Influence of Raw Material Price Increase on the Industry and Countermeasures

At the beginning of this year, raw materials for coated abrasives, energy sources, labor force and environmental governance costs increased, which brought industry enterprises great pressure. Coated Abrasives Sub-Association of CMTBA convened 13 domestic manufacturing enterprises specially, and held a meeting in Zhengzhou, to analyze the situation and study the countermeasures.

At the meeting, Secretary General - Wang Mingyuan, summarized three main problems faced by coated abrasives manufacturers: First, the prices of raw materials and auxiliary materials, labor costs and logistics costs were all significantly increased; Second, the impact of China's strict environmental protection measures on enterprises, some raw materials production enterprises suspended the production or limited the production; Third, the structural overcapacity in the manufacturing sector resulted in serious market over competition.

These combined factors make coated abrasives manufacturers feel unprecedented pressure. The cost of abrasive cloth roll affected by the price increase, is greatly increased. It is generally believed that the production cost increase of coated abrasives is inevitable as the atmospheric pollution control and environment protection advance. Protecting the environment is the duty of enterprises, and making high margin product is the basic requirement of enterprises.

Until now, these problems have not been solved effectively. The rise in raw material prices hasn't yet been curbed effectively, and enterprises are still suffering.

In terms of raw material prices, there are main materials’ prices to increase, such as cloth, glue, sand, paper, etc.

A. Paper and packaging prices for coated abrasives to increase: According to sources of a cardboard factory, the price of 175 grams original paper broken through 6,000 Yuan/Ton. Influenced by that, packaging cartons went up by 40% and wrapping paper up more than 20%. The imported paper backing also rose by 15%.

B. Abrasive grain prices: The price of graphite electrode has grown exponentially; Bauxite mining was limited to exploit, with an increase of nearly 300 Yuan/Ton; The price of brown fused alumina rose by 18% because raw coal limited to mine, which resulted in higher power cost. White fused alumina rose by 22%; Monocrystalline alumina rose by 12%; Black silicon carbide rose by 7%; Green silicon carbide rose by 10%; Feldspar powder rose by 25%.

C. Base cloth prices for cotton, chemical fiber and coated abrasives: Data show that cotton prices rose in the first quarter of this year. The market price of polyester staple fibre went up from 7,678 Yuan/Ton in June to 8,825 Yuan/Ton in Mid-October, which also contributed to the increase in the price of base cloth. Polyester cloth, blended fabric, and plain cotton all went up 7% on average.

D. Chemical raw materials and adhesives prices: Under the influence of the most stringent environmental policies in history, phenol price was increased to 7,900 Yuan/Ton from 6,700 Yuan/Ton; The price of formaldehyde was increased from 1300 Yuan/Ton to 1, 600 Yuan/Ton, which directly made phenolic resin prices increased by 600-1000 Yuan/Ton. Phenolic resin rose by 5%, and butadiene latex rose by 23%. With the improvement of environmental protection measures, the supply and demand will be leveled off for raw materials suppliers and coated abrasives manufacturers, but the price changes will be mainly affected by market demand changes. In the current global economy, the prices of raw materials will slowly go up.

E. Other costs: logistics transportation fee increased by more than 20%, and artificial wages increased by about 10%.

Facing the increase of raw materials prices and production costs, many grinding enterprises have adjusted their management strategies actively. It is understood that bonded abrasives manufacturers have generally raised their product prices. The price of conventional abrasive grinding wheel was increased between 2% and 25%. The diamond series grinding wheel rose by 20% and CBN series grinding wheel rose by 20%. Individual coated abrasives enterprises have also raised their product prices accordingly, but the overall adjustment is not big.

Under the condition of market economy, the rise and fall of product prices is mainly determined by supply and demand. When the cost of enterprises goes up, the supply side goes down, and then the prices will rise, which is decided by the market rules.

The price of raw materials is rising, which is both an opportunity and a challenge for enterprises and the industry. For enterprises, the rise of raw materials is a rare opportunity for those that are more scientific and efficient in management. These enterprises have more reasonable product structure and a large proportion of high value added products that have certain technical barriers not easy to replicate, and some advantages and competitiveness in prices. On the contrary, the rise of raw materials will speed up the elimination of low-quality enterprises, which may be a disaster for enterprises that are still in extensive management and have serious product homogeneity.

Facing the current situation, enterprises must have clear understanding and sufficient psychological preparation. With the adjustment of national industrial policies and supply-side structural reform, the prices of raw materials cannot be returned back. It is the top priority for enterprises to judge the situation accurately, move forward, seize opportunities and meet challenges.