• Dongguan Shigao Hardware Products Co., Ltd
  • Dongguan Shigao Hardware Products Co., Ltd
  • Dongguan Shigao Hardware Products Co., Ltd
  • Dongguan Shigao Hardware Products Co., Ltd
  • Dongguan Shigao Hardware Products Co., Ltd

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How does the increase in raw material prices affect the machinery industry
Release time: 2021-05-26 10:50:15  Hits: 46

Recently, the prices of steel and non-ferrous metals have risen, causing investors to worry about the impact on the profitability of the machinery industry. In response to this, Sun Baiyang, an analyst at GF Machinery, said in a conference call that the machinery industry is roughly divided into the general equipment field and the special equipment field. The types are divided into export-oriented companies and service-oriented companies. The increase in raw material prices has a greater impact on the latter three. small. At the same time, Sun Baiyang pointed out that for the machinery industry, changes on the cost side are fleeting, and investors should pay more attention to changes in the industry’s supply and demand pattern.


In the operating cost structure of machinery companies, raw materials account for an average of 60% to 85%, of which parts and components account for about 60%. Steel, as the most important direct raw material, accounts for 15% of the overall operating cost. To 20%; the remaining 20% comes from equipment depreciation and some other expenses.


Companies that are more affected by the price increase of raw materials mainly have the following points: 1) Position of the industrial chain: the closer the upstream raw materials are, the more obvious the impact; 2) the companies with a large proportion of direct steel; 3) the new ones with fierce competition The track’s business. In terms of resolving cost pressure, there are four aspects: direct price increase, cost transfer, scale effect, and internal management efficiency.


   Specifically:


   1. In the field of general equipment, mainly through two methods, direct price increase and cost transfer. According to statistics from GF Securities, among the more than 40 key mechanical projects covered, general-purpose equipment can achieve cost-side pressure conversion through a price increase of 8% to 10%. At the same time, there are further adjustments to prices by adjusting dealer terminals and discounts.


  2. In the field of special equipment, most of them adopt a floating pricing model. Product prices are floating in the long-term. Generally speaking, companies pass on the upstream price pressure through the iteration of new products. For the field of special equipment, Sun Baiyang of Guangfa Machinery said that the biggest factor affecting the industry's gross profit margin is downstream demand rather than the cost of raw materials. Currently, companies in the industry have full orders, such as Jiejia Weichuang (300724) and Maiwei (300751) in photovoltaic equipment. Wait, its orders have been scheduled to August to October.


   3. For export-oriented companies, profits are mainly affected by exchange rates and tariffs, and fluctuations in raw material prices are not very obvious.


  4. Finally, in the cost structure of service companies, employee compensation accounts for 40% of the company's cost structure, and equipment depreciation and amortization also account for about 15%, that is, these two rigid costs and account for more than half of the level.


   GF Machinery Sun Baiyang assumes that under the circumstance that the prices of other parts and materials remain unchanged, raw materials account for 80% of the cost, of which steel accounts for about 15%. However, when steel prices increase by 50%, companies can offset the price hedging by increasing sales by 50%; if steel prices increase by 50% and sales only increase by about 30%, it is expected to cause a gross margin impact of about 1.7%.


   Finally, regarding the prospects of the machinery industry, GF Machinery Sun Baiyang said that the research soul of the machinery industry is the change in the pattern of demand and supply. Judging from the survey situation, whether it is a general equipment company or a special equipment company, their orders are basically scheduled to the second half of the year, and the price increase of bulk commodities is often accompanied by a high boom in the construction machinery manufacturing industry.

                                                                                      Source: Tongshun-Shenzhen Institute


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