(Yicai) March 24 -- European and US buyers are discussing with Chinese manufacturers the feasibility of enlarging orders for small home appliances. These talks include whether buyers are willing to absorb price rises as the Middle East conflict drives up raw material and energy costs.

A US client informed Luckyway Home Appliances last week of its intention to expand its fan orders by more than 10 additional containers on top of the 100-plus already booked, Li Mingyang, general manager of the Chinese manufacturer of fans, heaters, humidifiers, and small kitchen appliances, told Yicai. European buyers have also proposed increasing order volumes by about 10 percent, he added.

“European and US clients have taken the initiative to communicate with us about enlarging orders, probably because they are worried about how long the Middle Eastern conflict will last, which could raise electric fan production costs next year,” Li said.

“But they hope we can supply goods at previous prices, which we can’t,” he added. “Given rising raw material costs, we can only maintain the original gross profit margin by raising prices on new orders by more than 20 percent.”

Zhongshan-based Luckyway’s costs has soared by 20 percent to 40 percent since the Middle East conflict broke out, as plastic, copper, steel, iron, and other raw material prices have all surged, Li said. European and US customers cannot yet accept such increases, Li noted, adding that he will continue negotiations, and despite higher quotations, is confident about retaining clients.

An executive at a small home appliances exporter told Yicai that the conflict has mainly affected the industry through rising input costs and tighter supply of imported materials. In response, the company has begun substituting some parts with domestic alternatives, a strategy that has won customer approval, the person noted, adding that orders are expected to remain stable.

Some orders previously redirected to Southeast Asian suppliers may even return to China, Li predicts, thanks to the country's complete industrial chain, stable power supply, and vast production capacity. Chinese firms offer greater certainty on controlling production costs and delivering products amid global turmoil, he said.

Overseas orders are expected to return to China if oil prices remain high, as Southeast Asian countries only have about 20 to 30 days of crude oil reserves, given the sharp rise in raw material costs, longer delivery times for manufacturers in Vietnam and Thailand, and the fact that some parts they use are supplied by China, according to Li.

The Middle East conflict has hit global manufacturing, and heightened inflation expectations are likely to weaken consumer demand, a senior home appliance industry source told Yicai. At such times, competition hinges on the stability of supply and industrial chains, and in this regard, Chinese manufacturers have the edge, he said.

Editors: Tang Shihua, Futura Costaglione