Early in May, Luxlite, Epistar's sole distributor in China, has sent out an announcement of price adjustment, listing a number of reasons for price increase, including continuingly increased raw materials and manpower costs.
Chinese LED chips manufacturers San’an Opto and HC Semitek followed suit Epistar’s lead in raising LED chip prices, which was considered as an early sign of recovery from the heated price war since 2014. Major LED package manufacturers including Smalit, Honglitronic, Xuyu Optoelectronics, and SAMSUNG have announced to raise price this week.
More and more oversea buyers have felt the rising resistance from Chinese manufacturers against the endless bargaining of low price. With costs of raw materials like circuit board, gold thread continuing rising sharply, many LED companies have to turn away from price war strategy in order to survive in the fierce industry competition. According to a report last week from Ofweek.com: in Q4 2016 so far, PVC price has raised 60%, plastic price raised 30%, aluminum price raised 30%, paper packaging price raised 30%, shipment cost raised 33.6%...the trend is expected to continue. What are some main drivers behind this price hike?
Increased Freight Cost Due to Tighter Regulation Enforcement
From September 21st, 2016 onwards, a new standard for over-limit highway transport vehicles has been in effect. In the past, logistic companies tend to over load trucks to keep transportation cost down. With the implementation of the new standard, local traffic police strictly monitors and checks all cargo trucks on the road. Heavy penalties are in place for logistic companies that violate the rules. Raw material prices are fiercely affected by the increase in transportation costs.
On a side note, ocean freight rate is also set to rise in December from recent all-time lows. French shipping giant CMA CGM has announced price hikes on its services to and from Europe. Fees will jump to US$1450 per GP, US$2800 per HC from 1st, December. Swiss-based MSC, the world's No. 2 shipper, also announced a price rise on its service to Caribbean, Panama, and Venezuela since 1st, December. With more challenges, buyers should adjust priorities in their purchase plan, the sooner the better.
Carton Price Hike
Since the beginning of Q4, many of China's carton enterprises have raised the price of cartons to offset the impact brought by the rising price of corrugated board and packaging paper. The fact is that since the beginning of 2016 paper price has been on the rise almost every month. Businesses which reacted fast enough to this price hike have also occupied most of packaging factories’ production capacities, leading to longer lead time for the rest.
Shortage Of Manpower On The Assembly Line
Labor costs in China are expected to rise by nearly 9% this year, the Pudong Innovation Research Institute, a government think-tank in Shanghai, predicted in a report released on 17th, November. As fewer young people choose to work on the assembly line, companies have to raise wages to attract workers. A regular worker in the lighting industry could earn 230-240 yuan per day on average last year, but this year his salary can reach 260-280 yuan per day. Senior skillful workers can earn 300 yuan per day. Increasing employee costs combined with above-mentioned factors become the driving force behind the increased LED prices.
A Procurement Manager from a luminaires company showed us several price adjustment notices from his suppliers, he told us, “I have already received 5 manufacturers’ requests on price rise this week. After repeated negotiation we basically agree that the price stays unchanged before the end of 2016, but the price is bound to adjust after the Chinese New Year.”
