CURRENT STATE OF

RAW MATERIALS
REPORT.

How the industry of raw materials

in life-science sees itself during
challenging times

November, 2023
 INTRODUCTION:
From struggle to strength

Kemiex conducted a survey among our customers and

more than one hundred respondents to gain insights
into the current state of raw materials.
In the challenging year of 2023 for manufacturing and
trade, the data collected from industry professionals
provides invaluable perspectives on the outlook for
our industries in 2024.
Let's dive into the survey results, which shed light on
the main raw material categories purchased, sold,
or analyzed by our customers.

— Stefan Schmidinger,
Head of Market & Supply Chain Research, Kemiex

01
1. About the sample: which raw materials categories
do they buy, sell, or analyze?
Feed additives for animal nutrition proved to be a key area, with 73% of participants
engaging in this field. Similarly, vitamins emerged as a significant category, with 69%
of respondents indicating their involvement in this sector. The food and beverage
industry, including nutraceuticals, was also prominent, with 25% of respondents
reporting their involvement.

Furthermore, pharmaceuticals and veterinary products, specifically APIs (active

pharmaceutical ingredients) and excipients, were highlighted by 37% of the surveyed
professionals. Agriculture, encompassing crop protection and fertilizer, attracted the
attention of 15% of respondents.

These results provide a comprehensive snapshot of the current landscape within the raw
materials industry, allowing us to better understand the areas of interest and focus for
professionals in this field.

Feed additives (animal nutrition) (73%)

Vitamins (69%)

Pharmaceutical, veterinary (APIs, excipients) (37%)

Food & beverage, nutraceuticals (25%)

Agriculture (crop protection, fertilizer) (15%)

Specialty chemicals (polymers, adhesives, solvents etc.) (15%)

Cosmetics & CARE, Flavors & Fragrances (10%)

Other (8%)

02
 2. Which sentiment represents your company or
business unit's performance in 2023 to date
compared to previous years? (profits)
According to the data presented, when asked to select an emoji that best represents their
company or business unit's profit performance in 2023 to date compared to previous years,
35% of respondents chose the " " emoji, indicating a positive outlook. Meanwhile, 25%
selected " " to represent an average performance, and 15% chose " " to express a very
positive trend. On the other hand, 15% selected " " to indicate a slightly negative
performance, while 10% chose " " to represent a significant decrease in profits.

These numbers illustrate the varying levels of performance within the industry, and it's
essential to understand the underlying factors influencing them.

100%

75%

50%

25%

0%

Dissapointment Unhappy Indifferent Satisfaction Excitement

03
 Analysis

Gross profit margin of Chinese ingredients producers

Median 20/80 Percentile

70
65
60
55 -46%
50
44
45
40
34
35
30 29
25
20 24
15
10
5
0

1Q 1Q 1Q 1Q 1Q 3Q 3Q 3Q
2010 2012 2014 2016 2018 2020 2022 2023

PROFITABILITY PRESSURE IN SECTOR:

Gross profit margin of 18 Chinese producers
of nutritional additives.
Analysing the profitability of 18 leading Chinese ingredients producers, the margin
compression and profitability challenges became obvious during 2023, reflecting depressed
product prices especially for vitamins paired with higher costs for production and sales.
Median EBITDA levels (including general expenses) are even ~10-15ppt lower than Gross profit
margin; median EBIT levels (including depreciation of asset investments) ~20ppt below at
about ~5%.

04
3. How would you rate current market activity?
(purchase and sales volumes, number of inquiries
/transactions compared to past 24 months)

In assessing the current market activity in terms of purchase and sales volumes, as well as
the number of inquiries and transactions compared to the previous 24 months, our survey
participants gave the following ratings.

The majority (35%) ranked the activity as moderate trading, indicating relatively steady
but not significant growth. 31% rated it as regular trading, suggesting healthy market
activity limited by certain factors. In contrast, only 4% rated it as the lowest level, indicating
slow trading.

On the positive side, 10% saw very active trading (level 5), while 12% rated it as active
trading, signifying strong growth but slight limitations. This information can prove beneficial
to industry professionals in benchmarking their performance in 2023 with their peers.

100%

75%

50%

25%

0%
No Slow Moderate Regular Active Very active
trading trading trading trading trading trading

05
4. What are the three main drivers impacting
the current performance of your business unit
or company?
Fierce price competition (54%)

Fewer customer orders, shorter planning cycles and lead times (52%)

Excess inventories, de-stocking (50%)

Starting materials/energy: higher prices or shortages (40%)

Inflation, lower purchasing power (37%)

Rising interest rates (financing, working capital, inventories) (25%)

Disruptions (logistics, weather, geopolitics) (21%)

Changing consumer trends (channels, substitute products) (19%)

Animal diseases (Swine flu, Avian influenza, other) (15%)

Regulations, tax or bureaucracy (12%)

Labor, talent shortage/costs (0%)

According to the survey results, the three These factors play a significant role in
main drivers impacting the current shaping the performance of businesses. It is
performance of business units or companies crucial for industry professionals to analyze
can be categorized as follows: fierce price and address these drivers to ensure
competition (54%), fewer customer orders sustainable growth and profitability.
and shorter planning cycles (52%), and
excess inventories and de-stocking (50%).

