Tighter environmental standards partly to blame: analysts
Many domestic companies are being forced to raise their product prices as the costs of raw materials such as paper and rare earths soar, analysts said.
Rare-earth prices have surged in recent months. According to domestic rare-earth news website ccmn.cn, the price of erbium oxide, a material for making special luminescent glasses, was about 180,000 yuan ($27,612) per ton on Monday, increasing 5.3 percent from March.
Raw materials used by steelmakers have also gone up a lot recently. For example, coke was priced at about 2,038 yuan per ton on Friday, up 24.9 percent from June 30, data from the steel news site mysteel.com showed.
Paper has gotten more expensive, too. May Cheung, CEO of Easy Print, China's largest printing and customized products e-commerce platform, told the Global Times Monday that price of corrugated paper, the main material for making paper boxes, has risen by more than 40 percent since the beginning of May.
Experts the Global Times talked to on Monday said that government regulations and other actions have been driving prices higher.
Take rare earth. Fu Liyao, an analyst at chinaiol.com, said that the government has added to its rare-earth stockpiles several times in the past year, and at a much faster rate than in previous years, which led to a significant decrease in market availability.
"Besides, the government has imposed tighter regulations on domestic manufacturing companies' environmental practices, which caused many rare-earth producers, especially those in East China's Jiangsu and Zhejiang provinces, to cut their output, which in turn drove up prices," Fu told the Global Times on Monday.
Many companies in the middle segments of the industry chains have to hike their own prices when faced with the rising price of raw materials.
Cheung noted following the price rise of corrugated paper, the price of paper boxes has also risen by more than 30 percent overall, because the price of corrugated paper accounts for about 75 percent of the cost of paper boxes.
According to Cheung, most mid-stream manufacturers in the paper-making industry have to raise their product prices in reaction to higher prices for raw materials.
"Of course there are companies that only raised their prices a little so they could retain their customers, but that means they'll have to bear some losses," she noted.
Liu Yuqi, who runs the Beijing Runmingda Paperplastic Co, told the Global Times on Monday that this round of raw material price hikes has been the strongest in recent years, and his company has also had to increase its own product prices accordingly.
Other industries are also being affected. Shanghai Tianyang Hotmelt Adhesives Co, which sells products such as hot glue powder, raised prices on Monday, citing higher raw materials costs.
But Fu said downstream companies are the ones that may be hit worst by this wave of price hikes, as it takes a while to pass higher costs on to customers.
"Smaller companies in particular will have to limit price hikes to get and keep customers, and their profits will be affected," she noted, adding that many downstream companies in the rare-earth industry are holding off on price adjustments.
But not all industries are being hurt by price hikes for raw materials. For example, most Chinese steel companies have been making fat profits this year because steel supplies have decreased and prices have risen, said an analyst at a futures company who only gave his surname as Xu.
"Steel prices have gone up a lot more than the costs of the industry's raw materials, so steel companies aren't feeling any pain yet," Xu told the Global Times on Monday.
But a fast rise in raw material prices may not be conducive for steel corporations to reduce costs and improve efficiency, as higher cost squeezes their profit, media reports said.
