price UpdatePrice Update of Vitamins, Oct. 2014VC Price Declines in Q3 2014VB2 Price Increases Sharply in Sept. 2014Market price of VD3 Keeps Increasing from July to Mid-October 2014Market Price of Folic acid Maintains Uptrend Since Jan. 2014

News in BriefZhejiang Medicine Merges Changhai BiologyBrother Enterprises Shows Good Performance in Q3Guangji Pharmaceutical Forecasts Loss in First Three Quarters of 2014VD3 Content Exceeding StandardTiger Industrial Obtains SubsidyRed Bull’s New Projects Passing Environmental AssessmentGolden Launches Nutritional GelTianxin Pharmaceutical Expands Production of Vitamins

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HeadlineDuring the first nine months of 2014, it's obvious that the price of Vitamin A was higher than the same period of last year, mainly dueto the manufacturers' good performance and a dramatic increase in export value.

China's breeding industry has bounced back in Q3 2014, stimulating the demand for feed.

Vitamin tablets with the same specification differ a lot in retail price, due to the long sales links.

At present, Guanfu Household is purchasing a VE intermediate producer Nengte Technology, after which the competition pattern ofVitemin E industry will be probably influenced.

In Oct. 2014, Garden Bio-chemical was listed in the Shenzhen Stock Exchange GEM, helping to further expand VD3 business.

In September 2014, Xinfu Pharmaceutical merged two of its subsidiaries, Yifan Pharmaceutical and Yifan Bio-Pharm into one. Thiswill aid Xinfu Pharmaceutical's centralization and accelerate its development pace.

Changjiang Industry Investment Group lend USD48.79 million (RMB300 million) to Guangji Pharmaceutical in Oct. 2014, oncondition that Guangji Pharmaceutical gave consent to the acquisition by Changjiang Industry Investment Group. It resulted in a win-win solution for both sides.

Chinese Vitamins Imp. & Exp., Aug. 2014

The total export value of China's VC multiplied from Jan. to Aug. 2014, assisted by the rise of export volume and export price.

In Jan.–Aug. 2014, China's VE saw a year-on-year growth in export volume, but a year-on-year fall in export price.

Price Update of Vitamins, Oct. 2014

In Q3 2014, domestic VC price witnessed a downtrend, mainly due to the large VC inventory. In addition, seasonal factors maykeep VC price falling in Q4 2014.

In Sep. 2014, the domestic market price of VB2 increased sharply because major VB2 manufacturers raised its quoted price.

Affected by the short of supply, the domestic market price of VD3 maintained an uptrend from July to mid-October 2014.

Since Jan. 2014, the domestic market price of folic acid kept increasing, driven by the strong demand for it.

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Editor's Note

Welcome to Vitamins China E-News!

China is the largest vitamin manufacturer and exporter in the world, playing a critical role in the global vitamin market.

Affected by the increasing demand of overseas market, China's VC export volume rises by 12% year on year in Jan.-Aug. 2014.

And VE increases by 20%.

As for the domestic market , the price of VC sees a downtrend because of the high inventory. Affected by the weak demand in Q4,

the price of VC is expected to maintain low. In a whole, China's VA market riding high than that of last year, is mainly driven by the

recovery of the downstream breeding industry. However, the market price of VA is to decline due to the increasing supply and

stable demand. After Sept., the market price of VB2 booms thanks to the higher quotation made by the manufacturers led by

Guangji Pharmaceutical.

In Oct., Garden Bio-chemical Stock went to public successfully, which is a matter of concern for the domestic vitamin industry. As

the largest VD3 manufacturer in China, Garden Bio-chemical benefits from the price rise of VD3 and the higher gross profit margin.

The domestic vitamin industry seems going through merger and acquisition trend. Xinfu Pharmaceutical, the largest VB5

manufacturer in China, merges two subsidiaries for unified management and fast development. Changjiang Industry Investment

Group gets the control of Guangji Pharmaceutical to a largest extent with long-term loans. Guanfu Household merges a VE

intermediates manufacturer, Nengte Technology, which may have an effect on the competition pattern of domestic VE industry.

Would all of these bring new opportunities and challenges to the vitamin industry at home and abroad? Let's see!

RMB Exchange Rate: USD1=RMB6.1493; source: The People's Bank of China.

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Market Dynamics

China's VA Market Riding High After an Extraordinary 2014

Summary: Chinese manufacturers of vitamin A (VA) have enjoyed a surge in profits in 2014, as a sudden drop in supply on the

international market and increasing demand from downstream industries combined to send vitamin A prices soaring.

The VA industry suffered badly in 2013 following the outbreak of H7N9 influenza in China, as the industry relies heavily on demand

from the animal feed industry. However, the feed industry began to bounce back in 2014 as high prices for meat and poultry

products encouraged many to resume raising livestock, and demand for feed-grade vitamin A therefore increased significantly

during H1 2014.

Then, in March 2014, demand from the international market suddenly leapt as BASF was forced temporarily to close its citral plant

in Ludwigshafen, Germany, following a fire incident. This sent vitamin A prices skyrocketing – in the two months following the

outbreak of the fire, feed-grade VA prices rose from under USD22,000/t to around USD28,000/t.

Figure 1: Market price of feed-grade VA, Jan. 2013 - Aug. 2014

Source: CCM

Table 1: Capacity and output of three leading Vitamin A producers in China, 2013

Company Capacity, t/a Output, tonnesZhejiang NHU Co., Ltd. 5,000 4,600Zhejiang Medicine Co., Ltd. 2,700 1,400Xiamen Kingdomway Group Co., Ltd. 1,500 1,350

Source: CCM

This extraordinary price surge has been a windfall for Chinese vitamin A manufacturers. To put it in perspective, the average market

price of feed-grade VA over the period January-August 2014 was USD24,728/t, an increase of 33% on the same period in 2013.

Similarly, while total export volume from January-July was almost identical to the same period last year, 2,024 tonnes in 2014

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compared to 2,035 tonnes in 2013, the value of these exports had increased by 28%.

The effect this has had on Chinese companies' balance sheets is clear to see. According to the latest financial report released by

Zhejiang NHU Co., Ltd. (NHU), one of the biggest VA manufacturers in China, revenue and net profit in H1 2014 amounted to

USD345.34 million (RMB2.13 billion) and USD88.96 million (RMB548.72 million)respectively, up by 5.55% and 33.46% year on

year. Much of this growth was fuelled by its VA operations, which reported increases in both sales volume and selling price, as well

as cost reductions. Xiamen Kingdomway Group Co., Ltd. (Kingdomway), one of the other major Chinese manufacturers, also

reported significant gains in revenue and profit in H1 2014 driven by rising VA prices.

Unfortunately for these companies, it appears doubtful that their bumper profits will be sustained for much longer, although the

industry's prospects appear much brighter than they did this time last year. After peaking in June, VA prices started to fall steadily,

dropping back under USD26,000/t in September. This was expected, as the supply situation has now normalized following the

resumption of operations at BASF's Ludwigshafen facility in April. According to the latest export data, domestic and international

demand for VA appears to be stable, and demand from the feed industry will begin to dwindle in November, so we expect VA

market prices to follow a mostly downward trend in the next few months. However, the overall outlook for the Chinese VA market

looks promising.

China’s Breeding Industry Recovers in Q3 2014

Summary: China's breeding industry has bounced back in Q3 2014, stimulating the demand for feed.

The prices of live pigs and eggs increase in China in Q3 2014. Benefited by the upturn of breeding industry, domestic feed

consumption is on the rise in Q3. Besides, driven by the declining inventory and national positive storage policy and other factors,

domestic live pig price sees an uptrend. The average market price rose to USD 2,308/t in Q3 from USD 1,932/t in Q2.

In fact, due to the consumer recession of live pigs and other animal products, domestic feed market faced a slack demand as a

whole in 2013, leading to a slight decline in feed output. According to the report of the Chinese Feed Industry Association

Information Center, the total output of national feed was 193.4 million tonnes in 2013, with 0.6% year-on-year decrease rate. In the

first half year of 2014, affected by the price fall of live pigs and the weak demand for poultry, the total output of national feed is about

83.0 million tonnes, down by 3.0% year on year, said by Wang Xiaohong, the director of Feed Division of Department of Animal

Production of the Ministry of Agriculture of the People's Republic of China.

