Jinan Zhuocheng Bio-Tech Co., Ltd.

Since April, the underlying logic of the veterinary active pharmaceutical ingredient (API) market has been shifting subtly. Industry monitoring data shows that market inquiry and procurement activity have cooled noticeably, while reluctance to sell is beginning to ease. The market's operating logic is moving from sentiment-driven to rational pricing, gradually returning to supply and demand fundamentals. In this game, three seemingly contradictory forces—"rising costs, weak demand, and ample supply"—coexist simultaneously. Where is the veterinary API market headed?

Cost Side: The Real Pressure of High Energy Prices

Rising costs are the truest backdrop to the current market shift. The situation in the Middle East remains volatile, causing sharp fluctuations in international oil prices. Although prices occasionally fall sharply due to news such as ceasefire agreements, they remain relatively high overall, with cumulative gains from geopolitical conflicts still significant. Domestically, refined oil prices continue to rise, driving up logistics and transportation costs.

The impact of high oil prices is multidimensional. It not only directly pushes up prices for basic energy and chemical raw materials but also drives up costs in transportation, packaging, and other links, theoretically providing solid cost support for veterinary APIs. From the upstream perspective, sustained increases in API prices are putting significant cost pressure on veterinary drug manufacturers, with most commonly used categories seeing notable price rises over the past two years.

Take a mainstream antiparasitic API as an example: the cost logic behind its price increase is particularly typical. Prices of agricultural products such as corn and soybean meal, as well as key chemical intermediates, continue to rise. Energy prices such as coal and natural gas remain high, while tighter environmental policies have sharply increased rigid spending on environmental protection facilities and pollutant treatment. Recently, market quotations for this category have broken through key psychological thresholds, triggering price increase signals across the entire industry chain.

Market analysts generally believe that as geopolitical tensions affect prices, crude oil and upstream chemical raw material prices will continue to rise, potentially ushering in a price increase cycle for the API industry. However, it is worth noting that while cost support is substantial, downstream acceptance of high prices is low, and the transmission of costs to end users is not smooth. Industry insiders also point out that the post-holiday rise in API prices was mainly driven by sentiment linked to rising oil prices amid geopolitical conflicts. In the short to medium term, mid- and downstream players have gradually adapted to the current rhythm, and procurement pace has not slowed significantly.

Demand Side: The Persistent Constraints of a Livestock Winter

Whether rising costs can be effectively transmitted to end users depends critically on the demand side's ability to absorb them. Currently, the demand outlook is far from optimistic.

ecently, the main futures contract for live hogs has continued to decline, hitting a new low since its listing. Monitoring data shows that the hog-to-corn ratio has remained in the excessive-prolapse first-level alert zone for several consecutive weeks. The livestock sector remains sluggish, with end users resisting high prices. Procurement is limited to essential needs, with a "buy as needed, keep low inventory" strategy prevailing. There is little willingness to build large inventories, and demand-side support is clearly weak.

The suppression of veterinary drug demand by the livestock industry's difficulties is systemic. The rate of large-scale farming in China has surpassed a key threshold, and the market share of large livestock groups continues to increase. These players have strong bargaining power in veterinary drug procurement, significantly lowering purchase prices through centralized bidding and long-term agreements. At the same time, driven by demographic shifts and industrial transformation, overall demand for veterinary drugs from the livestock and poultry sector is contracting.

From a demand structure perspective, changes are equally profound. "Reducing and limiting antibiotic use" has become an irreversible policy direction. China has issued its first technical evaluation standard covering the entire chain from farming to slaughter for reducing antibiotic use. The market space for therapeutic products is being continuously compressed, while the strategic status of preventive and antibiotic-alternative products has risen significantly. This structural shift means that the demand pattern, once dominated by a few bulk varieties, is being reshaped.

**Supply Chain: Game-Changing Dynamics Amid Ample Capacity**

If cost and demand form the market's "ceiling" and "floor," then the supply side determines the actual price gap between them.

Currently, ample supply is an objective reality in the veterinary API market. New capacity construction continues apace—several leading enterprises are investing in synthetic biology smart manufacturing projects or capacity expansion projects, with significant new capacity expected to come online over the next two years. Against the backdrop of shrinking demand, the large number of veterinary drug manufacturers and their substantial capacity mean that competition among companies for orders is intensifying.

Hwever, the supply side is not monolithic. In recent years, veterinary API prices have fallen sharply. Some mainstream categories have dropped from high ranges to historical low ranges, even falling below production costs, with some companies experiencing sustained losses. Industry shakeouts are accelerating. In this process, continued tightening of environmental policies has driven the exit of outdated capacity—following the implementation of new production quality management standards, the number of companies in the sector has plummeted. Industry experts predict that half of the remaining companies may face exit risk in the next three to five years.

Notably, structural changes on the supply side have already begun to emerge. Leading enterprises, seeking higher profits, are shifting capacity toward downstream high-end derivatives, leading to a contraction in basic API capacity. At the same time, major manufacturers are clearly intent on supporting prices, with some varieties seeing strong upward price movements due to continued supply control strategies. This supply pattern of "ample overall supply but structural differentiation" means that the market is no longer simply one of oversupply or shortage across the board, but has entered a new phase of category divergence.

Market Outlook: Short-Term Volatility, Medium-to-Long-Term Divergence

Rising costs, weak demand, ample supply—this is the truest picture of the current market. With these three forces checking each other, the veterinary API market is at a critical juncture where direction must be chosen.

In the short term, the market will likely move within a range, with category divergence intensifying. Industry analysts expect the market to shift from being driven by "cost + sentiment" to "cost + supply and demand," with continued divergence among mainstream categories. Some categories, supported by cost pressures and manufacturers' price-supporting strategies, will see continued upward movement in average market prices. Others may experience modest price declines due to weak demand. The Middle East situation remains a pause rather than an end, with potential risks still present in negotiation processes, but the market has gradually returned to rationality from earlier emotional price chasing.

In the medium to long term, cyclical recovery and structural divergence will proceed in parallel. From a cyclical perspective, the animal health sector will continue its relatively strong recovery this year. Future competition should shift from scale to quality and technology—improving process conversion rates and lowering production costs through synthetic biology and other technological routes, and enhancing product competitiveness from the source in the context of regulatory trends toward "low-toxicity, low-residue" products. This has become the strategic choice of leading enterprises.

For upstream API manufacturers, the era of blind capacity expansion is over. Under the dual pressures of industry oversupply and weak downstream demand, some companies are already reporting losses. The future focus of competition should shift from scale to quality and technology, a strategic consensus among leading enterprises.

Outlook: Structural Changes Continue

The future market may see structural changes, but the specific path remains uncertain. Industry participants need to closely monitor dynamic changes on the cost side, demand side, and supply chain, seeking certain opportunities amid divergence.

(This analysis is based on publicly available market information and is for reference only. It does not constitute specific operational advice.)