TCM producers haggard by rising cost pressures
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Traditional Chinese medicine (TCM) producers are now facing huge cost pressures due to surging raw material prices, which have been rising since the start of this year.
"Price increases for TCMs has for sure cut into producers' profit," said Lou Shengrui, a pharmaceutical industry analyst with Shenyin & Wanguo Securities Co. Some raw material prices have surpassed the price of the products themselves, forcing some producers to cut or halt production.
Some 84 percent of the nearly 600 Chinese traditional medicines in the market have seen price spikes as high as 700 percent over the past year, according to an earlier report from the China Association of Traditional Chinese Medicine.
For example, price for prince ginseng, a winter tonic, have risen from 80 yuan ($12.01) per kilo to as high as 340 yuan ($51.04) per kilo recently.
Producers of traditional medicines, whose profit margins are not that high in the first place, are feeling the squeeze as profit margins hover between 8.5 to 12 percent, compared with a 15 percent profit margin for Western-style pharmaceuticals and a 35 to 45 percent profit margin for biological drugs, according to a research by the Shanghai Traditional Chinese Medicine Trade Association.
There are 102 kinds of traditional Chinese medicine listed in the country's essential drug list, and prices are set by the National Development and Reform Commission (NDRC).
"Any price change needs to be agreed to by the NDRC, and that takes time," said Lou.
But analysts agree that it is very likely that prices of TCMs will continue to rise.
Guo Fanli, an industry analyst with CIC Industry Research Center, said that it is not very likely to see a price drop for TCMs anytime soon, due to high winter demand.
According to Guo, bad weather, increasing demand and hot money are behind this year price surge.
"It would be helpful if the government stores some TCMs, just like what they do with grains and sugar, to avoid a sudden price surge," said Guo.
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