Exchange Rate, iPhone, Tungsten Carbide Cutter and Listed Company-3

Benefits of tungsten carbide cutters export

Different form the iPhone, the dealers of tungsten carbide cutting tools can get the most of the nonbusiness income caused by the devaluation of RMB. Because China owns absolute resource advantages such as tungsten, molybdenum and rare earth. 

Most of materials and equipment of tungsten carbide tools are bought in China. We can ignore the price increase factor in a short period of time, and the additional income of export caused by the exchange rate depreciation can be regarded as the operator's income. Assume that the foreign exchange income of a kilogram of exported tungsten carbide knife is US$70. We can compare the different benefits generated by the exchange rate at the beginning of the year and the current exchange rate as follows:

USD70 X 6.30=441 (Benefits calculated at the beginning of the year when RMB exchange rate against the US dollar was 6.7)

USD70 X 6.90=480 (Benefits calculated currently when RMB exchange rate against the US dollar is 6.85)

Assume that the export price in the contract remains the same, the benefit of the first exchange rate is 39 RMB less than that of the second exchange rate. The benefit has been increased by 9%. This ratio is probably higher than the actual net profit margin of most tungsten carbide companies. Therefore, it is obvious that the devaluation of RMB is beneficial for tungsten carbide companies under that situation. Although the United States has imposed tariffs on our exported tungsten products, the impact is not large, and it is even positive. Even if the tariff reduces the quantity and the willingness of imports of American manufacturers, the effect generated by the devaluation of RMB leads to the increase of export income. It is also difficult for American manufacturers to find alternative sources of supply in the short term since the rich tungsten resource is our advantage. 

In conclusion, the traditional OEM products remain few profits owing to the devaluation of currency while the export products with high added value which owns resource and technology advantages will produce a lot of benefits.