Asia Manufacturing Cost Drivers – 5/16

Source International Asia Manufacturing Cost Drivers Synopsis – May 2016

Commodity Prices

General Plastic prices were some of the only commodities to see an increase in the month of May. General Purpose PP prices increased 3% for the month and continued an upward trend over the past six months approaching a nearly 33% increase. PET and General Purpose PS prices also saw increases of 2% and 0.9%, respectively. Food Grade PP and HDPE prices remained flat during the reporting period, while PVC realized a modest gain of 0.5%. Year over year, most tracked varieties of General Plastic are down, sometimes in excess of 20%, while other varieties have seen gains, in some cases, of nearly 11%.

Engineering Grade Plastics either saw a decline or remained flat during May. The largest decline was again seen in the PA6 market with an overall decrease in price of 10%, while both ABS and POM remained flat as they have for the past six months. Excluding ABS, which has seen an increase of about 4% for the year, year over year prices are also all down significantly or flat with PA6 now down 40%.

Although most Rubber prices saw substantial increases in price last month, all tracked varieties were down a minimum of 6% in May. Decreases in Rubber prices for May ranged from 6% for Rubber Blanket to 13% for Tire Rubber. Prices for Rubber in the last year are now 25% lower on average across the board.

Carbon Steel prices dropped sharply in May. Cold Rolled Steel was down anywhere from 18% to 19%, while Hot Rolled Steel saw decreases ranging from 8% to a hefty nearly 17%. In the past six months, Carbon Steel prices have seen an average increase of 24%, although Pig Iron is down 14% during the same timeframe.

Stainless Steel prices were all down or flat during the reporting period. Decreases in Stainless Steel ranged from 0.3% to almost 8% with Stainless Steel Sheet 304 registering the largest decline. Over the past six months, Stainless Steel prices have been up an average of 5% across the board.

Aluminum prices appeared to stabilize after large increases over the past 3 months. Aluminum prices were down slightly in May but no more than 2% for any given type. Aluminum 6061 is up about 36% year over year while other tracked types are down slightly. The six month average price increase in the Aluminum market is 19%.

In other metals, Zinc Alloy saw a very slight decrease in price of 0.6% while Brass Tube and Brass Rod decreased about 3% each. Copper was down more than 5% while Nickel experienced an 8% drop. With the exception of Zinc, which is down slightly, all other metals are down significantly year over year with Brass Tube, Brass Rod, and Copper down around 20% and Nickel down a whopping 35%.

Wood prices remained the same and continue to be about 2% lower on average than a year ago. The only exception to this is MDF Board, which has remained completely unchanged all year.

Paper prices remained unchanged in May as they have for the past three months. Gray Cardboard has shown an almost 5% gain year over year despite prices remaining unchanged for over six months. Kraft is down nearly 5% during the past six month period.

Textile Fabrics were largely flat with the exception of Cotton, which went up 0.8%, and Polyester Fabric which fell nearly 4%. Year over year most fabrics have remained flat, however Cotton has seen an almost 8% drop and Polyester Fabric has realized a 33% decrease.

Excluding Alumina, Ceramics prices remained unchanged in May. Alumina reversed its upward trend in pricing mentioned in the April report and lost almost 3%. With the exception of Quartz, which is up about 6% for the year, Feldspar, Kaolin, and Alumina are all down posting decreases of 6%, 4%, and 25%, respectively.

Labor, Fuel, Freight, and Currency

Asian Labor Rates in China, Bangladesh, and Thailand stayed flat during the reporting period. In fact, Labor Rates in these markets have remained flat all year with the exception of China which has posted an increase of 2%.

Excluding China Diesel which rose nearly 2%, the Fuel and Power sector continued to see downward trends in pricing, although the market in general does seem to be stabilizing from the large decreases of roughly 30% across the board seen just six months ago. China Petrol decreased 5% while Natural Gas and LPG Gas went down 5% and 3%, respectively.

Ocean Freight rates remained flat during the reporting period potentially finding a current equilibrium compared to the large decreases over the last several months. Much of the overall capacity still remains unfilled, so any increases this year seem unlikely. Year over year Freight rates to the east and west coasts are down 21% and 43%, respectively.

With the exception of the Euro, which rose a little more than 1%, all Asian Currencies saw decreases in the value of their currency. The Chinese Yuan was down almost 2% compared to the US Dollar, while the Thai Baht was down over 2%. Tracked Asian Currencies are down more than 4% year over year.

Key Indexes

Both China PMI Indexes remained stable in May with a slight 0.2 drop in the Hong Kong index to 49.2. Although the USA PMI increased from 50.8 to 51.3, with the Hong Kong index now being under the 50 benchmark and China and the US hovering close to 50, we still could see further contraction in these economies.

China Imports and Exports were a mixed bag. Imports saw a nearly 3% decrease while Exports rose a healthy 7%. Year over year Imports are down 10% while Exports are down 2.0%. It should be noted this data lags behind one month.

The China Producer Price Index (PPI) was up again recording a 0.9% gain while the China Consumer Price Index remained flat. The China PPI is now up over 1% for the year while the China CPI is up 0.8% for the year. These continue to be positive indicators for the Chinese economy as a whole.

For additional details or questions, please refer to the charts that follow or contact one of our Operations Specialists for more information.

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Source International – May 2016 – Asia Manufacturing Cost Drivers Report