According to the Securities Times, after the price of raw materials increased, midstream and downstream companies did not dare to increase prices easily because they were “afraid of losing customers due to price increases.”
Li Hao, who is engaged in the plastics industry, told reporters, “The selling price of my products is 9,500 yuan/ton, of which the raw material cost accounts for 8,500 yuan/ton, and the other rent is for manual water and electricity operations. These costs only account for 1,000 yuan/ton. The materials have increased by nearly 20% from the end of last year to now, but the comprehensive price increase for my regular customers and individual customers is less than 10%, which is a lot of pressure.” Now I am about to start a new year. He decided to set the bidding price a little higher for the first round of supply cycle bidding. “If you can win, you will win. If you don’t win, forget it. After accepting the bid at a low price, once the price of raw materials increases, we will propose a price increase. The process for large companies is long, and several It takes months to get the approval, so it’s very passive.”
In his factory area, large trucks come to pick up goods from time to time. Outsiders seem to have a prosperous business, but in his heart he is the only one suffering. You know, it was originally a small-profit, quick-turnover, volume-driven business, but now even small profits are gone, and the factory is just trying to be busy.
Ms. Jian, who runs a curtain business in China Textile City, Dongmen, Shenzhen, is also afraid of losing consumers due to price increases. Ms. Jian told reporters that at the end of February and early March, fabric suppliers had raised prices twice, with a cumulative increase of about 12% to 13%. The suppliers said that because of the increase in raw material prices, they had to raise prices. When asked whether the price of curtains will also increase accordingly, Ms. Jian said that it will not happen for the time being. Consumers may not be able to accept it. After all, curtains are not a necessity. If the price is high, some consumers will be lost, so they can only choose to earn less to maintain the original price. In addition, two fabric merchants also told reporters that raw material prices have increased a lot recently.
The helplessness of the midstream and downstream sectors exactly reflects the current disadvantages of some manufacturing companies. Although China is already a major manufacturing country, with its total manufacturing volume ranking first in the world for many years in a row, its manufacturing industry is “big but not strong” and there is a clear gap between China and manufacturing powerhouses. It is precisely because of these disadvantages that some midstream and downstream companies are in a state of “embarrassment” due to the rising prices of raw materials, and even their vitality has been severely damaged.
Expected deviation!
Inflation in the upstream and deflation in the downstream are once again on the brink of crisis
A few days ago, my country’s macro data for April was released , not ideal. Among them, the two most unsatisfactory data are: PPI (Producer Price Index) and CPI (Consumer Price Index).
In layman’s terms, PPI reflects the rise and fall of producers’ costs of purchasing raw materials. CPI reflects the rise and fall of prices for consumer goods. One is upstream and the other is downstream. Under normal circumstances, an increase in upstream procurement costs will most likely be transmitted to an increase in downstream consumer goods prices.
However, there was a serious divergence between PPI and CPI in April: PPI surged to 6.8% year-on-year, a new high since October 2017, while CPI rose slowly by 0.9%. Not as good as expected. It is worth noting that the gap between upstream and downstream has widened for the second consecutive month. In March, PPI was 4.4%, CPI was 0.4%, and the scissor difference between the two was 4%. After April, PPI quickly rose to 6.8%, but CPI only recovered to 0.9%. The scissor difference between the two expanded to 5.9%.
Upstream commodities surged. Most commodities have exceeded their maximum gains in 2015-2016.
Downstream consumption cannot survive. The ideal CPI index should be between 1.5% and 2%, which is the so-called moderate inflation. However, our consumption has not yet recovered to the 1% boom-bust line. When upstream costs skyrocket and when downstream consumption recovers sluggishly, problems arise. There will be a weird scissor gap between PPI and CPI.
The rising costs in the upstream cannot be transmitted to the rising prices of consumer goods downstream. Under the scissor gap, the profits of downstream operators have been cut layer by layer. As shown in the figure below, the gross profit of the upstream industry has soared under the wave of price increases. The gross profit margin of the downstream industry has fallen due to rising costs.
This clear data tells us a fact: commodities have risen even more fiercely, and the recovery of consumption is still very slow.