In Q3 2014, aquaculture industry comes to the peak season and the prices of meat and egg maintain an uptrend. Besides, as

farmers enthusiasm of increasing the number of poultry and livestock, an increase in feed demand is needed and the output of

domestic feed increases as well. It is reported that the total output of feed in Q3 2014 is about 21,721 tonnes in terms of Hinggan

League, Inner Mongolia Autonomous Region, with 6.7% month-on-month growth rate and 64.3% year-on-year grown rate. The total

feed output of Taizhou City, Jiangsu Province is 15,200 tonnes, up by 10.23% year on year.

In Q4 2014, domestic breeding industry is expected to rebound. On one hand, the meat consumption increases as the weather is

getting cold; on the other hand, the inventory of poultry and live pigs declines than that of last year. As the supply-demand

relationship changes, the prices of live pigs and poultry will maintain at high level, and the profit of farmers is increasing steadily.

Shown as the data of the Ministry of Agriculture of the People's Republic of China, in Aug. the inventory of national adult sows

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decreases by 0.8% month on month and by 10.0% year on year, while the inventory of national adult sows declines by 0.5% in Sept.

than that of last month and decreases 10.4% than that of the same period of last year. Since the beginning of 2014, the inventory of

national sow and poultry is lower than that of 2013 as a whole.

However, as for insiders, domestic meat hardly comes to a peak consumption season in Q4 2014. The reasons come to the

following aspects:

Firstly, affected by the economic downturn, the live pigs and poultry products consumption are expected to weaken in Q4.

Secondly, under the background of the country strictly controling the Eight Rules and the Three Public Expenses and strengthening

the efforts to fight corruption the sales performance of upscale restaurant, tobacco & wine and luxury decreases dramatically.

Furthermore, the lower consumption of dining places brings a suppression on the consumption of pigs, poultry and aquatic

products.

Thirdly, as the change of consumption concept, lavish meals during the festivals in previous years have cut down. In the past

festivals, the live pigs are consumed a lot, like in the Dragon Boat Festival, the Mid-Autumn Festival, the National Day and the

Spring Festival, which leads to a price rise. However, the price of live pigs falls during the Spring Festival of 2014, showing that the

supporting effect of festivals on the price decreases gradually.

Figure 2: Market price of live pigs in China, Jan. 2013-20 Oct., 2014

Source: CCM

Retail Prices of Vitamin Tablets with Same Specification Differ Considerably

Summary: Vitamin tablets with the same specification differ a lot in retail price, due to the long sales links.

In the mid-Oct. of 2014, it is reported that many drugstores in Jinan City, Shandong Province found the retail prices of vitamin

tablets with the same specification differ considerably. Take a bottle of 100 pieces of VC tablet as an example, the cheapest one is

RMB1.2/bottle, and the expensive one is RMB260/bottle. The price difference is the result of the long intermediate links.

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To be specifically, the VC tablet is RMB1.2/bottle (100 pieces per bottle and the vitamin content of one piece is 100 milligrams),

made by Northeast Pharmaceutical Group Shenyang NO.1 Pharmaceutical Co., Ltd. It will be much more expensive when it is

made into chewable tablet, for example, K-lex VC chewable tablets is RMB90/bottle (100 pieces per bottle). Besides, most

drugstores mainly sell high-end compound vitamin tablets. The price is about RMB200/bottle and the most expensive one can sell

up to RMB260/bottle. These high-end compound vitamin tablets usually are Nutrilite, By-health and other imported brands. In fact,

the curative effects of these vitamins with separate prices doesn't differ much.

According to the insiders, the retail prices of vitamin tablets differ a lot due to the long sales links. The intermediate links cover the

national agent, regional agent, provincial agent, city and county levels agents, each level agent wants to gain profit as well; and the

terminals drugstores and supermarkets have to raise the product' price.

The great price difference reflects the problem of pricing mechanism in health-care industry. Nowadays, the governmental pricing of

health-care products are co-determined by the National Development and Reform Commission and National Price Bureau.

However, in terms of the national price policy, there are only 20% of vitamins in market with unified national price. And as for the

market-adjusted price, it is self-imposed by different runners in all kinds of links, which leads to the big sale price difference of many

vitamins.

Company Developments

Guanfu Household Takes Over VE Intermediate Producer

Summary: At present, Guanfu Household is purchasing a VE intermediate producer Nengte Technology, after which the competition

pattern of Vitemin E industry will be probably influenced.

On 15 Aug., 2014, Fujian Guanfu Modern Household Wares Co., Ltd. (Guanfu Household) started to purchase 100 % shares of

Nengte Technology Co., Ltd. (Nengte Technology) by issuing shares and in cash, which has not been finished by 27 Oct. After that,

the competition pattern of Vitemin E (VE) industry will take on a new form.

Nengte Technology's products include 2,3,5-trimethyl hydroquinone, a intermediate for producing VE. The adoption of a new

synthetic method, using the cheaper p-xylene as the material to produce 2,3,5-trimethyl hydroquinone, has greatly reduced the

production cost of 2,3,5-trimethyl hydroquinone, which will not only change heavy dependence upon import, but also provide new

opportunities for newcomers of VE industry. Located in Jingzhou City, Hubei Province, Nengte Technology is established in May

2010 and is specialized in the research and development, production and sales of medical intermediates.

At present, the shortage of 2,3,5-trimethyl hydroquinone is the constraints for VE production. On the one hand, over 90% of China's

2,3,5-trimethyl hydroquinone relies on import, while the major foreign 2,3,5-trimethyl hydroquinone producers, BASF and DSM, are

far from meeting domestic demand for VE. On the other hand, domestic 2,3,5-trimethyl hydroquinone supply is monopolized by

Zhejiang NHU Co., Ltd. and Zhejiang Medicine Co., Ltd. Therefore, there is a long-term shortage for 2,3,5-trimethyl hydroquinone,

making it difficult for most enterprises to produce VE. For example, there was once a time when PKU Healthcare Crop., Ltd. could

not go into operation just because of short supply of 2,3,5-trimethyl hydroquinone. Undoubtedly, in the face of VE's huge demand for

2,3,5-trimethyl hydroquinone, Nengte Technology has enormous development potential. At present, its main clients are: Jilin North

Shate Pharmaceutical Co. Ltd., Zhejiang NHU Co., Ltd., PKU Healthcare Crop., Ltd., Zhejiang Medicine Co., Ltd., among which

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Jilin North Shate Pharmaceutical Co. Ltd. began to conduct transformation in VE's production lines in July and its VE's capacity is

expected to increase from 1,000 t/a to 10,000 t/a in the future.

In particular, the first and the second phase of 2,3,5-trimethyl hydroquinone project were put into production at the end of 2013 and

June 2014 successively, whose production capacity has reached 5,000 t/a. With 2,3,5-trimethyl hydroquinone's supply rising,

Nengte Technology will not only provide 2,3,5-trimethyl hydroquinone for the existing enterprises in the VE industry but also assist

the newcomers in saving construction input and reducing technology barriers. Therefore, the competition pattern of domestic VE

industry will be probably influenced.

Table 2: Revenue of Nengte Technology by product, 2013 and H1 2014, million USD

Product H1 2014 2013

2,3,5-Trimethyl hydroquinone 20.11 2.57

2,3,6-Trimethylphenol 0.76 10.73

2,5-Xylenol 1.09 0.48

Others 9.93 21.08

Source: Fujian Guanfu Modern Household Wares Co., Ltd.

Table 3: Reveune from top 5 clients in Nengte Technology, H1 2013

Client Revenue (million USD) Proportion accounted for company's total (%)

Jilin North Shate Pharmaceutical Co. Ltd. 7.74 24.25

Chongqing Changshou Jieyuan Chemical Co., Ltd. 5.65 17.71

PKU Healthcare Crop., Ltd 4.60 14.42

DR.REDDYS LABORATORIES LTD 2.34 7.33

Zhejiang Medicine Co., Ltd. 2.11 6.61

Total 22.44 70.32

Source: Fujian Guanfu Modern Household Wares Co., Ltd.

