Will the Tiger Roar in 2022
Throughout history, the Ox has been a symbol of reliability. It is tenacious to the task at hand and assured in its progress as it moves calmly towards its goals.
It is fair to say that 2021 the year of Ox, has been anything but calm.
A bubbling pandemic, an explosion in global demand, shortages of materials and finished goods were unseen since the early 80s. As we look forward to the holiday season, what does 2022, the year of the Tiger, promise for the PCB industry? And will the market move in a more calculated tiger-like fashion?
At PCB Connect, we look back, reflect on another unprecedented year. Asking what challenges await in the year of the Tiger.
Is the Tiger’s roar the loudest in the jungle?
By any measure, anticipated GDP growth of 8% for 2021 would signify success for most modern-day economies. Still, for the world’s second-largest economy. 2021 may be the year when China focuses on the extraordinary highs in Q1 and its 18.3% leap in GDP. To the more sobering prospect of trying to limit inflationary pressure on the cost of goods sold on exports.
Whilst dealing with a real-world climate crisis and growing domestic debt. With export growth up 27% year on year in October 2021 beating analyst forecasts. What does the prospect of a stifled domestic economy mean for PCB export prices? With a domestic cooling market, we expect export sales to regain some of the power it ceded to domestic production in 2020.
Predominantly due to the first in, first out post-pandemic domestic growth. Whilst a weaker domestic market would typically increase competition for export orders providing a more competitive landscape for importers. It is unlikely that the start of 2022 will bring the price relief that many are hoping for.
So what have China’s policymakers got to do with it?
With producer prices increasing by over 10% in September. China’s policymakers face a dilemma on limiting inflation, reinvigorating the domestic economy, and maintaining its new self-image as a responsible global climate citizen.
Does this have anything to do with the so-called China energy crisis?
Higher input prices in China’s factory system can be partly attributed to soaring coal and energy prices as supply struggles to meet demand. With pressure to cut the use of coal, the resulting rationing of power has left many factories facing the prospect of reduced capacity and output. The question for China’s policymakers as we enter 2022 is how to reinvigorate its domestic economy without the tool of massive internal infrastructure investment. Which has historically contributed in part to the global climate crisis. As we move deeper into the winter months. The electricity demand will continue to grow, and the disconnect between supply and demand is anticipated to deepen. Global news coverage around the crisis has started to slow. Still, the issues remain current, and vigilance around supply chain capacity and output levels will be critical barometers of factory performance as we head deeper toward winter.
Rapidly increasing freight rates lead to surging profits for shipping companies and higher import pricing for consumers.
The UN reports that rising freight rates are likely to push up global import prices by as much as 11%. Many shipping lines are reporting historic high-profit levels, with one notable global freight company having increased profits tenfold yearly. Conditions for consumers will likely remain challenging for some time to come. However, the global freight crisis is not solely about capacity availability. With staff turnover and wage inflation becoming an emerging issue. According to Hing Chao, executive chairman of Wah Kwong, a shipping line in Hong Kong, the risk of travelling to and from destinations at the front line of the pandemic is having a real impact on the mental health of seafarers. Which is making it increasingly difficult to crew many cargo ships, which has a knock-on impact on crew wage costs.
With as many as 600 shipping containers ships are currently stuck awaiting to dock in ports globally at the start of November. It is anticipated that global sea freight congestion would last until at least the beginning of February.
The so-called global supply chain crunch stretching from Asian producers & reaching consumers globally continues to be felt on airfreight markets. With reductions in airfreight capacity struggling to contend with global demand. As recovering economies and increases in global vaccination levels drive economic expansion.
With airfreight traditionally operating as a release valve for periods of peak loading, allowing importers to manage their freight need. It is clear that the impact of the pandemic will continue to be felt on freight and logistics for some time to come. As the western world settles down and looks forward to the coming festive season, and as Asia looks eagerly ahead to the year of the Tiger, the global economy continues its recovery but the resilience of global supply chains continues to be a concern. And only time will tell whether the Tiger will roar again in 2022.
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