Since the second half of 2020, raw material prices have continued to rise. This round of rising prices has also affected connector manufacturers.
From the second half of last year, various factors led to the price of raw materials soaring, connector copper, aluminum, gold, steel, plastic and other large raw materials rise seriously, resulting in the connector cost. The price rise storm continues to the current has not eased the trend. Close to the end of the year, “price surge” again surging, copper up 38%, aluminum up 37%, zinc alloy up 48%, iron up 30%, stainless steel up 45%, plastic up 35%……
Supply and demand chains are unbalanced, and costs are constantly changing, but not overnight. In the past few decades, there have been a lot of ups and downs. In the long run, how can connector enterprises reduce passivity in this kind of fluctuation, not because of the market changes and the loss of market competitiveness?
Raw material price rises
1. Loose money and strained international relations
The excessive issuance of THE US dollar leads to the rise in the prices of raw materials and other bulk commodities. In the case of unlimited US dollar QE, the continuous rise in prices is expected to last for more than half a year at least. And materials commodities priced in dollars, in general, when a weak dollar, tend to boost prices of raw materials rose, when the expected value of the dollar, rising demand for commodities, boosting commodity prices, the rest is only a question of how to rise, rise much, has not a single vendor can dominate the control.
Second, international tensions have caused the price of imported raw materials to soar. For example, iron ore and other related industrial raw materials are imported from Australia, and now the price of iron ore supply is soaring amid the chill in Sino-Australian relations.
2, supply and demand resonance
In the post-epidemic era, the domestic consumer market has recovered from its sluggish state. The global lifestyle has also changed. The “home economy” has kept the demand for consumer electronics, and the demand for electric vehicles has increased, which has led to the passive imbalance between supply and demand. As one of the most important countries in need, China is currently the most effective country in controlling COVID-19. Therefore, it is expected that domestic economic activity will continue to recover in 2021, so the consumption of the market is still optimistic. In addition, the country’s 14th five-year plan for the new energy sector, will continue to support the demand for raw materials.
3. Impact of the epidemic
Prices of bulk metals and raw materials have risen, some of which are caused by structural constraints on supply and shipping due to the epidemic. The epidemic has resulted in insufficient production capacity in some countries, and production has been suspended or restricted in a large number of raw material supply areas. Take copper as an example. Since the COVID-19 pandemic began, South America, as a major supplier of copper resources, has been the hardest hit. Copper inventories are being depleted and supply gaps are widening, underpinning the rally. In addition, the decline of international logistics capacity has led to a sharp rise in shipping costs of container ships and prolonged supply cycle, which has caused the global price of raw materials to continue to rise.
Connector enterprise price increase is not easy
The rise of raw materials has also caused a large impact on downstream component manufacturers, and the cost rise is unavoidable. Obviously, the most direct way to solve the problem is to negotiate the price increase to the downstream customers. According to the interview and observation of international Cable and Connection reporters, in the past two months, many enterprises have issued a price increase letter, informing customers to increase the product.
But negotiating a price increase with customers is not an easy task. The most realistic problem is that customers do not buy it. If the price is raised, customers will transfer their orders to other companies at any time, so they will lose many orders.
We can find that it is very difficult for connector companies to negotiate price increases with downstream customers when dealing with raw material price increases. Therefore, enterprises need to plan in the long run.
What is the long-term solution?
At present, there are still many uncertainties in the external environment, and domestic new infrastructure and “14th five-year plan” and other policies continue to support the increase in demand, so it is uncertain how long this wave of raw material prices will continue. In the long term, we should also think about how connector enterprises can maintain stable and advantageous development in the face of unstable upstream raw material supply and changing costs.
1. Clear product market positioning
Rising raw materials will also intensify competition. Every change in the market is a process of shuffling, blindly playing price war, no long-term planning of the enterprise will be eliminated in the shuffling. Therefore, the smaller the enterprise, the more clear their target market, in product production planning should take into account various situations, positioning should be more clear.
2. All-round control
The enterprise itself in the production, management and product planning to do a good job of control and planning. From each link enterprises need to reduce costs, production should also improve the degree of automation and other methods to improve digestion capacity.
To be sure, companies need to price product development with a reasonable risk premium, in case of uncontrollable events such as the rising cost of raw materials.
3, brand, quality double improvement
It is very important to establish a long-term trust mechanism in the mind of customers. The brand, technology and product quality of an enterprise are all important factors to establish trust in the mind of customers.
4. Domestic substitution of raw materials
In addition, it is also an opportunity to try using domestic materials. In recent two years, the international situation is unstable and the United States of China’s sanctions make many enterprises began to choose domestic products, many Chinese connector enterprises are also affected by the trend of domestic substitution to obtain a lot of orders. Driven by the rising market of raw materials, the domestic substitution of raw materials is gradually deepening into the consciousness of manufacturers at all levels.
For enterprises with conditions, futures markets can also be used to hedge raw materials. However, the future is uncertain and the hedging method still has some risks, so enterprises need to do a good job of prediction and preparation before they can operate.
Any ebb and flow, enterprises should also assess the situation, put a long-term vision, calmly and positively respond to every storm. Not only materials, but also supply chain changes, enterprises should think about how to survive in the sand and not lose competitiveness.
In the face of the rising price of raw materials, enterprises engaged in price war have compressed their gross profit margin to the extreme before, and the operating pressure will become greater in the face of the rising price of raw materials, thus losing the competitive advantage of low price. It can be seen from the rise of raw materials during this period that in the face of the cost instability brought by the supply chain, enterprises should plan a long-term market-oriented price and supply coordination mechanism, and form a tough and orderly supply chain ecosystem and long-term price system.
Post time: Sep-27-2021