China’s factories decry surge in raw material prices as they cut production and say 2021 may be worse than 2020

Manufacturers in the ‘world’s factory’ say it is too risky to take new orders, resulting in shutdowns and staff cuts that could threaten China’s economic growth goals for the year

Even as supply lines have shifted back to China from coronavirus-hit countries, crucial raw materials such as metals are becoming too expensive to turn a profit

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Even as supply lines have shifted back to China from coronavirus-hit countries, crucial raw materials such as metals are making it impossible for some manufacturers in the “world’s factory” to turn a profit. Illustration: Henry Wong

Published: 8:30pm, 25 May 2021Updated: 4:16pm, 27 May 2021

A wave of shutdowns and temporary production stoppages is sweeping through a number of factories in China’s southern manufacturing hub as the surging cost of raw materials eats away at profits and raises concerns over inflation risks in the world’s second-largest economy.

Across Guangdong province, small and medium-sized enterprises in the industrial chain – producing everything from steel castings to home appliances – lament that it may be even more difficult to stay afloat this year than it was last year.

This may come as a surprise to some, given that many overseas customers have been turning to China to fulfil orders that would normally go to countries currently being ravaged by the coronavirus, including India and China’s Southeast Asian neighbours – competitors in the manufacturing sector.

But as the pandemic takes a heavy toll on supply chains across the globe, some Chinese manufacturers say it has become too expensive to source the materials they need to make the goods they sell.

Modern Casting Ltd, one of Guangdong’s biggest factories supplying iron and steel castings, issued a statement to its clients last week saying it would not be able to make good on the orders it had received, pointing to crippling price increases and a lack of raw materials.

“The cost of casting materials has far exceeded the company’s gross profit, and it has reached the point where we can no longer afford any loss,” the statement said. The company, located in Jiangmen city, produces grey iron, steel and ductile iron castings up to 60,000kg (132,277 pounds) in size.