The price increase of bulk commodities is transmitted to the downstream industries

Due to multiple factors such as flooding of liquidity and the gradual recovery of terminal demand, the price increase of bulk commodities has continued, and the price increase chain of bulk commodities is being transmitted to the downstream.

"Our company is mainly engaged in foreign trade. At the end of last year, exchange rate factors have already affected the company's operations. Now that the prices of steel, copper and aluminum have risen, our profits can't run the pace of price increases, and the raw materials are still out of stock, which makes it impossible to deliver to The customer was fined." The person in charge of a home appliance company in Zhongshan, Guangdong told reporters.

After the Spring Festival, the company's products have increased their prices by 8%, but profits have still dropped significantly. The person in charge of the company said that it is impossible to judge the subsequent price increase of bulk commodities, and he is afraid that the price of raw materials will increase after receiving the order, which may even exceed the profit, so he would rather take fewer orders.

Not only home appliances, the general manager of a construction machinery company in Suzhou told reporters that they are also increasing prices "on the go". "When the price of raw materials rises, we will increase the price, but the customer disagrees with the price increase, which leads to a reduction in our profit or even no profit. This is actually a chain reaction."

Zhao Yongjun, a researcher at China Securities Futures Steel and Mines, told reporters that recently they have come into contact with many manufacturing companies, including terminal engineering machinery manufacturing, container processing, home appliance companies, and mid-end steel structure processing, copper pipe processing, etc. The overall view involves metal The demanding industries are generally increasing prices. However, there are relatively large differences in price transmission between industries.

Passive price hikes downstream of the industrial chain

Due to multiple factors such as the flood of global liquidity and the gradual recovery of terminal demand, the prices of bulk commodities have continued to rise.

Zhao Yongjun said that starting from March 2020, bulk commodities have experienced three waves of price increases. Although each wave of price increases is related to global monetary easing, the reasons for each wave of price increases are also different.

The reason for the price increase in the first half of 2020 is that the supply of foreign raw materials is restricted, and the active domestic fiscal and monetary policies stimulated a surge in demand; the recovery of foreign demand in the second half of the year is relatively good, while foreign supply is still limited, and the substantial increase in exports drives domestic bulk Commodity prices are rising; the global economic recovery and inflation expectations in 2021 will push commodity prices to strengthen again.

Not long ago, the National Development and Reform Commission responded to the continuous price increase of bulk commodities. The National Development and Reform Commission stated that the current Chinese economy has been deeply integrated into the global economy, and price trends will objectively be affected by external factors. For example, ample global liquidity and rising international commodity prices may be transmitted domestically through trade, finance and other channels, but this transmission affects On the whole it is limited and controllable.

For many downstream manufacturing companies, the increase in commodity prices has forced them to adopt a passive price increase strategy, although this strategy faces the risk of losing customers.

The above-mentioned Zhongshan home appliance companies stated that they are currently raising prices and out of stock on the issue of raw materials. There are three reasons for the shortage. The first is the price increase of materials and the reduction of upstream inventory; the second is the shortage of labor and the production capacity cannot meet the demand; and finally, the manufacturer is unwilling to take risks and lengthen the production cycle.

The reason for the price increase is that the shipping costs have risen sharply, and the price of raw materials has risen sharply. The person in charge of the enterprise said that the current enterprise cost of home appliances has increased by more than 10%. However, they are caught in a dilemma of price increases.

"If we increase all the increased costs to customers, it is easy to cause loss of customers. When the price increases, everyone will reduce purchases." He said, "Currently, if we increase the price by 5 points, we can guarantee no loss Now we have risen by about 8 points, but we still cannot maintain our original profit."

And their customers have already seen a reduction in purchase orders. "Now a small part of customers have accepted it, a small part is on the sidelines, and most of them have reduced purchase orders." The person in charge said.

There are also manufacturers in the construction machinery industry who are worried about the loss of customers.

The general manager of the Suzhou enterprise stated that the price increase of the product needs to be based on the needs of the customer. If the customer accepts it, the price will be increased. If the customer does not accept it, the price cannot be increased, but if they lose money, they will definitely increase the price. In addition, it cannot be generalized. The raw materials of bulk commodities in the product account for a large proportion of the cost, and the price must be increased. If it only accounts for 10%, it will have little effect.

Compared with production companies, processing companies are more comfortable in the surge of commodity prices.

Mr. Lei, general manager of Dongguan Chuangying Machinery Equipment Co., Ltd., told reporters that the increase in commodity prices has no effect on them. "The cost is high, and it is also expensive to sell. We do processing, and the material rises, and our processing fee also rises. The price increase is for the raw material to increase by one, I will increase by two, and I also hope that the material will increase."

The part of the transfer chain is "jammed"

The reporter learned during the interview that at present, different bulk commodity downstream industries have different conditions for the transmission of price increases in the chain.

Taking home appliances as an example, not many downstream can accept price increases.

The above-mentioned Zhongshan home appliance companies said that the profitability of the manufacturing industry is very thin, and the price increase cannot catch up with the increase of raw materials, which puts them in a dilemma of receiving orders. On the one hand, customers are waiting and watching, on the other hand, they are also waiting and watching.

"We are reluctant to raise prices now. We just want to keep the factory running. The price of bulk commodities has changed so much. It takes a certain amount of time from ordering to purchasing materials. The material rises so fast. I don’t know if I can make up for the profit. I can only take fewer orders and make up for the expenses. I feel that the risk is very high now." The person in charge of Zhongshan Home Appliance Enterprise said.

The reporter learned that more than one downstream producer of bulk commodities said that the market is not very accepting of price increases.

The above-mentioned general manager of the Suzhou Construction Machinery Factory stated that if the goods created by any industry have no pricing power, that is, when the price cannot be increased, it will be more difficult to survive. The characteristic of the manufacturing industry is that it is difficult for goods to increase in price. But its raw materials will become more and more expensive, and labor costs will become higher and higher, which will lead to thinner and thinner profits.

"Some people say that the manufacturing industry can obtain pricing power through innovation, but innovation is conditional and requires R&D investment. The average manufacturing plant does not have this strength." He said.

Zhao Yongjun said that at present, it is easier to increase prices in the upstream and more difficult to increase prices in the downstream. The concentration of the industry and the difference in customer structure on the demand side are two important reasons for the huge difference in upstream and downstream pricing power. The upstream supply of steel, copper, aluminum and other metals is more concentrated, and smelting companies have stronger pricing power; while the downstream demand for home appliances and construction machinery is relatively scattered, and consumers have more choices.

They judged that the current round of commodity price hikes has not ended, mainly because the loose state of globalization has not changed, and the economic recovery of globalization is continuing, and the demand side performance is still strong. The new round of reforms brought about by carbon peaking and carbon neutrality also put pressure on the supply of bulk commodities. The price increase of bulk commodities will ultimately be borne by the end consumer, so the price increase will be further transmitted to the downstream. However, the current domestic monetary and fiscal policies are gradually returning to normal, and domestic inflationary pressures are not great, and continuous large-scale overseas stimulus may bring certain imported inflationary pressures.