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Figure 3: Performance of Nengte Technology, 2012-H1 2014

Source: Fujian Guanfu Modern Household Wares Co., Ltd.

Guanfu Household is planning to be a listed company with a market value of over RMB10 billion by purchasing the most potential

pharmaceutical companies in China.

To be specific, this strategy mainly include:

Firstly, building new drug synthesis laboratories and postdoctoral workstations in Shanghai Technology Park will provide technique

support for the company.

Secondly, by establishing cooperation with domestic fund and venture companies, it will invest or purchase pharmaceutical

companies with great development potential.

Founded in 1999, Guanfu Household was listed in Nov. 2006. As a large furniture producer in China, it is specialized in

manufacturing and sales of paper products, household plastic products, glass products, etc. In recent years, Guanfu Household

develops slowly, and its net profit in H1 2014 was only USD410,000, a decline of 91.08% compared to the previous year.

Therefore, the acquisition this time will provide new growth opportunities and will also serve as an important signal for its entry into

the pharmaceutical industry.

Figure 4: Sales Mix of Guanfu Household, H1 2014

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Source: Fujian Guanfu Modern Household Wares CO., Ltd.

Figure 5: Performance of Guanfu Household, 2011-H1 2014

Source: Fujian Guanfu Modern Household Wares CO., Ltd.

Garden Bio-chemical Listed in Shenzhen Stock Exchange GEM

Summary: In Oct. 2014, Garden Bio-chemical was listed in the Shenzhen Stock Exchange GEM, helping to further expand VD3

business.

On 8 Oct., 2014, Zhejiang Garden Bio-chemical High-tech Co., Ltd. (Garden Bio-chemical) declared to be listed in the Shenzhen

Stock Exchange. This move is aming at raising fund mainly for expanding the production capacity of NF-class Cholesterol and

producing high value-added Vitamin D3. Though the company gained further development of core business, it is confronted with

risk.

The collected fund is mainly used for setting up a 100 t/a feed-grade 25-hydroxy cholecalciferol and a comprehensive utilization

project of wool grease. When the later project is up and running, the main product's capacity, NF-class cholesterol, can expand from

80 t/a to 200 t/a. Garden Bio-chemical is researching 1α,25-dihydroxyvikgamin D3 and VD3 rodenticide.

The main revenue of Garden Bio-chemical comes from the sales of VD3 series products, whose revenue accounts for over 99% of

the company total during each report period. During Jan.-June 2014, the company's revenue was USD52.19 million (RMB72.37

million), hereinto, revenue from feed-grade VD3 business (including oiling agent and powder) accounts for 78.7% of the total

revenue in H1 2014; and the net profit was USD1.96 million (RMB12.03 million), up by 14.39% year on year.

In VD3 industry, Garden Bio-chemical is a larger-scale enterprise with advance techniques. It not only masters the manufacturing

technique of 25-hydroxy cholecalciferol, but also has the ability of self-producing NF-class cholesterol and the advanced productive

technology. Therefore, Garden Bio-chemical further reduces the cost of production and enhances the competitiveness. For the

moment, the total recovery rate of VD3 has reached 40% to 50%, with a 60% growth rate, compared with that of 2002.

Garden Bio-chemical was set up on 10 Oct., 2014, and its main business is consisted of the R&D, production and sales of VD3

series products. Nowadays, this company has two wholly-owned subsidiaries, one is Hangzhou Xiasha Biochemical Tech.Co.,Ltd.

which has the same core business; the other is Hangzhou Pengmao Import & Export Co., Ltd. whose main business is to purchase

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wool grease and to sell wool grease derivatives.

Figure 6: Garden Bio-chemical's performance, Jan. 2011-June 2014

Source: Zhejiang Garden Bio-chemical High-tech Co., Ltd.

Table 4: Capacity and output of Garden Bio-chemical's main products, 2013

Product Capacity, t/a Output, tonne

Feed-grade VD3 (oil) 4,000 2,944.43

Feed-grade VD3 (powder) 2,000 1,896.79

Food & pharmaceutical-grade VD3 (crystalline) 480 165.2

Source: Zhejiang Garden Bio-chemical High-tech Co., Ltd.

As the price of VD3 sharply rose in 2009 and maintained high from 2010 to 2011, the original VD3 factories expand production

and many new comers join in for big business. Nowadays, the whole production capacity of domestic VD3 industry has reached

10,000 t/a. In 2013, the sales volume of Garden Bio-chemical's VD3 was 2,395.82 tonnes, accounting for 33.05% of the global

demand. And the sales volume of feed-grade VD3 was 2,258.81 tonnes, taking up 41.17% of the global demand.

As for the whole world, the main competitors of Garden Bio-chemical are DSM and BASF. These two enterprises cover the whole

series of vitamin products, specializing in the production of food-grade VD3 and pharmaceutical-grade VD3. Though Garden Bio-

chemical focuses on feed-grade VD3 for the moment, it is inclined to further develop food-grade VD3, which leads to a strong

competition with the other two companies in the future.

In terms of domestic market, the main competitors are Taizhou Hisound Pharmaceutical Co., Ltd. (Hisound), Xiamen Kingdomway

Group Company (Kingdomway) and so on. Hisound and Kingdomway have feed-grade and food & pharmaceutical-grade VD3.

However, Garden Bio-chemical has a cost advantage over these two companies thanks to its own advanced production

technology. Like in 2013, VD3 market faces a weak demand, and its market price maintained a downtrend. As a result, the net

profit of Hisound falls to -USD1.80 million (-RMB11.06 million) in 2013 from USD0.72 million (RMB4.45 million) in 2012 and the

gross profit margin of Kingdomway's VD3 business also fell to -5.84%, while the gross profit margin of Garden Bio-chemical's VD3

business still stayed 47. 22%, a higher lever.

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One thing to note is that Garden Bio-chemical also faces risks when it quickly expands the VD3 business.

Firstly, the company performance is effected by the sales price of VD3 and the fluctuation of wool grease purchase price.

According to the company, if the NF-class cholesterol achieves self-sufficiency, the total profit will face a change of 3.83% when the

average sales price of VD3 changes 1%; and the total profit changes 0.82% when the wool grease purchases price changes 1%.

Secondly, Garden Bio-chemical heavily relies on the top five clients. And the company will suffer negative influence if the key clients

stop purchasing VD3 from it.

Thirdly, At present, Garden Bio-chemical is under the review of high-tech enterprise qualification, and its performance will be

effected to a large extent if qualification review can not be succeeded or preferential policy is adjusted in the future. What's more,

Garden Bio-chemical and its subsidiary, Hangzhou Xiasha Biochemical Tech.Co., Ltd. enjoy 17% export rebates and a preferential

rate of 15% for high-tech enterprises income tax.

Xinfu Pharmaceutical Entering into Fast Development Period by Combining Two Subsidiaries

Summary: In September 2014, Xinfu Pharmaceutical merged two of its subsidiaries, Yifan Pharmaceutical and Yifan Bio-Pharm

into one. This will aid Xinfu Pharmaceutical's centralization and accelerate its development pace.

On 29 September, 2014, Zhejiang Hangzhou Xinfu Pharmaceutical Co., Ltd. (Xinfu Pharmaceutical) announced that Hefei Yifan

Bio-Pharm Co., Ltd. (Yifan Bio-Pharm), a subsidiary of Xinfu Pharmaceutical, will merge with Hefei Yifan Pharmaceutical Co., Ltd.

(Yifan Pharmaceutical), another subsidiary of Xinfu Pharmaceutical. After the completion of the merger, Yifan Bio-Pharm will

continue to exist while Yifan Pharmaceutical will be dismissed and deregistered. As the legal personality, Yifan Bio-Pharm will

inherit all of Yifan Pharmaceutical's assets, credits and debts, employees and businesses. Xinfu Pharmaceutical said that after the

merger of Yifan Bio-Pharm and Yifan Pharmaceutical, the company can achieve centralization and improve the efficiency of its

pharmaceutical business operation.

In fact, Fuxin Pharmaceutical acquired Yifan Bio-Pharm and Yifan Pharmaceutical in July 2013. After the acquisition, Fuxin

Pharmaceutical's profitability was dramatically improved.

