Jinan Zhuocheng Bio-Tech Co., Ltd.

Industry Divergence Amid Cost Pressure, Supply Contraction and Demand-Side Competition

In 2026, the global commodity market has experienced significant volatility. Geopolitical tensions have pushed international oil prices to elevated levels, with WTI crude oil briefly exceeding USD 100 per barrel. Gold prices have also fluctuated around USD 4,400 per ounce, making them an important indicator of global inflation expectations.

How are these macroeconomic factors being transmitted to the veterinary pharmaceutical API market? This article examines the transmission pathways between gold, crude oil, and veterinary pharmaceutical raw materials, while also analyzing the increasingly differentiated market outlook for the second half of the year.

The First Half: A Stalemate of Rising Costs, Weak Demand and Ample Supply

Crude oil has been an important cost driver for the veterinary pharmaceutical industry. In the first half of 2026, international oil prices rose sharply amid continued geopolitical tensions in the Middle East. Since the escalation of tensions in the region, WTI crude oil has reportedly increased by approximately 60.8%, while Brent crude has risen by around 53.5%. The U.S. Energy Information Administration (EIA) estimates the average 2026 WTI price at approximately USD 84.65 per barrel and Brent at around USD 91 per barrel. In early September, WTI again moved above USD 100 per barrel, while Brent rose above USD 105.

Higher oil prices have directly increased several cost components associated with veterinary APIs. Energy costs, including fermentation, steam, and electricity, typically account for approximately 10%–15% of total production costs and represent one of the largest cost items after raw materials. Higher crude oil prices also increase the cost of petrochemical-derived intermediates and chemical auxiliaries. For example, key intermediates used in Florfenicol production, such as D-ethyl ester and p-methylsulfonyl benzaldehyde, are highly dependent on petrochemical derivatives. Logistics and transportation costs have also been affected by higher energy prices.

However, the transmission of higher costs to finished-product prices has been relatively weak. Although elevated oil prices theoretically provide cost support for veterinary APIs, downstream buyers currently have limited acceptance of higher prices. During the first half of the year, veterinary API prices fluctuated at low levels, experienced a brief broad-based increase in March following the escalation of the Middle East conflict, and subsequently weakened again as actual demand failed to provide sufficient support.

Gold has a more indirect relationship with veterinary pharmaceutical raw materials. Rising gold prices, together with expectations of U.S. Federal Reserve rate cuts, have contributed to global inflation expectations and risk-averse sentiment, indirectly affecting energy and basic chemical commodity prices. Gold therefore functions primarily as a macroeconomic indicator rather than a direct cost driver for veterinary APIs.

In the broader commodity cycle, gold often moves first, followed by copper, crude oil, and eventually agricultural commodities. Its impact on veterinary pharmaceutical raw materials is mainly transmitted through global inflation expectations, liquidity conditions, and monetary policy rather than directly through production costs.

The more fundamental pressure on the veterinary API market during the first half of the year came from weak downstream livestock demand. The swine farming industry remained deeply loss-making, with the average profit for farms purchasing piglets reported at approximately RMB -52.99 per head. High feed costs and weak hog prices encouraged livestock producers to reduce medication expenditure, keeping demand for veterinary APIs under pressure. The market therefore remained caught between rising costs, weak demand, and sufficient supply.

Second-Half Differentiation: Macrolides Begin to Recover

Entering the second half of the year, significant differentiation has emerged among veterinary API categories. Macrolide products have been among the first to show signs of recovery.

For example, Tylvalosin Tartrate declined from approximately RMB 275/kg in March to around RMB 245–255/kg before stabilizing and gradually recovering. Tilmicosin averaged approximately RMB 343/kg in the second quarter and has since recovered to around RMB 350/kg, while inquiries from traders have increased noticeably.

This differentiation is the result of the combined effects of production costs, supply contraction, and changes in downstream demand.

Macrolide APIs are primarily produced through biological fermentation. Corn starch, soybean meal, and other agricultural commodities serve as important carbon and nitrogen sources in the fermentation process. Together with key chemical intermediates such as tartaric acid, raw materials account for more than 60% of total production costs in some products.

Since the beginning of 2026, prices of corn, soybean meal, and other fermentation feedstocks have remained relatively high. Prices of key chemical auxiliaries have also increased significantly year on year. At the same time, coal and natural gas prices have remained elevated, while energy consumption in fermentation processes can account for approximately 10%–15% of production costs.

Unlike chemical synthesis, where process optimization can sometimes substantially reduce raw-material consumption, biological fermentation has technological limitations on conversion efficiency. Even leading manufacturers that continuously reduce costs through strain improvement and process optimization may find it difficult to fully offset broad increases in raw-material prices. As a result, if raw-material costs remain elevated, the cost floor of macrolide APIs is unlikely to move significantly lower.

Supply-side contraction is another important factor. Prolonged low prices have encouraged leading manufacturers to adopt more disciplined production strategies. Some companies have reduced operating rates for basic products such as tylosin while reallocating capacity toward higher-value products such as tilmicosin-related and other differentiated macrolide products. This has reduced effective supply for certain basic macrolide APIs.

Environmental regulation is also exerting additional pressure on supply. The third round of central ecological and environmental inspections in Ningxia has attracted particular attention because the region is one of China's major production bases for macrolide fermentation APIs. Stronger requirements for waste gas, wastewater, and solid-waste management may force manufacturers with inadequate environmental facilities to suspend or restructure production. In the longer term, higher environmental entry barriers could accelerate the concentration of production capacity among compliant and technically capable manufacturers.

Meanwhile, low-cost inventories accumulated by traders during the earlier period of weak prices have largely been consumed. As inventories decline, traders have become less willing to sell aggressively, further strengthening expectations for price stabilization or recovery.

On the demand side, the livestock sector has shown signs of marginal improvement in the second half of the year. Hog prices have gradually recovered from their lows, while losses in farrow-to-finish operations have narrowed significantly. Improving farm profitability can directly support the recovery of veterinary drug demand.

In addition, the autumn and winter period traditionally brings higher incidence of respiratory diseases in livestock and poultry. Macrolides are widely used in the management of respiratory disease-related conditions, which may stimulate seasonal restocking demand. Market feedback indicates that purchases of commonly used products such as tilmicosin and tylosin have increased compared with June.

Outlook

The macroeconomic fluctuations in gold and crude oil are ultimately connected to the veterinary API market through the cost channel. However, under the current market conditions, product prices are determined more directly by the interaction between supply, production costs, and downstream demand.

The recovery of macrolide APIs in the second half of 2026 is a typical example of this interaction at the individual product level. As of September 9, some products have shown signs of rebound due to temporarily tight supply and cost support. However, this trend should not yet be interpreted as a broad-based recovery across the entire veterinary API market. Overall market conditions remain relatively stable, with continued differentiation between products.

Looking ahead, several factors deserve close attention. First, the sustainability of elevated crude oil prices and the shipping situation around the Strait of Hormuz could directly affect energy and chemical auxiliary costs. Second, the pace and depth of livestock production capacity adjustment will determine the strength of demand recovery for veterinary APIs. Third, continued environmental inspections could have a structural impact on industry supply and production capacity.

For industry participants, the current period may represent an early stage of recovery for selected macrolide products. Buyers and suppliers should therefore align procurement and production strategies with their actual demand cycles while closely monitoring changes in energy prices, livestock profitability, environmental regulation, and production capacity.