Financial Daily from THE HINDU group of publications
Saturday, Aug 28, 2004
Industry & Economy
Penicillin makers curtail production Fall in prices of end products
Chennai , Aug. 27
PENICILLIN production in India has been reduced significantly this month largely on account of developments in the international market.
A sharp fall in prices of penicillin's end products abroad has slowed Indian exports and, thereby, brought down penicillin's demand here. Simultaneously, the import of a relatively cheap-end product, Amoxycillin, has worsened the situation.
Penicillin-G is the building block of about 40 per cent of antibiotics. SPIC, Alembic, J.K. Pharmachem and Gujarat Torrent Biotech are among its major producers.
Dr S.K. Sagar, President of J.K. Pharmachem, said they had "temporarily curtailed production."
Dr Sagar, who is also the President of the Indian Penicillin Manufacturers Association, added that Penicillin-G's demand had dropped since June. Generally, the onset of the monsoon in June leads to a rise in sales of antibiotics.
The current development has come on the heels of a bad year for penicillin makers because of a steep fall in its price. Downstream antibiotics makers have also been hurt this time because the problem has come out of their markets, said industry sources.
Industry sources said that the current crisis may be the worst faced by the industry. This was the first time that all the manufacturers had reduced production or even suspended it, they added.
In June this year, the industry association complained that some exporters might have violated India's trade rules. Consequently, China-made Penicillin-G found its way into the domestic market and brought the price down.
Penicillin-G's price dropped from $10/bu (billion units) in May 2003 to $5.8/bu a year later.
In June, Dr Sagar said that Indian manufacturers' variable costs came to about $5-6. Once the cost of servicing capital was included, Indian industry's total cost was about $10, he added.
Subsequently, the Union Government tightened trade rules to check the leakage into the domestic market. However, the step has not helped the industry.
Penicillin manufacturing in India took off a decade ago when industry groups such as SPIC and JK invested in production facilities.
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