We are inundated with various market reports and predictions in the media, from our bank’s foreign exchange department and Chinese suppliers. As we are coming to the end of the year we would like to share this with you in order that we can make better sense of the current market situation and better predict what is likely to happen next year.
Inflation in China stood at 4.4% in Nov.,2010, and the government has indicated it will certainly be higher in December 2010. Wage inflation alone in 2010 stood at 13%. There is considerable pressure from the USA who believes that RMB should appreciate by between by 20 – 40% to reach a true and fair value against the US$. As a result there have been huge capital inflows into China in anticipation of RMB appreciation. This has fuelled rises in commodity prices (iron and steel rose by 20% in last two weeks) as well as continuing to create a property boom.
Synthetic filament costs have also increased
The world wide cotton shortage which has seen a price increase of approx.70%, and as a result many garment manufacturers move to producing garments using different fabrics such as polyester or acrylic, not surprisingly these prices have in turn also increased sharply over the last month by approx 20%.
The manufacture of brushes currently uses a lot of synthetic filament, such as SRT & hollow PET filament which are made from polyester & PBT, these filaments have also increased 10-20% since the middle of November, resulting in many factories trying to increase prices.
The price of oil has also increased
The result has inevitably seen oil based products such as PP, ABS, PET. increase, the cost of plastic handle have risen by between 15%-25%;
The RMB has appreciated this year by approximately 4% and it is widely anticipated that it will rise by a further 5% in 2011.
For these reasons it is likely that one should count with price increases for goods being manufactured in China in 2011. The Chinese fully understand the importance of exports to their economy and I believe they will make every effort to keep prices rises to a minimum.
by Tim Kleingeld