Is it a crisis or an opportunity for the essence industry to continue to rise in prices?

In the first half of 2022, the market environment of essence has been impacted by adverse factors, the input and cost continue to increase, and the supply chain is also facing market disruption, resulting in continued price increases of essence. The revenue growth of the domestic essence Market slowed down, mainly due to the impact of the overseas epidemic, which led to a significant rise in the prices of some raw materials, with a maximum decline of gross profit of more than 10%.

The changes in the prices of essence and bulk raw materials have inevitably affected midstream and downstream enterprises. According to Qingsong's 2021 annual report, northbell, its cosmetics and related business entity, realized an operating income of about 2.5 billion yuan, a year-on-year decrease of 6.05%; The operating profit was -66.3205 million yuan, a year-on-year decrease of 119.89%; The gross profit margin was 10.44%, down 11.92% year on year; The net profit attributable to the owner's equity of northbell was -54.8956 million yuan.

One of the main reasons is that affected by the price fluctuation of bulk raw materials, the tension of upstream supply chain and other factors, the cost of cosmetics business increased during the reporting period, posing great pressure on the gross profit margin of products. Recently, Guangzhou Longqi, Mingchen health, blue moon and other daily chemical companies have issued semi annual profit forecasts. In the announcement, the three listed companies have mentioned that the rise in raw material prices is one of the most important factors affecting the company's gross profit margin and net profit. It is worth noting that the concentration of the global essence market is very high. According to statistics, in 2021, chihuarton, IFF, symrise and Firmenich, the international flavor essence company, accounted for 55% of the global essence market. As a perfume supplier behind MiuMiu, Prada, Dior and other brands, qihuadun, one of the four giants, has experienced a rise in the price of essence and spices, followed by changes in the price of perfume. According to the data of NPD group, a US market research company, the average retail price of perfume in the US market increased by 15% year-on-year in 2021, with an increase of only 5% in the previous two years.

As the price of upstream raw materials rises, the cost can be transferred to the middle and lower reaches, and the downstream enterprises can ensure profits through other channels. As a result, the processing plant in the middle reaches has become the "sandwich biscuit" with the greatest pressure.

Many middle and downstream companies are worried about the rise of essence raw materials. "It is obvious that the input and cost have increased." "The price rise of raw materials is very obvious, and the cost is greatly increased." "In fact, the biggest pressure on the rise in the price of essence is still on the processing plants in the middle reaches." "Because the price of bulk raw materials is also rising, some of our downstream cosmetics washing and care industry still need to save some costs from essence." "It has the greatest impact on the enterprises of to B." "When the cost of raw materials rises, the extra part will naturally be passed on to the downstream." "Big companies like Unilever and P & G will optimize their supply chain to ensure their profits."

There may be a possibility of reshuffle in the industry, while forcing domestic essence and fragrances enterprises to independently research and develop. Although Chinese essence enterprises have made great progress in the past, the data show that China's export of essence increased continuously from 2015 to 2021, and the export volume of some synthetic flavors was even equal to the monthly average output. However, the export products are concentrated in vanillin, coumarin, linalool and other low-end bulk synthetic spices. Some high-end flavor products cannot be produced by domestic enterprises due to their small batch size and high added value. At the same time, China is also a major importer of essence and fragrances. According to customs data, in December 2021 alone, China's total import of essence reached 1.04 billion yuan. The highest import volume is "perfume and toilet water", with an amount of 754million yuan and an import volume of about 9.77 million pieces.

In addition, according to the import data of natural flavor commodities in this year, "rosin" has the largest import volume and import amount, with 82.3994 tons and 92.4955 million yuan. Another category with a large import volume is "turpentine", which is 382.03 tons and the amount is 5.6731 million yuan. Compared with foreign products of the same type, the advantages of our products are not obvious. Essence is a kind of product with obvious regional characteristics. Domestic enterprises need to go out to create products suitable for the local market. It is understood that although there are more than 1000 essence related enterprises in China, the average asset scale is small and the concentration is low. In 2018, the Cr5 of China's essence industry was only 21.2% (regardless of the market share of foreign companies in China). With the rise of industrial competition barriers, small enterprises without technical and financial advantages may withdraw from the market, and the industry is expected to move towards head concentration. For domestic essence enterprises, this is an opportunity to reshuffle and force growth.

Compared with foreign essence giants qihuadun and symrise, China's essence enterprises' R & D investment accounts for a low proportion of revenue, and there is still room for improvement in R & D investment. However, it is noteworthy that in the past 30 years, China has ranked first in the number of internationally registered essence patents, accounting for 31%. At the same time, domestic essence and fragrances enterprises are also gradually deploying relevant high-end essence and fragrances products.

For Chinese essence enterprises, this may be the best era, because it is expected to achieve the replacement of imported products. It may also be the worst era, because every shuffle will have victims. But no matter when, in the face of the undercurrent surging market, keep alert and alert at all times, time will always give a satisfactory answer.