China Prices: On the Rise

If export prices for automotive brake parts are an indication of the overall Chinese direct materials export market, then companies can expect moderate price increases in the next year due to rising commodity prices, a subject which I've written about recently on Spend Matters. According to a report posted on The Auto Channel, "Due to the higher cost of metal and oil-based raw materials, all surveyed [brake part] makers said they expect to raise prices in the next 12 months. However, most plan to limit price increases to prevent losing market share in this fiercely competitive industry ... 5 percent [of suppliers] expect to increase prices by over 15 percent; 3 percent plan increases of between 10 and 15 percent; 62 percent expect increases of 5 to 10 percent; and 30 percent plan to raise prices by up to 5 percent."

While most of these components appear to be for aftermarket or service-part items, I'd argue that this pricing is certainly a gauge for the overall pricing we can expect for more generalized industrial products. For companies purchasing these items from China, it might be a good time to have these items re-quoted in India for comparison purposes. Metals prices can vary from country to country and India's competitiveness -- especially in the lower volume areas -- can be quite compelling. Another option to help contain price increases is to offer to offer volume commitments to enable Chinese suppliers to forward buy raw materials. And in exchange, it's sometimes possible to renegotiate payment and finance terms terms, potentially getting rid of expensive letters of credit, which play a material role when factored into a total cost equation.

Jason Busch

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