On Thursday (Jan. 7), the yuan closed at 6.4567 yuan to the dollar, a 31-month high. Chinese home appliance companies fear that the rising yuan exchange rate and the surge in raw material costs will not only squeeze their profits, but also cause them to lose money and end up “working for nothing,” and some of them may face bankruptcy due to the appreciation of the yuan.
Under the impact of the Chinese Communist virus (Wuhan pneumonia) epidemic, Western countries such as Europe and the United States have implemented embargo measures to encourage remote work from home, which has increased demand for home appliances, giving Chinese home appliance companies an opportunity to export. However, Chinese home appliance companies have failed to gain more benefits from increased orders from overseas markets due to the rising prices of raw materials used in the manufacture of home appliances, such as copper, aluminum and cold-rolled steel coils, and the continued appreciation of the RMB.
Data show that in the fourth quarter of 2020, the Shanghai Aluminum Index rose by 9.3% and the Shanghai Copper Index rose by 13.4% in aggregate.
The appliance industry generally has a high demand for bulk raw materials such as copper, aluminum, steel and plastic, and the cost of raw materials often accounts for 70% to 80% of the total cost. GREE’s 2019 annual report disclosed that raw materials accounted for 86.66% of the company’s operating costs for the year.
Chinese home appliance companies are mainly export-oriented, and rising costs are just one aspect, while the rising RMB exchange rate is hitting home appliance companies from another aspect.
The RMB rose by more than 6,000 basis points, or 8%, from a low of RMB7.1765 to USD onshore on May 27, 2020, to the end of 2020.
The main induction cooker, electric pressure cooker and other household appliances export business of Zhongshan Ailip electrical business owner Zou Shibing said, “under the dual pressure of rising raw materials and the appreciation of the yuan, the company’s profits have become particularly meager.”
Foshan a reluctant to name the head of foreign trade enterprises of home appliances said, “originally because of the overseas epidemic received a lot of orders, these months work overtime production, but near the delivery date exchange rate appreciation so much, resulting in a substantial shrinkage of profits, almost a waste of work.”
Mainly engaged in small household appliances, Guangzhou, Dr. home appliances foreign trade business leader Xu Li said that the company’s overall foreign trade orders in 2020 has some growth, but in the double squeeze of rising costs and exchange rate appreciation, the company’s backlog of some orders and even a loss of money.
Lisa Ye, sales manager of Zhejiang Ningbo Zhongjie Home Appliances, which produces vacuum cleaners and other products, said the increase in orders is not a good thing, but rather puts the company in a difficult situation because there is no profit or almost no profit, and a few months down the road will be a loss.
According to the manufacturer, after receiving the orders, the company has to wait for several months to get the payment, and if the yuan continues to appreciate against the U.S. dollar, the payment received will shrink significantly when it is converted back to yuan.
Ye said that the future situation is unknown, now only dare to receive a month of orders, if you receive a year of orders, after that you can not control, the company may go bankrupt.
China Clean Home Appliances has already raised product prices to offset exchange losses, while large Chinese household power plants such as Gree, Oxy and Zhigao have also raised prices consecutively, once in July and September 2020 and another time in December 2020.
All our profits have disappeared and we are currently losing money, and the worst part is that even if we produce more products, we don’t have enough containers available,” said Cara, sales manager of Guangdong Jiangmen Hongyuda Motor & Electrical Manufacturing Company, which produces kitchen mixers. We can’t get the payment until the customer receives the mixer, but the supplier is chasing for the payment, the situation is really miserable.”
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