Six reasons why fireworks are pricey and in tight supply recently
Since last year, there has been a serious shortage of fireworks all around the world, while the price has gone up wildly. What exactly is the cause?How will the fireworks market change as we enter 2022? Will the price fall back?
Most of the world's fireworks products are produced in China's Hunan and Jiangxi provinces, which play a decisive role in the overall market. Through visits and surveys, this paper will analyze the price and availability of fireworks from various aspects.
(1) Raw materials and auxiliary materials have increased in price significantly. According to the Liuyang Happy Fireworks Factory, the most obvious price increase is for potassium perchlorate, a raw material essential for fireworks production, whose price rose from about RMB 7,000 per ton (2020) previously to RMB 25,000 in November 2021, an increase of more than 3 times. In addition, like aluminum silver powder, also rose by 50%, from the previous more than RMB 16,000 per ton to now more than 24,000 per ton. At the same time, the price of alloy powder, coal, sulfur, paper and other raw materials have also risen sharply. Due to the soaring costs, the factory had to raise the factory price several times.
Reasons for the price increase of materials are multiple, such as the global energy shortage, China's strict energy-saving and environmental protection policies, as well as global inflation and so on. According to the Liuyang Chemical Trade Chamber of Commerce, many provinces issued policies to control energy consumption in 2021, so that many high energy-consuming, high-polluting factories were forced to shut down, affecting some fireworks raw materials production capacity seriously, such as potassium perchlorate, strontium carbonate, barium nitrate, etc. For example, the daily demand for potassium perchlorate in the fireworks industry is 1200-1500 tons, but the national production of potassium perchlorate is only about 600 tons per day. So, production enterprises are reduced, capacity is reduced, supply is tight, prices are soaring, so factories could only raise products prices more than once.
(2) The total number of fireworks factories has been greatly reduced in recent years. On the one hand, due to the sharp rise in the price of raw materials, and even supply cuts, at the end of 2021, some fireworks factories were forced to announce the suspension of production.
In addition, policies have also become an important reason for the reduction of factories. In recent years, in order to promote the industrial upgrading of fireworks enterprises and eliminate backward production capacity, the governments of Hunan and Jiangxi have issued documents to guide some fireworks enterprises to close voluntarily. Statistics show that the number of fireworks enterprises in Liuyang, Hunan has decreased from 1,024 in 2016 to 447 now. 333 fireworks production enterprises have been shut down from 2019 to 2021 in Yichun, Jiangxi. Moreover, Jiangxi Province also released data in October 2021 saying that 126 fireworks manufacturers' production licenses were cancelled. The number of factories has dropped sharply, directly leading to a significant decline in the production capacity of the fireworks industry.
(3) Production time was shortened. In 2021, fireworks factories had fewer opening days than in previous years, resulting in many products being unable to be delivered on time. According to Liuyang Happy Fireworks Factory, it was notified to suspend production in the high temperature season in early June 2021. The notice requires fireworks enterprises to stop the process involving powder from June 14, and all enterprises are not allowed to carry out any process of production between June 19 and August 31. In addition, due to the recurrence of the Covid-19 epidemic and other reasons, the number of working days in some factories was also affected, and there were occasional temporary shutdowns. As a result, the annual start-up rate was much lower.
(4) China's domestic market is hot. In the past two years, as Gatling, jellyfish and other fashion fireworks products have become popular in China, leading to a high level of enthusiasm for fireworks among the public. The orders have increased significantly, and there is even a rush for goods. Due to the good price and fast payback, many export factories turned to domestic product production. Some factories even shifted their spot products from overseas to domestic sales, making it harder for foreign customers to fill orders.
(5) Depreciation of the US dollar. After the outbreak of the epidemic, the US Federal Reserve repeatedly and massively over-issued money to stimulate the economy, leading to inflation around the world, with the concomitant result of a continued depreciation of the US dollar. The dollar has fallen from 1:7 in May 2020 to 1: 6.3 (January 2022) against RMB. This means that the purchasing power of the dollar is clearly decreasing, and it is necessary to pay more dollars for the same products imported from China than before.
(6) International shipping difficulties. Beginning in 2020, the supply-demand imbalance in the global shipping market intensified. This is mainly due to the impact of the Covid-19 epidemic, which led to the shutdown of manufacturing industries in many countries, port shutdowns, shortages of seafarers, declining turnover efficiency and shortage of infrastructure capacity, with serious supply chain tensions and soaring global shipping prices. According to Julia, CEO of Liuyang Happy Fireworks Export Trading Co.,Ltd., the shipping cost of fireworks containers to many countries has even risen by as much as several times and it is also hard to find empty containers. Many customers also said that there is still a backlog of containers waiting to be shipped out of warehouses in Liuyang and other places due to the bursting of warehouses in many important overseas ports.
What will happen to fireworks production in 2022? Will fireworks prices fall back? Experts in the industry predict that prices in the fireworks industry are expected to decrease slowly, but will remain high due to those unstable factors.
Firstly, fireworks raw and auxiliary materials prices are expected to decline slowly. The global over-issuance of monetary discharge may contract, and metal material prices are expected to correction, while energy prices are likely to see a gradual retracement, under the influence of China's expansion and increase in production. In addition, in view of the price of potassium perchlorate, many local governments introduced relevant safeguard measures to crack down on price gouging and other situations. But the industry forecast, the specific extent of the decline, still depends on the specific supply situation in 2022, raw material prices will not fall to the original level in a short time.
Secondly, with the end of the domestic sales season, the supply of export products in the first half of the year will increase. But the trend of domestic orders placed in advance, coupled with the reduction of factories, the overall production capacity will still be tight. And as more and more export factories shift to the production of domestic products, the shortage of supply may still exist, especially for the international orders.
Thirdly, In the face of dollar devaluation, the United States may take partial measures. However, according to the analysis, in 2022, the RMB will continue to strengthen, the US dollar may continue to decline, even if there is some appreciation, purchasing power is still relatively weak. So the price of fireworks products may still remain high.
Last but not least, the global shipping market situation is not overly optimistic. With the normalization of epidemic prevention and control, the opening of borders of major economies, and the gradual recovery of production and trade activities, the tension in the supply chain may be eased. But the shipping dilemma still cannot be fundamentally improved, port congestion may still exist. Industry insiders predict that shipping prices may remain high, and, empty container supplies may still remain low.