After falling for two consecutive weeks, steel prices are now on the rebound. But low margins and high costs leave China's consumer goods makers little choice but to raise export quotes.
Prices of various types of steel in China have bounced back recently, buoyed by the expectations of high consumption in the weeks ahead. Consequently, China manufacturers of steel-based products are likely to boost export prices this year.
In China, demand for steel is fueled mainly by high usage in the domestic market. With global economies continuing to recover, orders for steel-based finished goods have also been going up, particularly for home appliances and hardware products. The earthquake in Japan, meanwhile, is likely to affect global steel supply, particularly since the world's seventh and eighth-largest producers, Nippon Steel and JFE, had to suspend some production.
Suppliers of consumer goods, however, find it difficult to absorb rising steel costs and would have to boost export prices with every increase in metal quotes. The Midea Group, for instance, is likely to raise quotes for its air conditioners. This is because steel accounts for 20 percent of the total cost per unit. But the rate of increase will be different per product line, and may range from $10 to $30.
Steel is a major material for washing machines as well. An 8.6kg twin-tub model, for instance, uses 6kg of cold-rolled steel sheet. A 7kg front loader employs roughly 10kg of cold-rolled steel sheets. Billy Chai, foreign trade sales representative at Cixi City Chenyang Electric Co. Ltd, said the company may increase export prices 1 percent for every 10 percent rise in steel costs.
Instead of simply adjusting quotes, some suppliers are adding more value in their releases. Guangdong Vanward Group Co. Ltd has been developing multifunction barbecue grills as a way to convince buyers to accept higher prices.
But this route is not possible for all makers, particularly for a few hardware companies. Stainless steel pipe and fitting manufacturer Wenzhou Yonghao Stainless Steel Pipe Co. Ltd said its products have to comply with standards. It is not easy for the company to modify designs or use alternatives to steel, which account for 60 to 90 percent of unit costs.
Read the full report at Global Sources, a leading business-to-business media company and a primary facilitator of trade with China manufacturers and India suppliers, providing essential sourcing information to volume buyers through our e-magazines, trade shows and industry research.