Snarled supply chains hurt Indian pharma copying with spurt in Chinese raw material prices

Many in the pharma industry are today reminded of the days when the pandemic began unfolding early last year.

By:September 28, 2021 10:52 AM
“Generally, we used to issue 350 to 450 new licences before the pandemic,” Dr Hemant Koshia, Gujarat FDCA commissioner, said.“Generally, we used to issue 350 to 450 new licences before the pandemic,” Dr Hemant Koshia, Gujarat FDCA commissioner, said.

Supply chain disruptions have been a global problem. If it is shortages in semiconductors hurting the car industry in the US, it is the snarled supply chains triggering delays and spurt in prices of solvents or some key starting materials to make some basic medicines that are impacting Indian pharma industry.

The list of items involved is long but consider some basic chemicals. Most of them incidentally involve dependence on China. Take Methanol for instance. China, Iran and Saudi Arabia are the major producers of methanol. It is used as a solvent and as a platform chemical of sorts in the manufacture of several drugs and even some agro-chemicals. It’s price has more than doubled since the pre-pandemic days led by a combination of factors at work. Sometimes coal is also used in the manufacture of methanol. However, with China coming down heavily on energy consuming and energy-intense manufacturing with its much talked about “dual control system” in an apparent bid to check environmental damage, is showing its impact through reduced supplies. Some units that make methanol are as a result, either shutting down operations or curtailing production. Result: Today China, once a net exporter of methanol, is importing it. The collateral damage for India is increased competition when sourcing supplies from a third country like Saudi Arabia for instance.

Like with the widely used solvent methanol, there is the challenge with `Para Nitro Chloro Benzene’ or PNCB to many in the industry. It finds use as a crucial starting material in the manufacture of several dyes and basic pharmaceutical products like paracetamol, a commonly used medicine to treat high fever. Here, the price of benzene has seen more than two-fold increase as compared to the pre-pandemic days. Part of the reason is that benzene prices are linked to crude oil prices, which again have seen a sharp rise.

The challenge of logistics

What is compounding the problem and leading to shortages also is logistics challenges. Shipments are not easily available with low container availability, increase in turnaround time with ports – from Shanghai to Los Angeles. For example, there were recent media reports of as many as over 60 container ships waiting at the Los Angeles port awaiting unloading but unable to because of apparent shortages in trucks and drivers. All of it triggering delays in the return of empty containers to China. The increase in turnaround time has meant for Indian companies used to 45 days in shipments from US to India, a waiting time of at least 60 to 70 days. One of the industry representatives talking of rise in shipping costs says the container cost is almost seen a near 10-fold increase for say a 40 feet container carrying 20 tonnes of cargo.

The hurt is apparent. Granules India for instance, a leading Indian pharmaceutical company in the manufacture of basic drugs like paracetamol to control fever and metformin, a first line of treatment for diabetes among other medicines that it makes and exports, is coping with these very challenges though it has been trying to reduce its import dependence. “The supply shortages in terms of the availability of some starting materials, price increases in inputs and logistics challenges are all hurting Indian pharma quite severely and to add to the problems the finished product prices are not increasing proportionately across the world,” says Krishna Prasad Chigurupati, chairman and managing director of Granules India.

Beyond import dependence

To Kiran Mazumdar-Shaw, chairperson of Biocon, India’s leading biopharmaceutical company, the options now are clear: “Indian pharma needs to map out its supply chain and we need to make sure that we look at indigenising as much as we can of the supply chain though we may not be able to do everything but we do need to look at making whatever we can.”

Many in the pharma industry are today reminded of the days when the pandemic began unfolding early last year. With the extended Chinese new year holidays as a result of curbs on mobility because of the coronavirus, supplies of raw material were getting disrupted. The only difference now is that it is arguably worse than last year. Not only have the oil prices increased substantially since then but now there is the added problem of congestion at the ports, partly due to challenges in meeting the inland connect or because of COVID-19 precautions.

In a tone suggestive of a brave face the Indian pharma is trying to keep, Sudarshan Jain, secretary general of the Indian Pharmaceutical Alliance (IPA), which has some of the leading Indian pharmaceutical companies as its members, has this to say: “The Indian industry is doing all it can to ensure continuity of supplies. This is despite volatility in prices and the irregular availability of the intermediates.” For how long this will last, nobody seems to have an answer.

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