A month ago we explained to you how the rise in the price of aluminium and fall of the USD was affecting production of LED lighting.
In Europe, with summer now behind us, we’re hoping that the storm subsides, just as our friends from Florida hoped that the devastating hurricane Irma would change its path and not destroy their homes and their way of life.
Well, the worst predictions have been confirmed.
During the month of September, the price of aluminium increased eight points in comparison with last month’s figures, reaching its highest value since September 2014. This broke through a price ceiling which it was believed would never be broken. In addition, the exchange rate from USD to CNY continued to fall, from 6.6636 USD to 6.45714, a drop of 3.1%.
As explained in the previous post, this means that the same amount of aluminium costs us more money and when exporting from China to the rest of the world. When charging in USD and paying in CNY within China, each USD we charge gives us less profit… and even results in losses in many cases.
How are manufacturers reacting to this situation?
There are 3 types of behaviour observed.
- Factories which continue to reduce their prices
Although it seems hard to believe, thousands of LED lighting factories (and intermediaries) in China are still dropping their prices.
This is because they manufacture very low quality products, some with false components, housing that does not dissipate heat, at prices that seem cheap but in reality are expensive (due to poor quality), with large enough profit margins to be able to withstand the rise in price of aluminium and fall of the USD, at least for the time being.
The problem with this strategy, as we already know, is that the market is flooded with a very low quality products. Products that very quickly let the customer down.
- Factories which have begun to raise their prices
Thousands of factories have already started to notify their customers that the rise in cost of the raw materials and the devaluation of the USD is forcing them to increase their prices, from between 5% and 10%. This will be reflected in prices of products arriving in Europe in the coming months of the year.
- Factories which are maintaining their prices
This is only possible to do, without losing money, by having anticipated this market trend and having invested sufficiency in R&D months ago, in order to have new designs in light fittings available. These contain smaller amounts of aluminium, different alloys of materials which are able to dissipate heat better than previous designs (which did so due to the quantity rather than the quality of the materials used). These changes have to be certified by independent technical lighting laboratories, which provide a reliable forecast of the lifespan of these new lighting designs.
Even so, as much as some manufacturers have wanted to be ahead of developments and to improve designs so as not to raise prices, this may not be possible for all items, given that in some the change in size and improved heat dissipation is not possible.
It seems that Irma is here to stay, at least for what remains of 2017.
We will see how factories, importers and intermediaries meet the challenge.
Carlos Caballero Ramajo