Jinan Zhuocheng Bio-Tech Co., Ltd.

The global active pharmaceutical ingredient (API) industry remains in a cyclical downturn driven by persistent supply-demand imbalance, although structural recovery is gradually emerging across selected segments. As market competition intensifies, geopolitical developments, regulatory reforms, supply chain restructuring, and technological innovation are reshaping the industry's long-term landscape.

Industry Still Operating at the Bottom of the Cycle

The defining characteristic of today's API market is the imbalance between supply and demand. China continues to supply approximately one-third of the world's APIs, but after the extraordinary demand surge and price boom during the COVID-19 pandemic, the industry has entered a prolonged adjustment period.

Weaker downstream demand, rapid capacity expansion, and increasing product homogenization have resulted in persistent price declines across many mature API categories. The competitive landscape has fundamentally shifted from a race for "First Launch" to a contest of "Last Out," where surviving the market downturn has become more important than being the first entrant.

According to first-quarter 2026 financial results from 63 Chinese listed API companies tracked by CITIC Securities, 36 companies reported year-on-year revenue growth while 27 experienced declines. On the profitability side, 30 companies achieved growth in recurring net profit, whereas 33 reported decreases. Although the industry remains under pressure, the market is gradually transitioning from broad-based weakness toward structural recovery.

API Prices Showing Diverging Trends

Despite the overall market weakness, price performance has begun to diverge among different API categories.

The antibiotic supply chain has shown early signs of recovery. Prices of key intermediates such as 6-APA and Penicillin G Potassium have stabilized after reaching cyclical lows, supporting gradual recovery in downstream APIs including Amoxicillin and Ampicillin. Penicillin-related intermediates are widely regarded as among the first products likely to enter a new upward cycle.

The vitamin sector has also entered a new pricing cycle. Supported by rising crude oil prices and geopolitical uncertainties, leading manufacturers have suspended quotations and contract signings, pushing prices of Vitamin A (VA) and Vitamin E (VE) sharply higher. Other products including Vitamin B3 (Niacin), Vitamin B9 (Folic Acid) and Calcium Pantothenate are expected to follow.

Animal health APIs remain near historical lows. Prices of Florfenicol have fallen from approximately RMB 400-700/kg to RMB 100-200/kg, while Doxycycline prices have also reached historical bottoms. Although many manufacturers continue to face losses, accelerated industry consolidation may create conditions for cyclical recovery during 2026.

Meanwhile, sartan APIs and heparin APIs have largely bottomed out after several years of price declines. Supported by rising raw material and energy costs, products such as Losartan Potassium and Irbesartan could experience gradual price recovery in low-margin markets.

According to Tianfeng Securities, while most traditional API categories continued to face year-on-year pressure during the first quarter of 2026, several products have already recorded sequential price improvements.

Rising Upstream Costs Begin Passing Through the Supply Chain

Cost inflation is becoming an increasingly important market driver.

Higher crude oil prices, geopolitical risks surrounding key shipping routes such as the Strait of Hormuz, and increasing chemical feedstock costs are gradually pushing production expenses higher across the industry.

Although China's chemical API Producer Price Index (PPI) remains relatively weak, upstream raw material costs have started rising, creating favorable conditions for selective price recovery.

The recent stabilization of antibiotic APIs is partly supported by higher chemical raw material and energy costs. Chinese producers of export-oriented intermediates such as 6-APA benefit from stronger pricing power, enabling them to pass a portion of higher production costs downstream.

Policy Environment: Domestic Support Meets Overseas Trade Barriers

China Accelerates Regulatory Support

On June 2, 2026, China's National Medical Products Administration (NMPA) released a draft policy expanding the scope of priority review and approval for selected chemical APIs.

APIs associated with urgently needed medicines will automatically qualify for accelerated review, reducing approval timelines and improving market access for high-quality products.