Midstream PTA companies are still struggling
I don’t know how long they can sustain it in the future ?
The big-ticket investors in the upper reaches have their mouths full of oil. The coal bosses, steel bosses and iron bosses who have just emerged from the supply-side reform have all achieved financial freedom as they wished. For those downstream who are obsessed with “996”, consumption recovery is sluggish. Consumers are unable to pay for upstream price increases. It’s OK to have free sex, but it’s not OK to raise the price.
The worst thing is the business owners in the midstream – the rising raw material costs cannot be transmitted to the downstream.
We can look at the picture below, the index fluctuation chart of production means and living means
All price increases are paid for by end demand, and the whole society slowly digests the inflationary bubble. The current situation is that it cannot be transmitted. upstreamUnder the erosion of capital, it can be said that “you want to buy it or not, I will still increase the price.” The downstream recovery is weak, and there is no way to cure “Whether you want it to rise or not, I really can’t buy it.” The midstream manufacturing industry caught in the middle has no choice but to carry on. Companies such as PTA, which are in the middle reaches of the polyester industry chain, are struggling.
After the year, affected by the collective rise of international crude oil and other bulk commodities, although the price of PTA has increased, the lack of end-use textile and weaving orders has made it difficult to transmit it downwards, and there is no enthusiasm for buying and stocking up. not tall. As a result, the processing fees of PTA companies in the middle reaches of the industrial chain dropped significantly in March. The average monthly processing difference in March was only about 340 yuan/ton, and the vast majority of PTA production equipment suffered losses. Although a large number of devices chose to shut down for maintenance in April and May, significantly reducing the operating rate, the repair of processing fees was also less than expected, and progress was slow. The average monthly processing difference in April was only about 410 yuan/ton, and the average monthly processing difference so far in May The price is only about 460 yuan/ton, and more than half of the devices are still losing money. It has been two or three months now, and midstream PTA companies are still hanging on. I wonder how long they can sustain in the future?
If this kind of price increase cannot be transmitted throughout the entire industrial chain, our economy will suffer from stagflation in the long run, rather than “inflation” in the traditional sense. That is to say, there is inflation in the upper reaches, deflation in the lower reaches, the middle reaches are squeezed and forced to carry on, and those that cannot carry on are forced to be eliminated. The more midstream companies liquidate, the greater the employment pressure will be, the more employees will be squeezed, the more severe the income cuts will be, and the slower the recovery of consumption will be… Stagflation is involution.
So, what policies or methods do we currently have to solve the “midstream dilemma” like PTA companies?
If we want to solve the problem of rising commodities from the upstream, my country alone is basically unable to control it. Because the rise in commodities this time is almost entirely due to external reasons: large-scale currency releases around the world; the gradual vaccination of overseas vaccines, demand recovery expectations continue to rise; resource-based emerging economies, slow vaccination and repeated epidemics, resource supply nervous. Of course, there is an internal reason: one of the main goals of the 14th Five-Year Plan is to peak carbon emissions and become carbon neutral. Production of some resource products with high carbon emissions must be reduced. These relatively certain macro-environments, coupled with a round of speculation from domestic and foreign capital, have contributed to the skyrocketing prices of commodities. The complexity of external factors cannot be reversed by our country alone, which also leads to our inability to solve the current situation from upstream. Central policy regulation can only temporarily drive back the heat wave of capital speculation, but it is difficult to change the fundamental trend, especially for internationally priced commodities such as crude oil and iron ore.
If we want to solve the problem of consumption transmission from the downstream, it will be even more difficult. The weak recovery in consumption is also the result of the superposition of many long-term complex reasons, including the epidemic, my country’s economy entering a deceleration stage, global production efficiency stalling, and low social profit margins, etc. In short, boosting consumption cannot be achieved overnight and is a long-term battle.
So to solve the dilemma of midstream polyester raw material companies like PTA companies, the final answer may be to endure it. The company should try not to expand and stock up on goods, and the only way is to trade time. space, try to preserve the existing means of production as much as possible, and wait for the overall macro situation to change before moving forward. </p
