Dear Valuable Clients,
Thank you for your loyal support and being a valued client of Scorpion. I would like to take this opportunity to follow up and update everyone on the market conditions currently affecting the industry, and how these conditions will have an affect on all of us.
As I wrote before, this year was one of the worst years in recorded history for winter weather in China. In the first week of February, they had some of the worst snow storms in over 50 years. The snowstorms occurred during the Chinese New Year holidays, effectively stranding large parts of the workforce, and eventually grinding a halt to industries across the country for the entire month of February. It was not until the first week of March that everyone was able to get back to work. All of this had affected the delivery issues from Scorpion (as it did thousands of manufacturers throughout China). I am aware that some of our customers have had delayed orders, and I would like to express my appreciation for everyone’s patience and understanding on this most unusual situation. I’m pleased to report that things are back on track and we are able to fulfill all customer and dealer orders.
Now that the New Year is in full swing and things are back to normal, we look ahead at what the year holds in store. It is said that the Year of the Rat is a year of plenty that will bring new opportunities and good prospects. In this vein, we have much to look forward to in the coming year. But with new opportunities also come challenges.
The manufacturing landscape in China is undergoing some dramatic changes. Twenty years ago, factory owners couldn’t move into southern China fast enough. China’s southern coastal provinces used to be famous for their supply of inexpensive migrant labor, turning the region into one of the world’s manufacturing powerhouses. But just as the boom originally moved from Hong Kong to southern Guangdong, it is now moving further inland. It is reported that a third of DongGuan’s factories are either closing or migrating north for cheaper land and labor costs. In according to China’s new five-year plan, the Chinese government wants to focus on high-value manufacturing and environmental protection. This has led to new tightly-enforced government policies, and combined with unfavorable economic factors, it is said that at least twenty thousand factories will close in the south of China.
In addition, businesses in China whether they are foreign or domestic have been hard hit by 30% increase in labor wage / taxes / inflation / rising raw material costs / RMB appreciation, which all are impacting cost in productions.
China however is not the only place where we are witnessing major fluctuations and market changes. Costs on metals are reported to be all time high. Recently, in April steelmakers worldwide have agreed to a 65 percent increase in iron-ore prices. (This is setting a global benchmark for prices but is less than what analysts estimated. Some analysts had estimated prices could rise as much as 80 percent). Copper is reported to be over US$8,000 per ton and gold is over US$1,000 per ounce. As a result, the market is expecting a price increase of up to 50 percent in stainless steel and steel material costs. This will inevitably lead to an increase in production cost of 18 to 25 percent.
Up to date, we have delayed reflecting the increase in production cost in our prices, unlike our competitors. Current market conditions however leave us no alternative but to increase our prices. In order for our customers to keep their competitive edge, this increase will be reasonable taking the above factors into account. You will be pleasantly surprised to know that Scorpion is still able to beat its competitors in pricing, quality and service.
We will continuously keep you informed and alert you to the marketplace changes that affect the way we do business.
Scorpion Precision Industry (HK) Company Limited
16th Floor, Excelsior Industrial Building
68-76 Sha Tsui Road
Hong Kong, China