In recent years, Fuxin Pharmaceutical has been underperforming. The company's net profit was -USD23.13 million (-RMB197.55

million) and -USD37.45 million (-RMB230.29) in 2010 and 2011 respectively, being exposed to the delisting risk. In 2012, to avoid

being delisted due to a third consecutive year net loss, Fuxin Pharmaceutical continuously disposed its assets and got a net profit

of USD2.33 million (RMB14.32 million) in 2012, finally achieving the turnaround.

In the meantime, Yifan Bio-Pharm and Yifan Pharmaceutical have demonstrated strong profitability. Yifan Bio-Pharm is specialized

in consultative selling of pharmaceutical products, with a net profit of USD7.01 million (RMB43.08 million) in 2012. Yifan

Pharmaceutical is engaged in the R&D, manufacturing and sale of pharmaceutical products, with a diversified product coverage,

ranging from chemical pharmaceuticals and traditional Chinese medicine to active pharmaceutical ingredients. In 2012, the

company's net profit reached USD3.97 million (RMB24.43 million).

According to the semi-annual report of Xinfu Pharmaceutical in 2014, the company's revenue in the first half of 2014 had a 30%

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year on year increase and achieved USD71.17 million (RMB437.68 million), while its net profit went up by 1,04% and amounted to

USD17.42 million (RMB107.13 million), over H1 2013.

In addition to the benefits from the merger and acquisition, Xinfu Pharmaceutical itself has been evolving rapidly as well. Since

November 2013, Xinfu Pharmaceutical had started to raise the price of vitamin B5 (Calcium pantothenate). Consequently, the

company obtained the revenue with a 35.62% year on year rise in the first half of 2014 from VB5.

At present, Xinfu Pharmaceutical still maintains its leading position in both the domestic and global VB5 markets.

In China, apart from Xinfu Pharmaceutical, Shandong Xinfa Pharmaceutical Co., Ltd. (Xinfa Pharmaceutical) and Shandong

Huachen Biology Science Co., Ltd., are prime VB5 manufacturers as well, whose production capacities of VB5 stood at 7,000 t/a

and 2,000 t/a in 2013 respectively. However, the domestic annual demand is approximately 3,000 tonnes in total, thus most of the

VB5 has to be exported. Specifically, in 2013, Xinfu Pharmaceutical accounted for 60% of the exported VB5, while the rest could

be traced back to Xinfa Pharmaceutical.

Globally, Xinfu Pharmaceutical is the strongest VB5 manufacturer, with the largest VB5 production capacity and the most advanced

production technology. In 2013, the VB5 output of Xinfu Pharmaceutical was 7,500 tonnes, while the demand for the product across

the world was around 18,000 tonnes, which indicates that Xinfu Pharmaceutical takes up to 30% of the global VB5 market share.

Other products of Xinfu Pharmaceutical’s are also developing fast.

Poly (butylene succinate) (PBS): With the bouncing back of PBS market, PBS contributed a larger proportion in the company’s

revenue and demonstrated a 38.66% year on year increase in the first half of 2014.

Polyvinyl butyral (PVB): in the first half of 2014, PVB showed a better performance in the company’s total revenue, by a 31.90%

year on year increase.

However, because of the undiversified product, Xinfu Pharmaceutical has heavy reliance on VB5 and stays vulnerable to risks from

VB5 market. By acquiring Yifan Bio-Pharm and Yifan Pharmaceutical, the company's medical product range has been expanded,

which in turn raised the company’s competitiveness and lowered the risk in the pharmaceutical market. Besides, Xinfu

Pharmaceutical can take advantage of this centralized organizational structure, and improve the overall competitiveness in the

pharmaceutical market.

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Figure 7: Sales mix of Xinfu Pharmaceutical, H1 2014

Note: Sales from Yifan Bio-Pharm and Yifan Pharmaceutical are excluded. PBS: poly(butylene succinate) PVB: polyvinyl butyral EVA: ethylene-vinyl

acetate copolymer

Source: Zhejiang Hangzhou Xinfu Pharmaceutical Co., Ltd.

Table 5: Capacity and output of main VB5 manufacturers in China, 2013

Manufacturer Capacity, t/a Output, tonneZhejiang Hangzhou Xinfu Pharmaceutical Co., Ltd. 8,000 7,500Shandong Xinfa Pharmaceutical Co., Ltd. 7,000 6,000Shandong Huachen Biology Science Co., Ltd. 2,000 500

Source: CCM

Changjiang Industry Investment Group Lends Money to Guangji Pharmaceutical

Summary: Changjiang Industry Investment Group lend USD48.79 million (RMB300 million) to Guangji Pharmaceutical in Oct. 2014,

on condition that Guangji Pharmaceutical gave consent to the acquisition by Changjiang Industry Investment Group. It resulted in a

win-win solution for both sides.

On 9 Oct., 2014, Hubei Changjiang Industry Investment Group Co., Ltd. (Changjiang Industry Investment Group) lend USD48.79

million (RMB300 million) to Hubei Guangji Pharmaceutical Co., Ltd. (Guangji Pharmaceutical) with a repayment period of 3 years.

This contract provided Guangji Pharmaceutical with the funding for its operation and expansion, especially in two aspects:

On one hand, it supports the biological industry park. The park focuses on vitamin, amino acid and other projects. The company

invested USD487.86 million (RMB3.00 billion) on building biological industry park and planned to complete within 6 to 8 years. It

was initiated in Dec. 2009, and is still under construction now.

On the other hand, it instills the cash flow for the operation. This investment can ease Guangji Pharmaceutical's financial pressure.

Currently, the company was underperforming, because of the depressed Vitamin B2 (Riboflavin) market. In H1 2014, its revenue

had a 1.27% year-on-year increase and reached USD37.47 million (RMB230.44 million); However, it had a net loss of USD6.15

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had a 1.27% year-on-year increase and reached USD37.47 million (RMB230.44 million); However, it had a net loss of USD6.15

million (RMB23.06 million), which went down by 3,665.90% year on year.

Figure 8: Guangji Pharmaceutical's performance, Jan. 2011-June 2014

Source: Hubei Guangji Pharmaceutical Co., Ltd.

It is notable that the lending is attached to the agreement that Changjiang Industry Investment Group became the biggest

shareholder of Guangji Pharmaceutical. On 14 July, Changjiang Industry Investment Group bought out 15.11% of Guangji

Pharmaceutical's common stocks, and hence become the biggest shareholder. Conditionally, Changjiang Industry Investment

Group possessed the obligation to offer a USD48.79 million (RMB300 million) non-gratuitous lending to Guangji Pharmaceutical.

Besides, Changjiang Industry Investment Group made promises as follows:

1. It will not transfer its current holdings of Guangji Pharmaceutical in three years.

2. At least USD81.31 million (RMB500 million), would be provided to Guangji Pharmaceutical.

3. It will attempt to ensure the net profit of Guangji Pharmaceutical in 2015-2017, otherwise, the shortfall should be compensated in

cash by Changjiang Industry Investment Group.

4. It shall concentrate on diversifying product offerings of Guangji Pharmaceutical , on top of the existing core business.

5. A 3 to 5 years plan is being arranged for Guangji Pharmaceutical.

Investing in Guangji Pharmaceutical was a win-win solution for both Changjiang Industry Investment Group and Guangji

Pharmaceutical.

To Guangji Pharmaceutical

1. The funding and technology support is beneficial in that it keeps Guangji Pharmaceutical away from financial constrains, and

brings new opportunities to Guangji Pharmaceutical.

2. Expanding the product offerings improves Guangji Pharmaceutical's likelihood of survival against risks. At present, Guangji

Pharmaceutical is undiversified in term of product portfolio. Therefore, this move will resolve the vulnerability to risks and improve

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the competitiveness in vitamin industry.

To Changjiang Industry Investment Group

1. The acquisition of Guangji Pharmaceutical is the stepping stone of its dive into pharmaceutical industry. Changjiang Industry

Investment Group disclosed its confidence in the prospect of biomedical industry and willingness to establish a biomedical industry

chain in the future. Currently, Changjiang Industry Investment Group has not involved in the biomedical business yet.

