Many of the facilities shut down by the Chinese authorities in a massive pre-Games clean-up operation have yet to reopen for business, a situation that is forcing ingredient suppliers to find new supply channels and forge new partnerships, according to a leading UK supplier.
Gee Lawson managing director, Jonathan Shorts, told NutraIngredients.com the Chinese situation continues to cause disruptions in the supply of several letter vitamins as well as other nutrients such as glucosamine and chondroitin.
It had only been six weeks since the completion of the Paralympic games, and many facilities were still returning to full operational status. Other facilities remained boarded up.
“Basically a third of the Chinese year’s productivity has been wiped out,” said Shorts. “Aside from the business disruption of having to source new supply channels, it has sent the price of some nutrients sky-rocketing.”
Shorts noted the price of vitamin B12 was about €2000/kg 12 months ago. In one year it has jumped to €3500/kg as Chinese supply hemorrhaged, a situation that is attracting a lot of inferior material to market and, potentially, counterfeit material.
A similar situation blighted the CoEnzymeQ10 market a few years ago, where prices that pushed above €5000 at times attracted counterfeit material that threatened to tarnish the whole sector.
Only improved quality control procedures from major suppliers and a rationalisation of price that saw it dip below €1000/kg brought a sense of normality back to the market.
Aside from the closures that are a casualty in the Chinese government’s Olympic Games ‘image adjustment programme’, other factors are altering the dynamic of the supply chain and China’s role in it.
Rising labour costs in China are one factor as the middle classes grow.
“The Chinese Yuan has also been rising about one per cent per month against the US dollar so that means in the past year Western suppliers are paying about 10-15 per cent more for Chinese material,” Shorts said.
Although Gee Lawson is not a major trader of letter vitamins, Shorts noted vitamin E and C are also affected.
The situation is causing many brokers and traders to seek raw materials elsewhere with India being one destination of increasing importance.
But Shorts noted the all-round improvement in quality of Chinese material that had occurred this century as Chinese suppliers realised they had to meet Western standards if they were to ensure ongoing business relationships with Western customers.
“China and India and have improved immensely and supply is returning, albeit slowly, to pre-Games levels. But it may take some time because the disruption was a significant one.”
The raw materials facilities shut down by the Chinese government before the Games was part of a widespread campaign to clean up the immediate vicinity around Beijing. It extended to a radius of about 300km.