If you have been buying products from China, you have probably had bad experiences with pricing. Manufacturers often raise the price once a year, when their costs have gone up, or when the exchange rate got less favorable. The most common justification for price rises is: “China raw materials have gotten more expensive”.
But they don’t tell you what part of their cost comes for each material, so you are left negotiating with no visibility.
Our China-based purchasing specialists have been documenting the price a factory is expected to pay for some key China raw materials, as you can see in this graph about the last 3 months:
The first thing that comes out is, all those prices have gone up recently! The only exception is zinc, which is 1.3% cheaper than 3 months ago.
Some commodities are very hot. This type of Lithium batteries (lithium cobalt oxides) has gone up sharply (nearly +80%) since November 2020. We are not sure why — some people mention the higher demand from electric vehicles, others attribute it to tension over ‘rare earth’ minerals.
Apart from the clear outlier (Lithium batteries), some other costs have gone up, too:
Premium paper (for color boxes and for AA cartons) has gone up by up to 25%.
Certain raw materials, such as brass and silicone, have also gotten about 15% pricier.
Now, what can you do with this raw material cost information?
If your product is mostly made of aluminum, and your supplier writes to you “the cost of aluminum went up, so we have to increase the price of your product by 10%”, you can ask a few questions:
- How much were you buying it at, when you gave me the original quotation?
- What grade of aluminum is it? I see that aluminum alloy DC12, sourced from Jiangxi province, has not risen much recently.
- You also buy wood and carton materials for my product, and you need to do some assembly, packing, and inspection work. So, the aluminum material is probably no more than 60% of your costs. Why are you trying to raise the whole product’s price by 10%? From what you wrote, you are only trying to cover the higher cost of aluminum, right?
You can combine this information with a graph like this if you buy in USD:
And, of course, you should be the one contacting your supplier if you see their margin is obviously getting inflated (thanks to lower commodity prices and/or a favorable exchange rate).
If they refuse to budge, and that’s very common, there is always one more weapon in your toolbox. Ask for quotations from other suppliers, replace the names by A, B, C…, and show those quotations to your current supplier.
We hope this is helpful. Our mission at Sofeast is to help importers have transparency in their supply chain and to give them more control. And this information is critical, to have some visibility in your manufacturer’s costing.
You can always contact us if you have any questions about whether a manufacturer’s quote is reasonable.
This will be a regular series of posts where we’ll share updated China raw materials costs – so keep an eye on them to track price changes over time.