2. It helps towards the integration of the biomedical industries. Now, wholly-owned subsidiaries of Changjiang Industry Investment

Group, such as Changtou High-tech Investment Group, invested in the local boutique pharmacy enterprises to accelerate the future

integration of biomedical industry.

Guangji Pharmaceutical was still in deficit in Q3. It resulted from the depression of Vitamin B2 (Riboflavin) market, and the high

costs of raw materials, which together consumed the mark-up. Thus, it still has a long time for the company to turn loss to gain.

Guangji Pharmaceutical was founded in 1969, and became listed on the Shenzhen Stock Exchange in 1999. As the biggest

Vitamin B2 enterprise in China, its capacity reached 4,800 t/a in 2013, and captured 80% of the domestic market as well as

roughly 40% of the international market.

Changjiang Industry Investment Group was founded in 2010, which focused on investing in emerging industries, like biomedical or

innovative energy industries; established industries, like automotive industry; and public infrastructure, like ports construction.

Table 6: Main Vitamin B2 manufacturers in China, 2013

No. Manufacturer Capacity, t/a1 Hubei Guangji Pharmaceutical Co., Ltd. 4,8002 Shanghai Hegno Pharmaceutical Development Co., Ltd. 2,0003 Ningxia Qiyuan Pharmaceutical Co., Ltd. 2,0004 Shandong NB Group Co., Ltd. 1,2005 Shandong Xinfa Pharmaceutical Co., Ltd. 600

Source: CCM

Import & Export Analysis

Chinese Vitamins Imp. & Exp., Aug. 2014

Table 7: Imp. & Exp. value of vitamins (with independent HS code) in China, Aug. 2014

Product Import value, USD MoM change Export value, USD MoM changeVitamin A 1,050,919 -36% 3,779,022 -40%Vitamin B1 1,347,378 2,022% 9,065,087 -11%Vitamin B2 200,154 1,342% 4,589,296 -0.7%Vitamin B5 336,491 12% 12,332,390 -8%Vitamin B6 59,110 1,850% 6,089,161 -47%Vitamin B12 1,404,654 28% 6,914,800 10%Vitamin C 428,902 22% 35,721,565 -13%Vitamin E 9,674,945 -21% 40,458,191 -28%

Source: China Customs

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Table 8: Imp. & Exp. volume of vitamins (with independent HS code) in China, Aug. 2014

Product Import volume, tonne MoM change Export volume, tonne MoM changeVitamin A 58.3 -49% 148.0 -27%Vitamin B1 60.5 3,261% 416.1 -19%Vitamin B2 11.4 5,600% 169.8 -9%Vitamin B5 32.3 35% 915.9 -3%Vitamin B6 1.8 / 251.2 50%Vitamin B12 1.5 5% 3.6 10%Vitamin C 5.6 54% 9,461.2 -8%Vitamin E 585.9 -15% 3,427.8 -23%

Note: The import volume of Vitamin B6 is zero in July 2014.

Source: China Customs

Table 9: Imp. & Exp. price of vitamins (with independent HS code) in China, Aug. 2014

Product Import price, USD/t MoM change Export price, USD/t MoM changeVitamin A 18,026 25% 25,541 -18%Vitamin B1 22,271 -37% 21,784 12%Vitamin B2 17,557 -75% 27,031 9%Vitamin B5 10,418 -17% 13,466 -5%Vitamin B6 32,839 / 24,243 7%Vitamin B12 955,547 34% 1,928,815 22%Vitamin C 77,280 -21% 3,776 -5%Vitamin E 16,514 -7% 11,803 7%

Source: China Customs

Exports of China's VC Rising in Jan.- Aug. 2014

Summary: The total export value of China's VC multiplied from Jan. to Aug. 2014, assisted by the rise of export volume and export

price.

According to data from China Customs, the total export value of China's VC reached USD315.57 million during Jan.-Aug. 2014, up

by 26.31 % year on year; driven by the rise of export volume and export price.

Benefited by the recovery of main markets in Europe and the US, and the increasing consumption of overseas customers and other

positive factors, the export volume of China's VC amounted to 81,453 tonnes from Jan. to Aug., with 12.54% year-on-year growth

rate. More specifically, the exports of China's VC to the US, German, Belgium and Brazil rose by 12.15%, 18.20%, 15.12% and

30.98% respectively year on year. Among those countries, the US is the largest export destination. During this period, the export

volume to the US accounted for 24.13% of total exports.

Hebei and Shandong provinces are the top two export provinces for China's VC. And Zibo city, Shandong Province is the largest

export area in China. In the first 8 months of 2014, its export volume reached 20,272 tonnes, capturing 24.89% of national total

exports.

In the first 8 months of 2014, the average export price of China's VC was about USD3,874/t, a year-on-year growth of 12.23 %.

Affected by the increasing demand for aquatic feed and stricter environmental requirements, domestic manufacturers began to

sharply rise VC price since April 2014. According to CCM's database, the average market price of 99% VC was USD4,457/t in

Q2, around USD723/t higher than that of Q1.

In addition, China imported 269 tonnes of VC in the first 8 months of 2014, with 52.37% year-on-year growth rate; the average

import price is USD11,723/t, down by 37.50% year on year. The imported VC mainly comes from the high-quality ones made in the

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UK and Japan.

Figure 9: Export trend of China's VC, Jan. 2013-Aug. 2014

Source: China Customs

Table 10: Top 10 export destinations for China's VC, Jan.-Aug. of 2013, 2014

Jan.– Aug. 2014 Jan.– Aug. 2013Destination Export volume, tonne Export price, USD/t Destination Export volume, tonne Export price, USD/t

The US 19,651 3,899The US 17,522 3,399Germany 10,966 3,916Germany 9,277 3,289Japan 7,186 4,492Japan 7,434 4,492Belgium 4,867 3,477Belgium 4,228 3,078Brazil 2,772 3,449Indonesia 2,391 3,787South Korea 1,977 4,284Brazil 2,116 3,119Indonesia 1,954 4,099The UK 1,695 3,056Vietnam 1,868 3,331South Korea 1,672 4,344Turkey 1,668 3,664Italy 1,286 3,096The UK 1,667 3,485Russia 1,284 2,251

Source: China Customs

Figure 10: Export volume of China's VC by Province, Jan.-Aug. 2014

Source: China Customs

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Figure 11: Import trend of VC in China, Jan. 2013-Aug. 2014

Source: China Customs

China’s VE Witnesses YoY decline in Export Price during Jan.–Aug. 2014

Summary: In Jan.–Aug. 2014, China's VE saw a year-on-year growth in export volume, but a year-on-year fall in export price.

China exported 37,295 tonnes of Vitamin E (VE) from Jan. to Aug. 2014, with 20.4% year-on-year growth rate. The main export

destinations of China's VE are the US, Germany, the Netherlands. Among these countries, the exports to Brazil and Belgium

increased by 113.5% and 46.2% year on year respectively; while those to Thailand and Japan declined by 12.2% and 10.0% year

on year respectively.

The average export price of China's VE was USD2.10/kg, decreasing by 16.5% over the same period of last year. The reason

comes to two main aspects:

For one thing, BASF resumed its citral production line this April, stimulating the price fall of VE.

For anther, VE inventory was rather sufficient, some of the dealers chose to lower the product's price to promote sales.

At present, VE's market at home and abroad are saturated, domestic VE is also seeing a trend towards overcapacity. Therefore,

the possibility of export price rise is expected to be small. Nowadays, the market shares of Zhejiang Medicine Co., Ltd., Zhejiang

NHU Co., Ltd., PKU HealthCare Corp., Ltd., DSM and BASF take up almost 100% in global market; but domestic VE capacity is

still on the increase. For example, Jilin Beisha Pharmaceutical Co., Ltd. upgraded VE production line in this July, and its output of

VE is expected to expand from 1,000 tonnes to 10,000 tonnes.

