"Smaller companies in China have closed down and there is a reduction in production by DSM (Gist Brocades-Holland), thus impacting the demand-supply situation," one of the players in the penicillin segment said.

Increased demand has helped firm up penicillin prices in the domestic market as well. This increase in demand is due to the growing market for user products like amoxycillin, cloxacillin and other oral cephalosporins like cefadroxil, sources said.

Significantly, prices of amoxycillin, cloxacillin and cefadroxil have also moved up by 5-10 per cent, sources added, though the exact price movement could not be ascertained.

Industry experts expect penicillin prices to continue to move up gradually and 'not dramatically'. "The most important aspect, however, is that we seem to be witnessing the beginning of a turnaround in the bulk drugs segment which has faced a severe recession from 1997 to mid-2000," they added.

Penicillin prices, which were ruling as high as Rs 1,000 per BOU a few years ago, had earlier fallen to Rs 450 per BOU, affecting a host of new manufacturers like Spic, Torrent and JK. Prices had hit historic lows largely due to the 10-15 per cent surplus production worldwide.

The total installed capacity for Penicillin G in India is 6,500 MMU, with production hovering at around 6,000 MMU. "Domestic demand is pegged at roughly 5,500 MMU and that is why penicillin prices have been under pressure. However, with some of the products now being used for export production, the demand and supply gap is reducing," the sources added.

It is also learnt that international prices of other fermentation-based products like 7-ACA (the basic ingredient for sterile cephalosporins) and erythromycin thiocynide (a raw material for erythromycin derivatives) have shot up by 15 to 20 per cent in the recent past.