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How does the price increase of raw materials affect the machinery industry?

Time:2021-11-25

How does the price increase of raw materials affect the machinery industry?
Due to rising raw material costs, construction machinery and other sectors have generally adjusted recently.
So what is the impact of the increase in raw material prices on the machinery industry?
The analysis of the in-depth research report of Changjiang Securities pointed out that the major companies in the machinery industry accounted for a relatively high proportion of raw material costs, and most companies accounted for more than 85%. However, a comprehensive analysis of factors such as industry prosperity, gross profit margin, and transmission capacity is required.
1) The proportion of raw materials is generally high
In terms of different sectors, construction machinery OEMs, forklifts, elevators and other raw materials account for a relatively high proportion of costs, with major leading companies accounting for more than 90%.
In comparison, the raw materials of construction machinery basic parts (Hengli Hydraulics) and general equipment (such as Yongchuang Intelligent, etc.) account for a relatively low proportion of the cost, most of which are around 70%.
However, the higher price increases this time are bulk raw materials (steel, copper, etc.), and different industries use different raw materials.
Because many companies went public earlier and did not have detailed breakdown data, Changjiang Securities selected companies listed recently in the same industry as a reference. From the results, relatively large amounts of steel (direct & indirect) are used in construction machinery, forklifts, elevators, etc. However, automation equipment, photovoltaic equipment, lithium battery equipment, semiconductor equipment and laser equipment and other materials and hardware have a relatively low proportion, and the impact of rising raw material prices on it is relatively small.
2) High gross profit margin, little damage
Under the same increase in raw materials, different companies have different gross profit margins and are affected differently.
Companies with high gross profit margins are relatively less affected.
Among industries with a relatively high proportion of raw materials, Zhejiang Dingli and General Elevator have relatively high gross profit margins. In industries where the proportion of raw materials is relatively low, most companies have gross profit margins of more than 30%. Among them, Bochu Electronics has a gross profit margin of more than 80%, Huafeng Measurement and Control (79.75%), Hangke Technology (48.44%), Yindu shares (42.72%) and Leisai Intelligent (42.62%) have relatively high gross profit margins, and the impact on them under the same conditions is relatively small.
3) Can it be conducted?
For the machinery industry, in addition to the scale effect, the way in which the pressure of raw material prices is transmitted to the outside is mainly reflected in lowering prices upstream and raising prices downstream. The needs of the industry in which the company is located and the competitive landscape determine the bargaining power of the company.
Industry prosperity: From the perspective of major industries, the prosperity of most industries in 2021Q1 will remain at a high level, so there is room for price transmission. Among industries with a relatively high proportion of raw materials, sales of excavators from January to April increased by 52% year-on-year, sales of truck cranes from January to March increased by 76% year-on-year, sales of forklifts from January to March increased by 89% year-on-year, and output of elevators from January to March A year-on-year increase of 51%. Among industries with a relatively low proportion of raw materials, domestic industrial robot output increased by 108% year-on-year in January-March, and new energy vehicles increased by 249.2% year-on-year in January-April, and the industry's prosperity was in a high boom range.
Competitive landscape: From the perspective of major industries, the construction machinery, forklift, lithium battery equipment, and photovoltaic equipment industries are relatively concentrated, and the leading companies are large in size and have certain bargaining power. At the same time, the construction machinery and forklift industries experience 2019-2020. After the continuous price reduction, under the background of current strong demand and rising prices of raw materials, there is a certain basis and room for price increases. However, due to fierce industry competition, there is limited room for downstream transmission.
Although the pattern of other industries is relatively fragmented, the leading companies also have advantages in scale and have certain bargaining power upstream, and at the same time, there is less resistance to price transmission downward. According to the notice issued by Yongchuang Intelligent, since May 10, the company's full automatic strapping machine and unmanned strapping machine will increase by 500 yuan per unit based on the current price, the box sealing machine will increase by 500 yuan, and the semi-automatic strapping machine. 100 yuan, the winding machine rises 1,000 yuan, a single increase of about 5%.
4) In summary, most of the machinery industry companies have a relatively smooth path to downstream price transmission.
Disclaimer: The content of the article is for reference only and does not constitute investment advice. Operate accordingly at your own risk!
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