The Zhitong Finance App learned that Pacific Securities released a research report saying that in December 2023, production of chemical raw materials by industrial enterprises above the Chinese scale began to resume growth, increasing 2% year on year and 35% month on month. From January to February 2024, production was 546,000 tons. Although the year-on-year decline was 7.6%, it has already exceeded the same period in 2021 and 2022, continuing the improvement at the end of 2023. As major product patents expire one after another and overseas inventory removal gradually comes to an end, the demand side of the API sector is expected to gradually pick up in 2024, ushering in a beta market.

It is recommended to focus on: 1) individual stocks that continue to expand into the pharmaceutical field in 2024, have strong performance certainty, and have thematic investment attributes; 2) individual stocks that continue to expand horizontally and are relatively aggressive in capacity expansion, such as Pharmaceutical (300636.SZ) and Kyodo Pharmaceuticals (300966.SZ); 3) stocks with relatively low current profit margins are more flexible in recovering their performance. 605116.SH

Pacific Securities's main views are as follows:

In January-February, the export value of APIs fell 10% year on year. The year-on-year decline in prices may be the main reason

From January to February 2024, the export scale of China's API products was 6.595 billion US dollars, down 10.48% year on year. The average export price of 9 of the 10 types of APIs according to the statistics showed varying degrees of decline. Pacific Securities inferred that the export prices of most API products were unlikely to rise sharply year on year. The year-on-year decline in product prices was the main reason for the year-on-year decline in the export scale of API products.

India's import value and import volume of APIs and intermediates from China reached the highest level in the past 4 years

From January to February 2024, India's imports of APIs and intermediates from China were US$561 million, up 4.44% year on year. The import volume for the same period from 2021 to 2023 was US$472 million/554 million/US$537 million, respectively; imports from China were 56,500 tons, a significant increase of 10% year on year. The import volume for the same period from 2021 to 2023 was 47,900 tons/46,900 tons/51,300 tons, respectively.

The value of APIs and intermediates imported by India from China has increased

In Q4 2023, India's imports from China increased 5.78% year on year, mainly because the average import price increased 2.77% year on year and 14.88% month on month, while the import volume only increased by 2.93% year on year, down 12.05% month on month; from January to February 2024, the average import price was 9.93 US dollars/kg. Although it is a slight decrease from 2023 Q4, it has surpassed the 2023 Q1-Q3 price level. Therefore, Pacific Securities infers that in 2023Q4 and January-February 2024, the value of APIs and intermediates imported from China increased markedly. It is likely that due to a decrease in the share of its front-end products, the share of back-end products increased.

Pacific Securities said that in 2023-2026, the sales volume affected by the expiration of downstream formulation patents is about US$175 billion, an increase of 54% over the total in 2019-2022. Patents for several major products will expire one after another, and the patent cliff is expected to bring about increased demand for APIs.

In Q4 of 2023, the production of chemical raw materials by industrial enterprises above the scale of China was -3.9%, and the decline narrowed markedly. In January-February 2024, although production declined year on year, it exceeded the same period in 2022, and improvements continued; in Q4 and 2024 and January-February 2024, the value of raw materials and intermediate products imported by India from China increased markedly. The average product prices were 10.42 US dollars/kg and 9.93 US dollars/kg respectively. According to Pacific Securities, it is likely that the proportion of back-end products increased due to a decrease in their share of front-end product procurement. Indian pharmaceutical companies showed tail characteristics during the inventory removal phase. Based on the situation in China and India, from Q4 to February 2024, there was a marked marginal improvement on the demand side of the API industry, and the inventory removal stage may be nearing its end.

Risk warning: industry competition increases risk; risk of product prices continuing to fall; risk of inventory removal falling short of expectations