Since the cuts in China export tax rebates was announced last week, there has been an immediate impact on the bamboo flooring industry.
For bamboo flooring, the export tax rebate has been reduced from 13% to just 5%. In a cut-throat and highly competitive industry, profit margins have been cut significantly overnight. So what changes should we expect as a result?
Firstly, many of the larger bamboo flooring manufacturers have temporarily stopped purchasing semi-products. Contrary to what they may say, many of the biggest manufacturers only do the tongue-and-groove milling and/or lacquering. The initial processing from bamboo poles to bamboo boards are outsourced to many smaller factories.
(Star Bamboo is a smaller player, so we can focus on quality and make the entire bamboo flooring in our own factory.)
There is now uncertainty in the market. Will the customers be willing to accept higher prices or would we have to bear the full burden of the tax cut?
No one is sure until the tax cuts take effect on 1 July, hence a temporary pause in production.
Secondly, those manufacturers that do continue buying semi-products have dropped their asking prices. This means that the big boys are attempting to pass on at least some of the lower margins to their supporting factories.
This will cause a cascading effect up the supply chain, and probably force many of the small factories to close down.
Consolidation is a good thing for us in the long term, as it eliminates many of our competitors.
I’ll have more updates for you as events continue to develop in China.