Oil is hitting new lows. Resin prices are trending down. Are molders lowering prices for plastic products too?

 

Chinese molders are, passing much of the materials savings on to their customers, home and abroad, I suppose, according to this Dec. 8 New York Times article.

 

They are doing so due to "ferocious competition and chronic overcapacity," the story says. It quotes a Chinese plastic container maker saying lower resin costs have allowed manufacturers to be more flexible on pricing.

 

So, essentially, Chinese exports are capturing a bigger piece of the global market with more competitive prices, while factories there are saving on raw materials costs. Hence the trade surplus.

 

I've seen reports from Chinese media in recent weeks on plastics housewares goods selling at discounted prices. A Nov. 27 report from Fuzhou Evening News said local supermarkets and stores are selling plastic basins and containers at a third off the original prices.

 

The report interviewed a local housewares molder, who explained that materials represent 70-85 percent of the production cost. The sources estimated the percentage of labor cost to be 5-20 percent, and that of design cost 10-30 percent.

 

"PTA prices have dropped up to 40 percent, and PE 17.6 percent, resulting in a total cost saving of 5-20 percent," the source said.

 

But resin isn't the top cost factor for all plastic products. Guan Lan Perfekta Toys Factory told Shenzhen News that labor costs, by far, outweigh resin costs in the toy industry. The impact of ABS and PVC resin price fluctuation is at most one to two percentage points for the company, the Nov. 7 report said.

 

PVC inflatable toy maker Duo Yuan Plastic Production Shenzhen Co. Ltd. also noted PVC resin prices haven't shown a big decline, the same report said. The source said the prices are more determined by supply and demand, not oil prices. To clarify this, I think that's because a lot of Chinese PVC makers use coal instead of oil as feedstock. And the chronic industry overcapacity has kept prices low and steady already.

 

Duo Yuan added this year's export market has been the worst since 2008. "Toy makers must target high-end segments," the source said. That I agree with. Competing on prices will get you so far. Exporters are trying, but the slowing Chinese economy can't be saved by price cuts.