Soaring commodity prices spark debate over inflation, growth, fiscal and monetary policy
Rising commodity prices have spawned a vigorous economic debate in China, with pundits grappling with the age-old conundrum – how to achieve stable growth amid high inflation risk even as industry struggles to remain profitable and that a wave of adjustments is made for budgetary and monetary policies?
Commodity prices soared last year as major developed countries unveiled liberal liquidity injections and expansionary fiscal policies for economic reopening after the impact of the 2020 pandemic. The consensus among economists is that the strong recovery in the industry, the reduction in inventories, an increased appetite for risk and the depreciation of the US dollar have all combined to push up commodity prices. And now heightened geopolitical tensions involving Russia and Ukraine have added to the economic turmoil.
Rising commodity prices can drive up business costs. They must either absorb these rising costs and settle for lower profits, or raise product prices to stay profitable and grow. If they raise the prices of their products or services, it could impact downstream consumption, worsen inflation and dampen the global economic recovery, experts said.
Exporters have already felt the pressure. Since March 17, more than 20 major Chinese papermakers, including industry giant Shandong Chenming Paper Holdings Ltd and Shandong Sun Paper Co Ltd, have announced they will hike paper prices by 100 yuan ($15.7). to 300 yuan per metric ton to combat soaring raw materials. and energy prices.
Similarly, the heating, ventilation and air conditioning companies best represented by Midea, Haier and Daikin have announced that they will increase the prices of their products by 8 to 10% in China from March 16. Soaring prices for raw materials like copper, iron and aluminum, whose negative impact has been amplified by the lingering COVID-19 pandemic, have left these companies with no better choice.
Styrene, which is extracted from petroleum, is the main raw material used in resin processing companies. Li Dajun, general manager of Pure Resin Co Ltd, based in Zhejiang province, said the price of styrene had risen from 7,000 yuan to 12,000 yuan per ton in recent months. As a result, up to 80% of company costs were used to acquire raw material, affecting production and delivery.
The textile industry is not immune. Xu Xianyou, account manager at Jiangsu High Hope Textile Import and Export Co Ltd, said the company’s orders have fallen significantly due to unstable raw material prices.
“Usually, garment companies place larger orders with textile manufacturers for the designs most welcomed by consumers. This is the most economical and efficient way for garment companies. But garment companies have reduced their orders this year. And yet our company’s workforce remains unchanged, as do people’s working hours. As a result, our costs have increased,” Xu said.