At the same time, continued implementation of the MAH (Marketing Authorization Holder) system, strengthened environmental regulations, and associated review mechanisms are accelerating industry consolidation. China's top ten API manufacturers have steadily increased market concentration over recent years.

Overseas Markets Continue Building Supply Chain Barriers

Major pharmaceutical markets are simultaneously strengthening domestic manufacturing capabilities.

India continues expanding its Production Linked Incentive (PLI) program while introducing Minimum Import Price (MIP) measures for products including Penicillin G Potassium, 6-APA, and Amoxicillin.

The European Union is advancing its Critical Medicines Act, aiming to strengthen domestic production capacity and reduce dependence on third-country suppliers for approximately 270 strategically important medicines.

The United States continues promoting pharmaceutical reshoring through a combination of Section 232 investigations, differentiated tariff policies, and bilateral trade agreements.

These policy developments are expected to raise market entry barriers and increase regulatory uncertainty for global API exporters.

RMB Appreciation Adds Pressure to Exporters

The appreciation of the Chinese Renminbi has created additional challenges for export-oriented API manufacturers.

Beginning in April 2025 and continuing through 2026, the RMB strengthened significantly against the U.S. dollar, reducing export competitiveness and negatively affecting first-quarter earnings for many Chinese API companies.

Currency movements have therefore become another important variable influencing profitability across the export-oriented pharmaceutical sector.

Supply Chain Restructuring Creates New Growth Opportunities

Global pharmaceutical supply chains are undergoing accelerated restructuring.

India continues localizing upstream intermediates, Europe is rebuilding domestic pharmaceutical manufacturing capacity, and the United States is encouraging local production.

While competition is becoming increasingly intense, emerging therapeutic areas are opening new opportunities for API manufacturers.

Industry analysts expect oral GLP-1 small-molecule therapies, including Eli Lilly's Orforglipron, together with small interfering RNA (siRNA) therapeutics, to become major drivers of future API demand.

Companies capable of entering the global supply chains of multinational pharmaceutical leaders such as Eli Lilly, Novo Nordisk, and Alnylam Pharmaceuticals could successfully transform from traditional cyclical API manufacturers into strategic innovation partners.

However, entering multinational supply chains requires extensive investments in quality systems, international GMP compliance, Drug Master File (DMF) registrations, and successful FDA or EMA inspections—creating substantial competitive barriers that favor industry leaders.

Industry Transformation Accelerates

Facing prolonged market pressure, Chinese API manufacturers are actively upgrading their business models.

Companies with specialty APIs, Contract Manufacturing Organization (CMO) capabilities, or integrated "API + Finished Dosage Form" strategies have generally demonstrated greater resilience than businesses relying primarily on traditional bulk APIs.

For example, some leading manufacturers have successfully improved profitability through product mix optimization, operational efficiency improvements, and expanding higher-value specialty API portfolios despite weaker overall revenues.

Increasing investment in green chemistry, continuous manufacturing, patented APIs, and specialty pharmaceutical ingredients is becoming the industry's primary strategy for long-term competitiveness.

Outlook

The global API industry is currently entering a critical transition period characterized by simultaneous cyclical adjustment and structural transformation.

In the short term, oversupply and inventory normalization will likely continue to weigh on pricing across most conventional API categories. A broad market recovery will depend on further capacity rationalization and improved supply-demand balance.

Over the medium term, rising upstream costs are supporting selective price recovery, particularly in antibiotics and vitamins, while animal health APIs, sartans, and heparins appear to be approaching cyclical bottoms.

Over the long term, demand growth driven by GLP-1 therapies, RNA-based medicines, accelerated regulatory pathways, integrated business models, and pharmaceutical innovation will fundamentally reshape the industry's competitive landscape.

Companies possessing strong regulatory compliance capabilities, advanced manufacturing technologies, resilient global supply chains, and long-term innovation strategies are expected to emerge as the primary winners during the next phase of industry transformation.