The soaring cost of electronic parts

Yesterday I looked at how rising fuel prices are pushing up the cost of sending letters and parcels. That's making life miserable for Trade Me users and many other people sending packages around the country.

And while we've all felt the impact of the increase in prices for milk, bread, cheese and vegetables, you'll also soon feel it if you need to get your TV, DVD player or stereo fixed.

That's because the price of the base materials that go into these types of goods is also going through the roof. While the price of flat-screen TVs, home theatre systems and hard drive recorders has dropped considerably in the last couple of years, helped on by our strong dollar, it looks like its crunch time in the Chinese electronics market - effectively the world's largest supplier of electronic components.

Check out the excerpt below from the April newsletter of Trade Tech, which is the largest New Zealand distributor of electronic parts in New Zealand. Trade Tech sources all the spare parts for Philips, Sony, Aiwa and The Warehouse.

Trade Tech co-founder Roger Fulton quotes from a letter he received from his Chinese supplier (the dodgy English is the supplier's, not Roger's).

China Meltdown

We are having existing orders rejected and substantial price rises on EVERYTHING. The following is a verbatim email from one of our suppliers:

As commodities price is hitting record everyday and the overall running cost in China has been increased since Jan. 2008, most suppliers need to revise costing and somehow rejected orders at old price. Therefore, we are asking for your cooperation to check price with us before placing orders and we shall tried our best to keep or lower down as much as possible:

Data for reference (since Jan 2008).
1. Paper material increased 35 per cent in early Feb
2. Copper and Metal increased from 25 to 30 per cent
3. Labor wage increased 25 per cent
4. Plastic material 9 per cent
5. USD exchange rate to China RMB dropped 16 per cent.

Last but not least, gold plating cost is increasing and fluctuate, some can go up to 80 per cent.

We are seeing unprecedented change. We hope it is temporary, but please be advised, expect price rises and ensure you quotes are kept current.

(end of excerpt)

So much then for the bargain basement prices of the Chinese market. Labour costs up 25 per cent? Does that mean all the people toiling on those factory production lines have seen their pay increase by a quarter? Copper and metal are up 30 per cent? What electronic device doesn't have some sort of metal in it?

And what will it mean for people getting their electronics services out of the warranty period? Due to the consolidation in the spare parts market, it is already expensive to do this.

I'd say that the price rises will only encourage consumers to throw out faulty electronics that are slightly too expensive to repair and buy new ones. Now how is that good for the environment? And how long before the price rises at source in China start to reverse the slide in prices of new electronics goods?