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Figure 12: Export trend of Vitamin E in China, Jan. 2013-Aug. 2014

Source: China Customs

Table 11: Top 5 export destinations for China's VE, Jan.-Aug. of 2013, 2014

Jan.-Aug. 2014 Jan.-Aug. 2013Destination Export volume, tonne Destination Export volume, tonne

The US 9,947The US 9,183Germany 8,536Germany 6,097The Netherlands 3,775The Netherlands 3,635Japan 1,878Japan 2,088Brazil 1,602Thailand 1,120

Source: China Customs

Price Update

Price Update of Vitamins, Oct. 2014

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Table 12: Average ex-works prices of vitamins in China, Oct. 2014

Product Specification Price in Oct. 2014, USD/t

Vitamin A500,000 IU/g feed grade 25,065325,000 IU/g food grade 35,807

Vitamin B198% feed grade 29,78599% food grade 34,58699% pharmaceutical grade 36,621

Vitamin B280% feed grade 23,60098% food grade 55,33898% pharmaceutical grade 61,848

Vitamin B399% feed grade 6,83699% food grade 7,81299% pharmaceutical grade 16,439

Vitamin B5 (Calcium pantothenate)98% feed grade 17,09099% food grade 19,53199% pharmaceutical grade 24,414

Vitamin B698% feed grade 25,06598% food grade 33,36698% pharmaceutical grade 39,876

Vitamin B72% feed grade 16,2762% food grade 42,31799% pharmaceutical grade 781,241

Vitamin B998% feed grade 97,65598% food grade 107,42198% pharmaceutical grade 126,952

Vitamin B121% feed grade 23,9261% food grade 39,8761% pharmaceutical grade 66,568

Vitamin C99% powder feed grade 4,07599% powder food grade 4,68799% powder pharmaceutical grade 4,769

Vitamin D299% food grade 49,64199% pharmaceutical grade 2,713/kg

Vitamin D3500,000IU/g feed grade 32,552100,000IU/g food grade 24,414

Vitamin E50% powder feed grade 13,34650% powder food grade 24,82150% oil pharmaceutical grade 28,076

Vitamin K3 MSB 96% feed grade 11,881

Source: CCM

VC Price Declines in Q3 2014

Summary: In Q3 2014, domestic VC price witnessed a downtrend, mainly due to the large VC inventory. In addition, seasonal

factors may keep VC price falling in Q4 2014.

According to CCM's investigation, during Jan. -June 2014, VC price showed a clear uptrend in China, among them, the

market price of VC (feed grade, hereinafter) was USD4,658/t in June, reaching a record high so far this year. The obvious price

growth can be chiefly attributed to the following two reasons:

Firstly, with the seasonal changes, there has been an evident rise in demand for VC from domestic aquaculture industry since April,

resulting in VC price soaring:

Secondly, in April, a draft amendment to the Environment Protection Law was approved at the Eight Plenary Session of the 12 th

National People's Congress, enhancing the corporate responsibilities of all respects as well as punishment dynamics, thus

increasing the VC producers' operation cost. This move played a significant role in boosting price.

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It's worth noting that VC price witnessed wild fluctuation entering Q3. It kept going down during June-Sept. 2014, and VC price

dropped to USD3,970/t on 5 Sept., 2014. In fact, demand for VC from aquaculture industry maintained at a highest level, for it is in

summer months; furthermore, some domestic VC manufacturers suspended production for overhaul. These two elements both

pushed up the VC price. However, domestic manufacturers and dealers have begun to stored abundant VC products in order to

meet demand in the peak season starting in April. As summer comes to an end, demand for VC is expected to weaken gradually.

Therefore, in Q4, the inventory will become a key task for the VC producers and dealers and VC price is predicted to continue to

slide.

Overcapacity still remains the toughest problem in domestic VC industry. Starting from the 1990s, a great number of small and

medium-sized enterprises successively produced VC attracted by profits. And soon, output of VC far exceeded its market demand,

as a result, the profit margin was squeezed and some enterprises have been already under a dilemma of quitting the market.

Currently, the largest VC producers in China are Northeast Pharmaceutical Group Co., Ltd., North China Pharmaceutical Group

Co., Ltd., Shandong Luwei Pharmaceutical Co., Ltd., CSPC Pharmaceutical Group Limited, Aland (Jiangsu) Nutraceutical Co., Ltd.

and Shandong Tianli Pharmaceutical Co., Ltd. In fact, the capacity of these six enterprises totaled around 120,000 t/a in 2013, while

global demand for VC is about 100,000 tonnes per year. Thus, enterprises cannot achieve considerable benefits from VC field in

that the capacity is much more than its market demand.

By the way, on 11 July, 2014, DSM announced to acquire Aland Nutraceutical, probably bringing an obvious impact on VC

industrial competition pattern. The VC capacity of DSM reached 23,000 t/a in 2013, which will exceed 40,000 t/a after purchasing

Aland Nutraceutical; and DSM becomes the biggest VC supplier in the world. As DSM increased its VC capacity, its influence on

VC market will be further enhanced. Besides, VC market is at a doldrums recently, leading to some of China's VC manufacturers

suffering losses. It's predicted that DSM's actual VC output and price will affects the industry obviously.

Figure 13: Market price of VC (feed grade), Jan.-Aug. 2014

Source: CCM

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Table 13: SWOT analysis of China's leading VC manufacturers

Strengths Weaknesses1. They boast various product structures in addition to VC; and they have a strong anti-risk capability.2. As running business for many years, they enjoy wide sales channels and maintain dominantpresence in VC industry.

VC products present serious homogeneity and small profitmargins.

Opportunities Threats

With intensifying supervision and punishment on pharmaceutical industry and standardizing theindustry competition by the government, small players face the risks of being eliminated. Therefore, theindustrial concentration is lifted, which will balance the supply and demand of VC products.

1. Under the background of large numbers of competitors andthe oversupply for long term in domestic VC industry, it isdifficult to bring in substantial profits for the enterprises.2. India Prolongs anti-dumping measures against China's VCfor one year.

Source: CCM

Table 14: Main VC manufacturers in China, 2013

Manufacturer Output, tonneNorth China Pharmaceutical Group Co., Ltd. 17,500Shandong Luwei Pharmaceutical Co., Ltd. 19,500CSPC Pharmaceutical Group Limited 31,000Northeast Pharmaceutical Group Co., Ltd. 22,000Aland (Jiangsu) Nutraceutical Co., Ltd. 18,000Shandong Tianli Pharmaceutical Co., Ltd. 12,000

Source: CCM

VB2 Price Increases Sharply in Sept. 2014

Summary: In Sep. 2014, the domestic market price of VB2 increased sharply because major VB2 manufacturers raised its quoted

price.

Data from CCM showed that the market price of VB2 increased sharply in September. In detail, the market price of 80% VB2 was

about USD19,884/t in Aug., while it started to rise sharply in Sept. Up to 9 Oct., it reached USD23,743/t.

The market price of VB2 increased in Sept. 2014 sharply because Hubei Guangji Pharmaceutical Co., Ltd. (Guangji

Pharmaceutical) raised its quoted price of VB2. On 18 Sept., 2014, Guangji Pharmaceutical raised the quoted price of VB2 to

USD30,084/t (RMB185/kg), an increase of 48% compared with the figure of USD20,002/t (RMB123/kg) at the beginning of

September. Similarly, BASF announced to increase its quoted price for VB2 in the global market in September, including the food

grade and feed grade, with the increase rate of about 20%.

Guangji Pharmaceutical, is the biggest VB2 producter in China, whose capacity was 4,800 t/a in 2013. In fact, the price rise in

Guangji Pharmaceutical's product is under expectation, which is attributed to the following three reasons.

Firstly, on 8 Sept., 2014, DSM, one of the globally main VB2 producters, disclosed that its VB2 factory in Germeny will suspend

production for overhaul starting from 6 October; among them, the production of feed grade VB2 will be suspended for 4 weeks and

the food grade VB2 for 6 weeks. Thus, the supply of VB2 will be reduced. Similarly, BASF announced to increase its quoted price

for VB2 in the global market in September, including the food grade and feed grade, with the increase rate of about 20%.

Secondly, on 15 Sept., 2014, Feedinfo News Service reported that the FAMI-QS of Shanghai Hegno Pharmaceutical Development

Co., Ltd., a major competitor of Guangji Pharmaceutical, was revoked as its VB2 contained GM ingredient; therefore, the exports of

its VB2 to European countries was restricted. This would be favourable for Guangji Pharmacetical's exports. As a major exporter of

VB2 in China, the export proportion of Guangji Pharmaceutical reaches 75% in national total exports.

