After a spread rise in transport cost last year, the cost of production has been increased sharply in 2021 due to higher input costs, particularly raw materials such as steel and plastic. The metal constitutes almost 70% of overall raw material since last year. It made a lot of trouble for Chinese manufacturer.

Who is driving the soaring price of raw materials?

The industry generally believes that this round of increase in raw material prices is mainly due to the following reasons:

1. Epidemic affect

Affected by epidemic, the production capacity of some raw materials is insufficient, the gap between supply and demand has increased, With the easing of the epidemic, production capacity has gradually recovered. When the demand for raw materials exceeds the supply, the price increase will be triggered in terms of the impact of supply and demand on price 

2.Strict Envoironmental Protection Policies

 Environmental protection policies continue to strengthen. Under the background of environmental protection upgrades, some raw material supply companies are facing production restrictions, suspensions, rectifications, and closures. Many raw materials are in short supply and prices are rising.

3.The Impact of Monetary Policy

In the past year, due to the impact of the epidemic, central banks of various countries have implemented "water release" monetary easing policies to varying degrees in order to resolve the liquidity crisis of their currencies and hedge against the harvest of domestic assets that the Fed may bring. If more currency is issued, it will naturally become popular in various commodity fields, including raw materials, which will trigger price increases.

4. Rising Transportation Costs.

For a long period of time last year, highways were toll-free. With the end of this policy and the end of the 7-day toll-free policy after the Spring Festival, transportation costs have risen, which has led to an increase in raw material prices.

In summary, factors such as inflation, imbalance between supply and demand, environmental protection, rising transportation costs, and deliberately high financial capital are all the main reasons for the recent increase in raw material prices.

After the price of raw materials rises, which products will follow the rise?

Almost all of the raw materials of all categories have been affected, and the production costs of enterprises have risen accordingly, which has triggered an overall increase in the prices of manufactured products, which will cause the prices of the following products or services to rise:

1.Rising prices of manufactured goods

The cost of raw materials is one of the important cost components of manufactured products, and the increase in its price will inevitably lead to the increase in the price of manufactured products. 

2.Rising prices

The market is a whole. When the price of industrial products rises, it will be transmitted and spread to other markets. The price of any product cannot be unique. The prices of kitchen and bathroom appliances, hardware water pumps, grains, rice, oil and salt are likely to rise.

3.Rising financing costs

After the price of raw materials rises, downstream companies are generally required to make payment before shipping, and the full payment is required. This requires downstream companies to retain more working capital, and the demand for financing increases, which leads to an increase in financing costs.

4. Wages rise

Rising prices of raw materials have put pressure on rising prices, and this pressure will directly affect consumers. Consumers will be pressured by rising prices to reduce consumption and expenditures, but they can still bear it in the short term. Long-term price increases will inevitably put forward demands for higher wages as a hedge against the increase in the cost of living caused by rising prices.

5. The stock price rises

Rising prices of raw materials will put tremendous pressure on the industry. The overall profits of the industry will fall, and stock prices seem to fall. But everything is not absolute. For leading companies in the industry, they have stronger bargaining power for upstream and downstream, but will make more profits in the context of rising raw material prices, and their stock prices will rise accordingly.

6. Prices in the upstream and downstream industrial chains will rise

In a complete industrial chain, when the price of source raw materials rises, it will be transmitted to the upstream and downstream industrial chain. The corresponding prices of logistics, services, technology, loading and unloading, and employment costs will rise accordingly.

With the domestic and international epidemics under control, the prices of industrial raw materials probably will slowly fall. We hope in the middle of 2021, the trend of raw material prices will fall into a normal scope.

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