As you may be aware, many China raw materials are increasing in costs quickly these days. Rising material costs are putting pressure on small manufacturers in China already, and prices are forecast to keep rising this year.
We’re tracking the raw material costs for some key materials and this month’s graph paints a concerning image:
As you can see, most of the gains in prices of the previous months haven’t been lost. It has become the ‘new normal’, with relative stability throughout April.
Will this rising trend continue?
According to this article from the SCMP, metal prices are expected to increase 30 percent and agricultural prices to rise almost 14 percent this year, which is no joke if margins are already tight, and that’s just two categories.
What is causing this phenomenon? There seems to be no one answer. Here are some of the causes that might be at play:
- A rise in demand. For example, much has been written about the higher-than-projected production of cars and consumer electronics, leading to shortages of chips. But these products also necessitate metals, plastics, rubber, and so on. In addition, many companies may have reconstituted their stock.
- Constrained supply. To increase the amount of copper on the market, for example, not only the mines but the different transformation actors along the supply chain may have to invest in growing capacity.
- Anticipation of global inflation. Some economists point to the side effects of the massive government spending plans in the USA and in the EU.
How to combat the rising costs?
There are some options you could follow, such as:
- Source cheaper suppliers – in apparel this is more common, but in other industries where margins are tight, it may be counterproductive. Instead, attempting to reduce production costs may be more achievable.
- Re-engineer cost drivers without removing value for customers – this would be altering the design of a product to use fewer components while assuring that the product still delivers the same benefits.
- Develop new versions of your key products – increasing your prices may only be possible if you find ways to differentiate products by eliminating features or results of the current product that consumers have shown they don’t like from the newer version, for example.
These are just 3 examples in summary, but there are even more…
Read about these cost-reducing tips in this post: Rising Raw Material Prices: What Strategy To Follow? (6 Approaches)
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 into your manufacturer’s costing.
By the way, you can always contact us if you have any questions about whether a manufacturer’s quote is reasonable.
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