06
 Price Trends

Kemiex Amino Acids Index Kemiex Vitamins Index

60%

40%

20%

-20%

2018 2019 2020 2021 2022 2023

Amino acids stronger, vitamins hit new lows

Vitamin prices have been on a downward trajectory since the second quarter of 2022,
as reflected by the Kemiex Vitamins Index, which tracks 14 essential vitamins. In contrast,
amino acid prices experienced a decline from December 2021 to mid-2023. However,
the Kemiex Amino Acids Index, which encompasses five high-volume, feed-grade amino
acids, has recently exhibited signs of a moderate resurgence.

07
 Trade Flows

China Exports of L-Lysine to the World

World

300K

250K

200K
Quantity (MT)

150K

100K

50K

0K
Q1 2017 Q4 2017 Q3 2018 Q2 2019 Q1 2020 Q4 2020 Q3 2021 Q2 2022 Q1 2023 Q3 2023

Early signs of volume recovery?

Global trade in key raw materials for animal and human nutrition and health appears to be
returning to pre-crisis levels, with initial data for 3Q 2023 indicating a recovery to the
historical trend line. For example, China's exports of L-Lysine Hcl reached 250’000 metric
tons after four consecutive quarters of weak trade volumes. However, experts caution that
the next two quarters will be critical in determining whether this recovery is sustainable.

In 2022, multiple industries experienced demand destruction and excess inventories

following a series of adverse events that began in 2021. These events included distressed
freight markets and the Suez Canal blockage, China's energy shortage and emissions control
ahead of Beijing Olympics, rising inflation, geopolitical events in Eastern Europe and others.

08
5. When do you expect higher business activity
and volume growth?

Based on the survey results, industry professionals have varying expectations for when
higher business activity and volume growth will occur.

A subset of respondents (14%) have already seen growth earlier in 2023, while 15% are
anticipating growth during the 4th quarter of 2023.

Interestingly, the majority of respondents (35%) expect growth to occur during the first
half of 2024, with 19% predicting growth during the second half of that same year.
However, 17% of respondents anticipate lower growth beyond 2025.

We've already seen growth earlier in 2023 (14%)

4th Quarter 2023 (15%)

1st Half of 2024 (35%)

2nd Half of 2024 (19%)

Beyond 2025 (17%)

09
6. What will be your main priority in
next 6-18 months?
Efficiency (37%)

Growth (32%)

Digitalization (14%)

Sustainability (10%)

Survival (8%)

When asked about their main priorities in the next 6-18 months, survey respondents
expressed varying emphases.

The largest groups (37%) identified efficiency as their key focus, seeking ways to
streamline operations and maximize productivity. 32 %of respondents prioritized growth,
highlighting a desire to expand their business and capture new market opportunities.

Digitalization of workflows has been raised by 14% of respondents in the context of

boosting operational efficiency and readiness, including documentary compliance and
analytical capabilities.

A smaller but noteworthy portion (10%) expressed a commitment to sustainability,

indicating a growing recognition of the importance of environmentally friendly practices.

10
7. What is your role Of the respondents, 15% were
manufacturers of ingredients
in the industry? and chemicals.

Another significant group comprising

27% were premixers, formulators,
and end-users who purchase
ingredients for their products.

The majority, at 52%, were traders,

distributors, or re-sellers, highlighting
their role in facilitating the
supply chain.

A smaller percentage (4%)

mentioned being involved in market
analysis, consultancy, or academia,
indicating their contribution to
industry insights and expertise.

Finally, a minority (2%) were in the

media or other roles, reflecting
the broader ecosystem within
these sectors.

Manufacturer of ingredients, chemicals (15%)

Premixer, formulator, end-user (27%)

Trader, distributor, re-seller (52%)

Market analysis, consultancy, academia (4%)

Media, other (2%)

11
8. In which regions are your main business activities?

The main business activities of respondents

are distributed across various regions.

The largest share, at 58%, is centered in

Europe, showcasing the region's significance
as a hub for these industries.

Asia Pacific & Oceania followed with a

considerable presence at 25%,
highlighting the region's growing
importance in the global market.

Latin America & Caribbean accounted for

39% of the responses, pointing to the
opportunities and potential in this region.

North America, Middle East & Africa,

and Eastern Europe/CIS also registered
a notable presence.

Asia Pacific & Oceania (25%)

Europe (58%)

Eastern Europe/CIS (12%)

Latin America & Carribean (39%)

Middle East & Africa (15%)

North America (21%)

12