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Thirdly, the production cost of VB2 also increased in China. The price of corn starch, raw material of VB2, kept at a high level.

Besides, the GM event enhanced the export standard for VB2, which also pushed up the production cost of VB2.

Major B2 manufacturers in foreign countries are DSM and BASF and major Chinese manufacturers are Guangji Pharmaceutical,

Shanghai Hegno Pharmaceutical Development Co., Ltd., Shandong NB Group Co., Ltd. and Ningxia Qiyuan Pharmaceutical Co.,

Ltd.

Looking back into H1 2014, the market price of VB2 in China maintained at low level compared with the same period of 2013

because of heavy stock and excessive capacity. As a result, Chinese VB2 manufacturers are losing money. For example, the net

profit of Guangji Pharmaceutical was –USD3.74 million in H1 2014.

It is worth noticing that, with the newly-harvested corn in North China entering into the market since October, the price of corn also

dropped, it will be a good news for the VB2 manufacturers. Accordingly, it is estimated that the price of corn starch will also fall.

Until 9 October, the ex-works price of corn starch was USD496/t-USD512/t (RMB3,050/t-RMB3,150/t) in Jilin and Liaoning

provinces, down by USD8/t (RMB50/t) over late September. In addition, the ex-works price of corn starch was USD520.4/t-

USD544.8/t (RMB3,200/t-RMB3,350/t) in Hebei and Shandong provinces, down by USD16/t (RMB100/t). This will help to improve

profit margin of VB2 products and let VB2 manufacturers to gain profits.

The domestic market price of VB2 is expected to maintain at high level in Q4 2014. On the one hand, DSM suspended production

and other major VB2 manufacturers like Guangji Pharmaceutical raised the quoted price of VB2, which would support the market

price of VB2. On the other hand, Chinese VB2 manufacturers hope to raise the price of VB2 in order to avoid more losses because

its price was kept at a low level for a long period.

Figure 14: Market price of 80% VB2 in China, Jan. 2014-9 Oct. 2014

Source: CCM

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Table 15: Main VB2 manufacturers in China, 2013

Manufacturer Capacity, t/aHubei Guangji Pharmaceutical Co., Ltd. 4,800Shanghai Hegno Pharmaceutical Development Co., Ltd. 2,000Ningxia Qiyuan Pharmaceutical Co., Ltd. 2,000Shandong NB Group Co., Ltd. 1,200

Source: CCM

Market price of VD3 Keeps Increasing from July to Mid-October 2014

Summary: Affected by the short of supply, the domestic market price of VD3 maintained an uptrend from July to mid-October 2014.

According to CCM's investigation, the domestic market price of vitamin D3 (VD3) was USD16,242/t in July 2014, which sharply

increased to USD29,417/t in Sept. And it remains about USD30,000/t in mid-October.

As the supply reduction of cholesterol of Zhejiang Garden Biochemical High-tech Stock Co., Ltd. (Garden Biochemical, one of the

largest manufacturers of VD3 in the world), the supply of VD3 was in short, which led to the surge of market price of VD3 since July.

In June 2014, Garden Biochemical declared to suspend the production of cholesterol for its expansion project, which is expected to

resume production at the end of 2015. NF-class cholesterol is the main raw material of VD3. Though there are many cholesterol

manufacturers, the cholesterol is not pure enough due to the technology restriction. Compared with others, Garden Biochemical is

the one with better quality.

In addition, the price of imported cholesterol was on the increase between July and Sept. in 2014. The skyrocketing cost compels

the price rise of VD3 made by its downstream enterprises. The quoted price of feed-grade VD3 by Garden Biochemical was

USD35,772/t on 15 Sept., 2014. And the quotation went up to USD48,780/t at the beginning of Oct.

The international VD3 industry has shown oligopolistic structure. Trend of rising price will be apparent if the supply of VD3 is

restricted. By the first half year of 2014, the domestic capacity of VD3 is about 10,600 t/a, which covers 75% of the global capacity.

And the capacity of Garden Biochemical's VD3 accounts for 47% of the national total.

In fact, China is confronted with overcapacity of VD3, and its utilization of capacity is low. According to the incomplete statistics by

CCM, the utilization of capacity of VD3 was around 42% in 2013 in China. Besides, it is reported that the designed production

capacity of the global feed-grade VD3 exceeds 12,000 t/a at present; while, the global annual demand is about 5,000 to 6,000

tonnes. The annual production capacity outdistances the market demand.

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Figure 15: Market price of feed-grade VD3 in China, Jan. 2013-14 Oct., 2014

Source: CCM

Table 16: Main VD3 manufacturer in China, H1 2014

No. Manufacturer Capacity, t/a1 Zhejiang Garden Biochemical High-tech Stock Co., Ltd. 5,0002 ZHEJIANG NHU Co., Ltd. 1,5003 Xiamen Kingdomway Group Co., Ltd. 1,5004 Taizhou Hisound Chemical Co., Ltd. 1,000

Source: CCM

Market Price of Folic acid Maintains Uptrend Since Jan. 2014

Summary: Since Jan. 2014, the domestic market price of folic acid kept increasing, driven by the strong demand for it.

Since Jan. 2014, the market price of folic acid in China maintains an uptrend. For example, the market price of 98% feed-grade

folic acid API was USD28,418/t in Jan. and soared to USD91,015/t in Sept. The price rise are attributed to the following reasons:

For one thing, the supply of folic acid reduces, while the demand increases. During the pollution treatment of Taihu Lake, from May

to Oct. of each year, surrounding chemical enterprises are under production restriction. In this June, Changzhou Niutang Chemical

Plant Co., Ltd. (Changzhou Niutang) was restricted production, and Changzhou Kangrui Chemical Co., Ltd. (Kangrui Chemical)

was forced to suspend production. What's more, Zhejiang Shengda Pharmaceutical Co., Ltd. has to regularly suspend production

for seven days because of limited power in July and Aug. Apart from these, China's folic acid enterprises reduce the supply of folic

acid for home market and focuse on overseas market. Q3 is the peak purchasing period for downstream feed enterprises, which

leading to demand exceeding supply, further stimulating the price rise of folic acid. At present, the domestic demand is about 300

tonnes, it's estimated that the supply is still in short and price will furthter rise.

For another, the more rigorous environmental policy causes the increased costs. If adopting the traditional production technique,

making 1 tonne of folic acid has to discharge 280 tonnes of waste water, in which the ammonia nitrogen and inorganic salt cause

serious environmental pollution. The emission reduction standard of ammonia nitrogen and inorganic salt is added to China's

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Twelve-Five environmental protection standards, which brings a higher requirement to the folic acid production. Taking Hebei

Jiheng (Group) Pharmacy Co., Ltd. as an example, RMB12,000 of environmental operation cost is added when making 1 tonne of

folic acid after the waste water treatment. The high cost of environmental protection restricts the development of folic acid

manufactures.

It is noted that the environmental requirements will be more and more strict in the future, and the increased cost of production

become inevitable for enterprises. At present, more than 95% of domestic folic acid are exported to abroad and used for feed

additives, whose sale price is much lower than those of Japan, Switzerland and other countries. China's folic acid makes little profit

relatively and even causes environmental pollution. Therefore, enterprises should lay great attention on the environmental problem,

optimize production technique and further reduce cost. Meanwhile, China will intensify policy support and increase the

industrial competitiveness of folic acid, for forcing into the European and the US high-end market.

Since 2007, the declining market price and the environmental press led to concentrated supply of domestic folic acid. At present,

the main manufactures in China are Shandong Xinfa Pharmaceutical Co., Ltd., Changzhou Niutang, Zhejiang Shengda

Pharmaceutical Co., Ltd., Hebei Jiheng (Group) Pharmacy Co., Ltd. and so on. Besides, the DSM is in charge of the global sale of

folic acid made by Changzhou Xinhong Pharmaceutical & Chemical Industrial Technologies Inc.

