Source: Jeff Yoders/MetalMier
We recently received a note from a reader with questions regarding the recent Chinese remninbi currency devaluation and how sourcing professionals ought to engage with their Chinese metals suppliers. The questions included:
- Should I be approaching all of my Chinese suppliers for a 3.5% price reduction?
- Should I expect to get it?
There are several ways to answer that question. So let’s start with the narrow answer and then expand into other aspects of China’s currency announcements.
First, if you pay your Chinese metal suppliers in RMB (yuan) then you ought to expect an automatic price reduction of 3.5% because the currency has depreciated. In other words, when you convert your dollars to RMB, you should see a 3.5% advantage (or whatever the newest/latest currency exchange rate is).
But let’s assume that you buy your Chinese goods in US dollars, as most US buying organizations do. The next question you may need to ask is as follows: Did your Chinese suppliers extract a price increase from you in the last 12 months due to an appreciating currency (as opposed to any other reason)? If yes, then certainly it seems appropriate to request a price adjustment now.
This post has been excerpted from our sister site, Spendmatters. For more on what the devaluation means to your buying organization visit SpendMatters.