The initial anti-dumping ruling by the European Union on erythritol, a natural sugar substitute product originating from China, has been implemented. Faced with tax rates ranging from 31.9% to 235.6%, the market and investors are calling it "backstabbing", while also questioning whether the maximum 7-fold tax rate difference will bring about a reshuffle effect.
As an important region for global consumption of erythritol, the high tariffs imposed by the European Union have put enormous pressure on the export of erythritol domestically, causing the already saturated domestic market to continue to be squeezed, and industry competition is bound to further intensify.
When it comes to whether the tax rate difference of up to 7 times will have a significant impact on the current pattern of the industry, the person believes that the competition among top companies is fundamentally in product development, product quality, and cost control. It is too early to discuss whether the temporary imposition of tariffs on the single EU market will trigger industry reshuffle.
The erythritol industry is once again under pressure
As a new type of sugar substitute product, erythritol has developed rapidly in China since its entry into the Chinese market at the beginning of this century. Listed companies such as Sanyuan Biotechnology (301206. SZ), Baolingbao (002286. SZ), Huakang Co., Ltd. (605077. SH), and Jinhe Industrial (002597. SZ) have all had relevant production capacity layouts. Among them, Sanyuan Biotechnology is the largest erythritol production enterprise in China, with an annual production capacity of 135000 tons, and Baolingbao's erythritol production capacity also exceeds 50000 tons per year.
On July 19th, Sanyuan Biotechnology announced that according to the preliminary ruling of the anti-dumping investigation on erythritol announced by the European Commission, the erythritol related products involved in the company's case will be subject to a temporary anti-dumping duty of 156.7% from the date of the preliminary ruling; On the 22nd, Baolingbao also announced that the company's erythritol related products involved in the case were subject to a temporary anti-dumping duty of 31.9%.
Faced with sudden high tariffs, industry insiders generally believe that this has further put pressure on struggling Chinese erythritol production enterprises.
According to incomplete statistics, the total global demand for erythritol in 2022 is about 173000 tons, and as of 2023, China's erythritol production capacity has reached 380000 tons per year. In the situation where the supply far exceeds the actual demand of the global market, erythritol has also become a loss making transaction. According to the financial data of Sanyuan Biotechnology in 2023, the gross profit margin of the company's erythritol products is -1.11%.
Under the EU's imposition of tariffs, Chinese companies are facing a loss of market share, which will lead to intensified competition in the domestic market. Some smaller and less risk resistant enterprises may face the risk of being eliminated, "a representative from a sugar substitute product production company told a Caixin reporter.
Does tax rate difference trigger industry reshuffle?
Although the EU's initial anti-dumping duty has put pressure on the industry as a whole, reporters have noticed significant differences in the attitudes of different companies towards this incident.
Sanyuan Biotechnology stated that the temporary tariffs imposed by the EU have had a certain impact on the company's erythritol exports to the EU market. The company will actively diversify its products and market layout, increase sales of reconstituted sugars to the EU market, promote the company's new product high-quality stevia, rapidly expand production of alloxanes, and increase development efforts in emerging markets such as China, Southeast Asia, India, the Middle East, and South America.
However, Baolingbao believes that as the enterprise with the lowest anti-dumping duty rate in the EU, this matter has a relatively positive and positive impact on the company's erythritol business in the EU.
It is not difficult to see that the two leading companies in erythritol have different attitudes, and the reason is that they each face different anti-dumping tax rates. According to the announcement, compared to the temporary anti-dumping duty of 31.9% on Baolingbao, the tax rate of 156.7% on Sanyuan Biotechnology is five times higher, and the difference between the upper and lower limits of the anti-dumping tax rate announced by the EU this time can reach up to seven times.
Such a huge tax rate difference has also led investors to believe that anti-dumping duties will trigger industry reshuffle. In the investor interaction platform of Three Element Biology, there are countless questions such as "After the imposition of tariffs of 156.7%, will EU major customers turn to Baolingbao, which can save 124.8% tariffs.
Some investors expressed their views to Caixin reporters: Last year, more than 70% of Sanyuan Biotechnology's revenue came from overseas, and the high tax rates in overseas markets will greatly reduce the competitiveness of the company's products. Once the market share in overseas markets is taken away by other companies, the competitive landscape of the entire erythritol industry will be completely changed.
Regarding this, the aforementioned business personnel stated that as erythritol is not irreplaceable and sweetener companies have been developing their own new products, the key is still to see the product quality and cost control ability of each company. The probability of the EU imposing tariffs alone triggering a major industry reshuffle is not high.
In addition, the EU's taxation scope for erythritol this time clearly stipulates that it is pure erythritol originating from China or erythritol products with a content of less than 10% after mixing with other products. This means that companies can make other products and erythritol into compound products, which can also avoid the EU's anti-dumping duties to a certain extent.