Figure 16: Market price of China's 98% feed-grade folic acid API, Jan.2013-Sept.2014

Source: CCM

Table 17: Main folic acid manufacturer in China, 2013

No. Manufacturer Capacity, t/a Output, tonne1 Shandong Xinfa Pharmaceutical Co., Ltd. 1,500 4002 Changzhou Niutang Chemical Plant Co., Ltd. 600 5003 Changzhou Xinhong Pharmaceutical & Chemical Industrial Technologies Inc 400 3004 Zhejiang Shengda Pharmaceutical Co., Ltd. 300 1505 Changzhou Kangrui Chemical Co., Ltd. 200 1006 Hebei Jiheng (Group) Pharmacy Co., Ltd. 180 145

Source: CCM

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News in Brief

Zhejiang Medicine Merges Changhai Biology

On 29 Sept., 2014, Zhejiang Medicine Co., Ltd. (Zhejiang Medicine) held a stockholders' meeting and decided to merge its wholly-

owned subsidiary, Zhejiang Changhai Biology Co., Ltd. (Cahnghai Biology) After the combination, Changhai Biology is to write off

the independent legal qualification.

It is known that Zhejiang Medicine has moved to Shaoxing City from Hangzhou City, within Zhejiang Province, in 14 July, 2014, while

Changhai Biology is also located in Shaoxing City, Zhejiang Province. This combination is made for simplifying the administrative

structure, reducing the operation cost and increasing the operating efficiency.

Zhejiang Medicine is the largest VE manufacture in China, as well as one of the main producers of VA and VD3.

Table 18: Capacity and output of Zhejiang Medicine's main vitamins, 2013

Product Capacity, t/a Output, tonne

Vitamin E 2,700 1,400

Vitamin A 20,000 15,000

Vitamin D3 300 225

Source: CCM

Brother Enterprises Shows Good Performance in Q3

On 25 Oct., 2014, Brother Enterprises Holding Co., Ltd. (Brother Enterprises) announced the Q3 quarterly report. It shows that its

reveune was USD34.63 million (RMB212.93 million) in Q3, up by 8% year on year, while the net profit was USD2.3 million

(RMB14.15 million), with 64.5% year-on-year growth rate. Affected by the environmental press and the increasing production cost in

Q3, the domestic market price of vitamin B1 is on the rise, which leads to an increase in the achievements of Brother Enterprises.

Brother Enterprises is specialized in the R&D, production and sales of vitamin K3, vitamin B1, vitamin B3 and other products. The

company is the world’s biggest manufacturer of vitamin K3, whose capacity was 3,000 t/a and the total output was 2,300 tonnes in

2013. According to the latest information, the revenue from vitamin K3 business is USD11.47 million (RMB70.51 million) in H1

2014, almost equaling to that of the same period of last year.

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Guangji Pharmaceutical Forecasts Loss in First Three Quarters of 2014

On 15 Oct., 2014, Hubei Guangji Pharmaceutical Co., Ltd. (Guangji Pharmaceutical) published its earnings pre-announcement of

the first three quarters of 2014, showing that the company's net loss was around USD8.94 million-USD10.57 million (RMB55

million-RMB65 million) in Q1-Q3, while it witnessed a net profit of USD25.03 thousand (RMB153,900) over the same period of

2013. Among them, the company's net loss reached USD5.20 million-USD6.83 million (RMB32 million-RMB42 million) in Q3 2014,

and its net loss totaled USD80.12 thousand (RMB492,700) in Q3 2013.

Guangji Pharmaceutical's losses during the reported period can be attributed to the fact that weak demand for its leading product,

vitamin B2, from markets at home and abroad, and downturn in its selling price as well as high raw material price and energy price,

together leading to a shrink in the company's profit margin.

VD3 Content Exceeding Standard

On 20 Oct., 2014, Shanghai Health-Care Products Association revealed that, among the 8 batches of vitamin health-care products

inspected recently, half of their vitamin D3 content exceeds the national reference standards (400-600 U/Day). Among them, for the

one which D3 content is the largest, one single pill/capsule of vitamin D3 content is 2,500IU.

It is said that now domestic citizens are supplementing vitamin D3 blindly. Therefore, professor Lishuguang from Fudan University

thinks that government should know about the vitamin D3 "gap" among domestic citizens as soon as possible and provide

guidance for vitamin D3 in the production process.

Tiger Industrial Obtains Subsidy

On 9 Sept., 2014, Anhui Tiger Vitamin Industrial Co., Ltd. (Tiger Industrial) obtained a provincial special fund of USD113,834

(RMB700,000) for technical transformation. This fund may be used for its vitamin E project with a capacity of 10,000 t/a, whose total

investment will reach USD205.99 million. The VE capacity of the first phase of the project is 1,000 t/a, and that of the second phase

is 9,000 t/a. The project began constructing in 2012, but the completion date is still unknown. On 24 Sept., the Energy Conservation

Assessment Report has gone through the review of the National Development and Reform Commission. Tiger Industrial is the

wholly-owned subsidiary of Anhui Tiger Biotech Co., Ltd. (Tiger Biotech). Nowadays, the main products of Tiger Biotech are vitamin

C series of products, VB7 (biotin) and so on. Thereinto, the production capacity of the VB7 was 50 t/a in 2013.

Red Bull’s New Projects Passing Environmental Assessment

On 29 Sept., 2014, Red Bull Vitamin Drinks Co., Ltd. released its announcement that the newly established projects passed

inspection acceptance conducted by the environmental monitor station of Yixing City, Jiangsu Province. According to Red Bull's

public information, the newly established projects include a 300,000 t/a Red Bull drinks project, a 8,000 t/a fruit and vegetable

drinks project and a 6,000 t/a protein drinks project, which will be put into pilot production in this August.

"Red Bull" is one of the first energy drink brands all over the world and its main products are "Red Bull" drinks. Each can of "Red

Bull" drink contains 3ug of vitamin B12, 1 mg of vitamin B6 and 10 mg of vitamin PP. With new projects being put into production, it

is expected that the demand for Vitamin's raw material will be greatly increased.

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Picture 1: RedBull Energy Drink

Source: baidu.com

Golden Launches Nutritional Gel

On 22 Oct., 2014, Nanjing Golden Pet Supplies Co., Ltd. (Golden) launched Golden Nutritional Gel. The gel is used for pets in all

stages, like growth stage and gestation period, as nutritional supplementary. And it consists of various vitamins including vitamin A,

vitamin B, vitamin C, vitamin D and vitamin E, mineral and other contents.

In addition, Golden launched another vitamin for pets, which is called Golden Vita, in the 17th Pet Fair Asia in Aug. 2014. This

product includes more than 40 necessary vitamins and mineral for pets, which is welcomed by the vast number of consumers.

Golden is one of the primary manufactures of pet supplies in China, with a set of production equipment and four automatic

production lines for making all kinds of pet nutritional supplements

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Picture 2: Golden's products

Source: Golden

Tianxin Pharmaceutical Expands Production of Vitamins

On 10 Oct., 2014, Jiangxi Tianxin Pharmaceutical Co., Ltd. (Tianxin Pharmaceutical) conducted the first environmental impact

assessment in terms of its projects, a 90 t/a Vitamin B7 (Biotin), a 45 t/a Vitamin D3, a 500 t/a folic acid. As soon as the projects

put into production, Tianxin Pharmaceutical will become the domestic leading manufacture in the fields of VB7 and folic acid. At

present, the main manufactures of domestic VB7 are Zhejiang Medicine Co., Ltd. Xinchang Pharmaceutical Factory and Zhejiang

Shengda Pharmaceutical Co., Ltd., whose capacities were 120 t/a and 100 t/a respectively in 2013. As for folic acid, the

dominating manufactures are Shandong Xinfa Pharmaceutical Co., Ltd. and Changzhou Niutang Chemical Plant Co., Ltd., whose

production capacities were 1,500 t/a and 600 t/a respectively in 2013.

Found in 2004, Jiangxi Tianxin Pharmaceutical Co., Ltd. also includes Zhejiang Tianxin Pharmaceutical Co., Ltd. as its affiliated

company. The main products are Vitamin B1 and Vitamin B6, whose production capacities reached 4,000 t/a and 5,000 t/a

respectively in 2013 (Zhejiang Tianxin Pharmaceutical included)

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Journalist: Jiacai Zhuang, Shuixiu Feng, Hulian WuEditor: Ally BiChief Editor: Xuejian ShiPublisher: Guangzhou CCM Information Science &Technology Co.,Ltd

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