Material Costs

I try and keep this site full of the fun and interesting stuff.  This won't be so fun, at least not for me, but maybe interesting.

Since I have been back in China from my trip to the US we have been negotiating price increases.  As many of you know the US gov't is pushing China to allow the RMB (Chinese currency) to increase in value more.  Well when it does that it makes the goods we sell more expensive back to you.  So far YTD it has changed about 2%, nothing major so far.  There are rumors that it will go 20% in the next couple years.  That means in essence I will take an automatic 20% decrease in salary because I get paid in USD and not in RMB.  So that sucks...might be time to renegotiate that.

In addition to a rise in the value of the RMB there are MAJOR material cost increases going on.  I won't bore you but cotton has gone up to the highest level since the US started following commodity prices.  Then on Monday I come in to the office to find that the cost of Polyester has gone up 35% in just 3 days.  Today being Tuesday it went up an additional 10%.


Long and short we have negotiated with mills and they are coming back saying they need another 5-20% raises effective now.  But that isn't the worst part.


The worst part is that even if you agree on a price, no matter how high it is, you can't get the materials.  The actual suppliers are not selling, they are hoarding the goods and hoping that prices will continue to rise.  Already in 2 days numerous mills have shut down completely because they can't get raw materials.  They will reopen when they get materials but right now it doesn't even pay to bring employees to work.


I've had mills in the past 2 days and they want more money from us but don't know how much to ask since it changes on a daily or hourly basis.  I personally see the mills in survival mode right now.  They will take not making money as long as they don't lose money in the short term.  But they can't get the materials.  I've heard stories of far Western China, near Pakistan where the Chinese Army is protecting cotton fields from people pillaging in the night!


For anyone I've talked to who has been in this business for years, nobody has ever seen anything like this.  It is insanity.  Talk about every day being different!  If you don't think this will affect you, I'm sure it will it if continues.  There is no way cotton t-shirts are going to be so cheap next season or the season after that.


Let's see what tomorrow brings...