I recently received a very interesting report on raw material costs from a lighting factory. I’ve been aware of the major drop in material costs over the last year, but I did not anticipate that they would be climbing back so quickly!
Iron Cost in RMB
What I really find interesting is the urgency that this factory seems to have when you compare costs to the recent raw material spikes in 2007-08. We are still more than 50% below peak prices. It seemed that all suppliers are quick to raise prices, but slow to drop them. I understand their concern with recent trends not looking optimistic; but let’s hope that the speculators calm down and real business can run smoothly. (Please see the bottom of Oil Price Graph, to see how trading volume has more than tripled since 2000!)
Oil Price and Trading over time
It appears to me that this email is a marketing attempt to drive more sales over the slow summer season. This might actually prove to be a smart approach to push companies who will be buying product in the near future. Overall, I do believe the numbers they are relaying to us are accurate and all buyers should be aware.
Another concern I have is labor costs in China. Currently, we are hiring another data entry position, and it seems that we will have to pay about 2400 RMB per month to hire someone with decent English writing skills. Also, just a few months ago when we were looking for factory workers, labor wages in Guangdong had risen to around 1100-1500 RMB per month, and the total cost per month for an average factory worker now costs over 200 US Dollars. There may have been some increase in efficiency over the years, but value-oriented experts have been buying more and more outside the developed industrial regions in China, looking to other countries instead. My impressions from Vietnam, Indonesia, and India were that the total cost for an average factory worker is still below 100 US Dollars.
Below is the email from the factory, World of Lights.
Dear valuable customers:
The material price dived greatly causing by financial crisis last year. After one year’s consolidation by stock market and oil price, which is slowly drive to the previous high point.
The above 4 charts are the price trend for our materials, actually, almost all the materials we need are going up in the last few months, However, all our quotation until now are still keep on the bottom on Feb. 2009 when all the material costs at the lowest point.
Copper Price Graphs
We quite understand what situation our clients are, while the financial crisis still not released completely, market just turn to be a little better, if increase the price, we know this will be a great hurt to all our clients. So from March 2009 to August 2009, our factory and our suppliers endures material slowly rise, we try out best to digest the price increasing by ourselves, Meantime, we always keep the lowest quotation same as this Feb., 2009’s while the material cost at the bottom, to assure all our clients can move forward in the crisis. But now we can see the future that we may have to endure more and more pressure.
From the attached 4 charts we can see, our material cost are continually going up, the increase percentage even up to 40% at lease for iron. Of course, we still have to keep Feb.’s lowest price in this August and September. But what we worried about is that the coming traditional midseason after Nov. and the coming year, if the material still continually go up 20%-30% again, I am afraid that we will really have no ways to endure any more, so we write this email to communicate with all our clients, if you have any purchasing schedule, we suggest you deal with the stock as soon as possible or prepare in advance. We will still keep the Feb.’s lowest price in this Aug. and Sep. Thanks!
Nickel Price Graphs
