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Raw Material Prices in General Merchandise Continue to Rise! How Should Companies Respond?

1. Reasons for the rise of raw materials of general merchandise products

The structural changes in supply and demand lead to rising prices of raw materials. In terms of supply, some capacities of production s that are low-end, backward and do not meet environmental protection standards have been eliminated. However, the short-term demand is generally stable. It can be said that the change of supply and demand structure increases raw material prices of general merchandise products. Qualified high-quality production capacity may not be able to meet current demand under the mechanism of high-quality development requirements. Besides, relatively low-end enterprises also adopt technological transformation to meet environmental quality requirements. Therefore, the rising price is mainly a short-term change in supply and demand.

2. The rising price of general merchandise products accelerate corporate performance polarization

Rising prices of raw materials of general merchandise products will also exacerbate the polarization in corporate performance. Companies with competitive advantages can continue to transmit costs to the terminal or offset the impact of rising costs through their innovative advantages in product design and quality. However, the impact and challenges will be greater for companies that rely on low-cost or extensive companies.

3. Measures were taken by companies for the rising price in raw materials of general merchandise products

(1) Balance between supply and demand with higher quality

In fact, the elimination of outdated production capacity and environmental constraints is not the ultimate goal. The ultimate goal is to achieve the automatic survival of the fittest of markets. The various methods currently used are designed to accelerate this structural adjustment. During the structural adjustment, some advantageous companies will stand out in the future. Companies that fail to meet environmental protection requirements may have to consider technological transformation to achieve higher-quality development.

(2) Economic transformation will reset the industrial pattern and price system

From a horizontal perspective, general merchandise products companies will take the lead in economic transformation if they take the lead in improving management or technology among their peers. From a vertical perspective, the same is true for the industrial chain. In every industry in the industrial chain, companies that carry out transformation and upgrading earlier will take more active positions in the future development process. For example, financial institutions like banks make the most money among many industrial chains. However, as the industry upgrades, the areas with the highest technological density may become the most profitable link in the future.

(3) Supply-side structural reform requires continuous effort to reduce costs

There are two aspects to view the cost reduction. First, it is necessary to improve the efficiency of resource utilization, including the improvement of management efficiency and cost reduction through innovative technological means. Second, it is necessary to continue to make efforts in the policy aspect for the costs of energy resources, general merchandise products logistics, and corporate financing.  

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