A2S2 Newsletter #2, October 2011


RBM/UNITAID/WHO Artemisinin Conference 2011, Aligning Artemisinin and ACT Supplies

This year the Artemisinin Conference will be held in Hanoi, Vietnam, 2nd- 3rd November and to date, over 130 participants have already registered, representing the major artemisinin extractors from China, Vietnam, Africa and Madagascar; API/ACT manufacturers; donors; procurement agencies and research organisations.

With the present situation regarding the need to continue to increase artemisinin supply and for more accurate and longer term ACT forecasting, the conference provides a timely forum where these issues will be discussed and debated. Presentations will also address the need to improve Artemisia yields through the introduction of high yielding seeds, new technology to increase artemisinin production efficiency and also the latest information on the introduction of semi-synthetic artemisinin.

A2S2 will present information on the latest artemisinin production, costings and prices, together with an overview of the A2S2 program, its achievements and proposed next steps.

Links to all the presentations and the full conference report will be included in the next edition of the A2S2 Newsletter.


Artemisinin Market Update

2011 Artemisinin Production Estimates:

A2S2’s latest estimate for global artemisinin production from the 2011 crop is now in the range of 150 – 165 metric tonnes (MT) artemisinin. This is slightly less than the forecast made in the July 2011 Newsletter (150 – 170MT) but now takes into account the recent adverse weather conditions in China (drought, followed by heavy rain) which have recently impacted plantations and Artemisia cultivation.

With the pressure to increase production in 2011 to meet the predicted demand for ACTs in 2012, it was expected that production in China would be in the range of 140 - 145MT, based on the reported Artemisia plantings. However, due to the aforementioned conditions, yields and leaf quality have suffered and our forecast is now around 130MT (for China). In the other major growing regions, supply from Vietnam is around 18MT (as previously forecasted) and the 2011 supply from Madagascar and East Africa is expected to be around 15MT (also as previously forecasted).

In 2010, the Artemisia crop in China and Vietnam was also very badly affected by serious climatic problems, even though the original plantings were much higher than in 2009. Therefore, to meet the increasing ACT demand in 2011, extractors quickly sold all existing stocks of artemisinin and API and ACT manufacturers had to rely on their buffer/safety stocks, which were reported to be very low by the middle of 2011. Since then, API/ACT producers have subsequently sought to replenish these stocks, especially as they are still concerned with the market forecasts and are thus uncertain as to future sale requirements. The ‘additional’ demand for artemisinin has had and will have, significant consequences on the artemisinin supply/demand balance and on artemisinin prices.

 

           

 

                

Chart 1: Evolution of A2S2 2011 supply forecast, by region

Artemisinin Price Developments:

As reported above, Artemisia plantings in 2011 increased when compared with 2009 and also with 2010, and although the yields were affected by the poor weather in China and (to a lesser extent) in Vietnam, production was still estimated to meet the original forecast for ACT needs in 2011/12. However, in assessing the current situation, previous forecasts now appear to have been on the low side. Not only has there been a small rise in the forecasted demand for ACTs since this time last year - as per the Artemisinin and ACT demand and Supply Forecasting Consortium led by the Boston Consultancy Group (BCG) - there is also a considerable need from ACT/API producers to replenish their buffer/safety stocks, as mentioned above.

This combination has predictably resulted in a strong upward pressure on prices, a pressure which has even put ‘pre-priced’ contracts between the artemisinin extractors and API/ACT manufacturers under strain. Further, there are other significant factors contributing to higher prices which include: increased food crop prices globally; the high prices for dried Artemisia leaves in Chinese Yuan; the lower average content in the leaves; the exchange rate US$/Yuan and inflation in China (salaries, utilities, etc.). Furthermore, as nearly all artemisinin quantities have already been contracted and sold, including the 2011 production in Vietnam, few free quantities are now available. Therefore, whereas prices for the 2010 artemisinin crop were around $400/kg at the beginning of the year, they have since increased to over $650/kg in October, with recent reports of ‘spot’ prices even hitting much higher prices.

ACT Demand:

With regard to the demand situation, the latest forecast for global artemisinin demand in 2012 is around 185MT. This amount includes the latest information from BCG and also demand for non-qualified ACTs, Indian domestic requirements, etc. Importantly, it also includes the need to replenish buffer/safety stocks. This latter component is estimated to be of significant volume – around 30MT (see Chart 2 below for the full demand breakdown). Beyond 2012, we await a demand forecast for 2013 to be able to provide more information with regard to the needs for next year’s crop and it is essential that this is received as soon as possible as the planting season in Vietnam and China is only a couple of months away, i.e. December 2011 through to February 2012.

             

Chart 2: A2S2 artemisinin supply*/demand† forecast

*The supply of year X is measured against the demand of year X+1.
†Demand forecasting is not directly within A2S2’s remit. Related information is obtained from other sources, e.g. BCG

 

1 2010 crop
2 2011 demand covered by buffer/safety stocks
3 BCG forecast 08/11
4 Additional artemisinin needs, including non-qualified ACTs, Indian domestic requirements, etc.
5 Replenishment of buffer/safety stocks
.

 

In summary, the need for ACT/API producers to replenish their buffer/safety stocks has had and will have, a significant effect on the market for ACTs and artemisinin. Although we forecast 2011 artemisinin supply levels to potentially be sufficient to cover ACT needs as reported by BCG, they may not however be sufficient to cover other requirements, particularly the replenishment of inventories. It is also important to mention that the artemisinin supply/demand balance is also influenced by the position taken by traders.

Looking ahead, it is clear that a scale up in Artemisia/artemisinin production will be required in 2012, not only to continue to refill buffer/safety stocks, but also to satisfy an increasing demand for ACTs (as forecasted by BCG consortium), which has already grown by roughly 125% in the two years 2010 > 2012. The full extent of the required scale up will be known once forecasts on 2013 demand are made widely available.

Semi-Synthetic Artemisinin:

Finally, with regard to semi-synthetic artemisinin, the latest information is that trial batches will be available from Sanofi by the end of 2012, with an initial commercial availability of up to 40MT (TBC in Hanoi) in 2013. However, it must be stressed that this is a new, highly technical and expensive process and ‘time lines’ and volumes still have to be confirmed. The product also has to meet all regulatory and other approvals and much will also depend on the market price of artemisinin in the future. Further information will be available at the 2011 Artemisinin Conference in Hanoi.