The cost conduction of the industrial chain meets the intestinal obstruction

-China Securities Research Center Wang Weibo The recent increase in steel prices so that the downstream shipbuilding, machinery and other steel consumers feel the cost of pressure, and through the price of the downward shift seems to face a little difficulty. This phenomenon, known as the "intestinal obstruction", vividly demonstrates the obstacles that cost conduction encounters in the middle of the industrial chain.　　The first 3 months of this year upstream product prices have risen sharply and the rally accelerated, while the lower and middle-stream product prices slowly rising pattern is a good interpretation. From the subdivision industry, this phenomenon is more obvious. In March, for example, production prices rose by 7.38% Year-on-year, with the extractive industry price index up 30.25% year-on-year, raw materials up 12.15% per cent year-on-year, and in March the processing industry rose by only 2.26%; Average daily necessities rose only 0.92%, and consumer durables even dropped 0.55%.　　This shows that the price of upstream resource products has been smoothly transferred to the middle reaches of the manufacturing industry, and the processing industry to downstream transfer is very limited. For the middle-midstream sector, a significant portion of this rising cost has been stranded, eroding profits-though a small fraction can be digested through technology or management.　　Data show that in March this year in the upstream coal mining and washing industry increased the value of the industrial growth of 25% year-on-year, while the middle reaches of equipment manufacturing industry growth of only 19.6% year-on-year, electrical equipment and equipment manufacturing growth of only 14.8%. Overall, in the upstream of the mining category of 6 segments, the March increase in industrial value year-on-year growth of more than 20% of the 4 industries, in the middle of the 15 processing industry in the year-on-year growth of more than 20% of only 4.　　In fact, the changes in PPI and CPI since 2009 are the result of a sharp fall in PPI prices (6.04% per cent in the first 10 months) and a significant contribution to the profitability of the midstream manufacturing sector.　　Middle-midstream industry cost conduction is not smooth mainly because of its own industry overcapacity led to fierce competition, its downstream industry to withstand weak. Downstream mainly direct or indirect consumer-oriented terminal industries, small profit margins, sensitive to cost changes. The data show that in the 8 sectors directly facing terminal consumption, industrial value-added was generally lower in the first 3 months of this year, with a growth rate of only 2 per cent over 20%, while 2 were not even 10%. While domestic consumption growth is relatively strong, the capacity of the upstream sector is still insufficient.　　In the international market prosperity of the environment can be through export digestion of a lot of capacity, but in the current slow economic recovery in Europe and the United States, exports have been greatly affected, so the role of the end consumption is relatively weak pull, a short period of time is unlikely to be a big increase. In addition, from the whole industry chain, in the middle of the processing manufacturing industry due to most of the excess capacity, market competition, bargaining power is weak, in the rising costs to pass the price downward transfer difficulty is very large, more can only be self digestion, self-commitment, the result is the benefitRun rate down.　　And the industry in the upper reaches of the industrial chain because of its possession of resource advantages, coupled with higher concentration of industry has a clear advantage, the price is easier, and oil, coal, ore and other international markets have been linked, prices can rise with international prices. From the trend of the future, as international commodity prices are still rising or high position is difficult to change, domestic PPI will continue to rise in the short term, its cost pressure on the middle-range industry will increase. And the current increase in real estate regulation, investment growth may be reduced, its pull on the upstream and downstream will be affected, building materials, glass and even building steel and other needs or be restrained. In this case, although the expansion of residents ' consumption effect appears, but this kind of growth is smooth and slow, to the middle reaches of the industry's pull is limited. Therefore, upstream product price downward conduction is unavoidable in this obstruction, the profit space also will be compressed. In this regard, in the middle of the processing industry in the future profit growth may decline. Of course, there will be differences between different industries.