Trade Risk Alert

We hope that downstream customers will share the pressure of cost growth.

According to reports, in order to cope with the pressure brought by the rising prices of metal raw materials, Wanan Technology has adopted certain coping strategies, mainly focusing on the main links of procurement, sales, and management. The company's senior management made forward-looking arrangements before the emergence of this "price hike", to a certain extent, stocking key main materials in advance, and coordinating with suppliers during the price hike. In the sales process, Wanan Technology actively negotiates with customers to share the risks of rising raw material prices. At the same time, the enterprise internal hard work, strict control of costs. Since the beginning of this year, Wanan Technology has actively carried out continuous optimization and cost reduction in product design, processing technology and logistics packaging to hedge the profit loss caused by rising raw material prices and strive to digest (price increase) or reduce its negative impact.

It is reported that although ASIC Shanxi has negotiated with individual customers and each bears half of the cost increase brought about by the increase in raw material prices, the purchase prices of most customers are not linked to the prices of raw materials. In other words, even if the price of metal raw materials rises, most customers will not increase the purchase price of products previously set according to market changes. He said bluntly: "At present, in the automotive industry, vehicle customers are still in a strong position, metal raw material prices continue to rise due to cost growth, should be evenly or according to a certain proportion of the transmission to the downstream, but now we can do very limited, can only reduce production or loss of production. As a parts company, the measures we can take are also very limited, can only be their own digestion, internal potential."

The transmission industry is also facing a similar situation. "As far as the transmission industry is concerned, it is very difficult to transmit the pressure of rising raw material prices to supporting car companies. This transmission is not equal from the upstream and downstream ends." Li Shenghe told reporters, "Upstream suppliers, that is, steel enterprises after experiencing capacity adjustment, are basically in short supply of the seller's market, to the 'up' pass difficult; downstream customers, themselves under pressure is not small, to the 'down' pass difficult. In this dilemma, large parts suppliers are in a relatively better position than small and medium-sized enterprises, because their bargaining power and cash reserve situation will be relatively better."

In fact, there are obvious differences between domestic and foreign car companies in sharing the pressure of high costs caused by rising raw material prices for parts suppliers. According to reports, most foreign car companies have a raw material cost adjustment mechanism. Once the price of raw materials rises sharply, they will bear 50% of the risk with parts companies. "For us, this mechanism has played a certain role in this wave of rising metal raw material prices." Mr. Li, the person in charge of the aforementioned foundry company, told reporters, "However, domestic car companies often do not have such a mechanism."

In this way, Mr. Zhang's large domestic auto parts group is also lucky. He told reporters: "On the one hand, we have negotiated with some car companies, especially customers with relatively close cooperation. The other side will bear the cost pressure of rising raw material prices with us to a certain extent. On the other hand, the company's internal focus on promoting cost reduction and efficiency, from the quality, design, technology, production rate control and many other aspects, further strict management, from the internal mining potential." (Source China Auto News)