Chinese rug prices expected to rise
By Lissa Wyman -- Furniture Today, October 18, 2006
At The Market — As the Chinese yuan strengthens against the U.S. dollar, there is growing upward pressure on wholesale prices of products made in China, including that country's booming machine-made rug business.
Rug importers showing here are feeling the pinch, and they say that higher prices likely will have to be passed along to retailers. Just when that will happen is not clear.
Price pressures are not coming solely from currency fluctuations. Labor and raw material costs also are on the rise in China, importers say. Both hand-made and machine-made rugs are being affected, but in different ways.
Machine-made rugs of course aren't as labor-intensive as hand-made product, but the former is more vulnerable to rising raw materials costs.
"China has experienced incredible growth in many manufacturing sectors," said Alex Peykar, a principal of Nourison. "The labor force is beginning to be squeezed. Good people are jumping to new jobs. As a result, the traditional hand-knot Chinese rug business is disappearing.
"There's a lack of consistent worldwide demand for hand-knotted rugs, which gives the weavers an opportunity to get better jobs," he continued. "Once they've left the looms, they aren't going to come back."
In the past few years, the hand-knot rug industries of India and Pakistan have maintained their share of the world market, Peykar said. "However, in just a few years, Chinese hand-knot production has dropped by 85%. And once it's gone, it's gone.
"We are in China because we have an infrastructure there," he said. "We own our own mills. But now it doesn't matter so much where you manufacture. One of the results of the strengthening of the yuan is that now everyone in the machine-made rug business is playing on a level field."
John Feizy, president of Feizy Rugs, said the yuan is rising against the U.S. dollar despite efforts by the Chinese government and Chinese exporters to keep it low, since a relatively weak currency encourages exports.
"It looks like the yuan will settle at about seven yuan to the dollar, and now it is 7.5 to eight yuan to the dollar," Feizy said. "When we are talking about very tight profit margins to begin with, that puts a lot of pressure on wholesalers to raise prices, much as we do not want that to happen."
Feizy stressed the current situation affects many different industries. "Anyone who deals with China will feel the pinch," he said.
Although the Chinese currency for many years has been kept artificially low, the rise of the yuan is very real, according to several importing executives.
"I recently returned from China, and price is becoming a real issue," said Hari Tummala, executive vice president of Kas Oriental Rugs. "In addition to the appreciation in the currency, the government has cut some subsidies to the manufacturing sector."
As free enterprise spreads and China becomes more industrialized, the work force is also changing, say a number of rug importing executives. People who once worked in carpet factories are now moving to other jobs that offer better pay and working conditions.
It's not just importers who are concerned. "Chinese rug producers are extremely concerned about such issues as market share and keeping people employed," said Charles Peck, president of Trans Ocean. "They don't want to raise prices either."
China will remain an important source of rugs, importers stressed.
"It's not a matter of switching our sources to India, for example," said Peck. "We buy rugs from China because they have a certain look. India production also is important to us, and so is Belgium. Every country produces a certain look that is important to our product mix."
"In general, it's getting more expensive to make things in China," said A. Leon Capel, a principal of Capel Inds. "But the Chinese consumer is also changing. As the economy becomes more industrialized, the poverty level is moving up, and worldwide communications are giving the Chinese people a broader view. As a result, the purchasing power of the Chinese consumer is increasing.
"Maybe they're not buying Capel rugs, but they are buying computers and cell phones and automobiles and other products," he continued. "In general, that's a very good sign. As things get better for the Chinese people, things will become more balanced in terms of both production and consumption."
Rug importing executives are hesitant to predict how the China situation will play out. But it looks like the rug market is in for small price increases.
"The next few months will be crucial to the Chinese rug business," said Tummala of Kas. "For the long term, it's difficult to see how the industry will adapt to the new marketplace."
"We've been fighting price increases, but it looks inevitable," said Nourison's Peykar. "We are waiting for a little business momentum to build to make it easier to pass along."
"Much as we hate to raise prices on Chinese rugs, it's inevitable," said Capel. "If you absorb prices, it gives your customers the impression that your products were overpriced to begin with."
"When you hold the line on price, you either take it out of profits or out of product," said Peck. "We don't want to compromise our quality."
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Chinese rug prices expected to rise
Oct 19, 2006
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