Bolts

	Ningbo Zhonglian offers stainless steel hex bolts in M6 to M64 sizes.

China's fasteners industry is seeing a strategic shift in export targets, as suppliers cultivate markets in Asia and at home to sustain business amid sinking orders from the West.

Total shipments during the first half of the year reflect this collapse in demand. According to customs statistics, China exported 1 billion kilograms of nails, tacks, pins, staples, screws, bolts, nuts, hooks, cotters and washers between January and June 2009, a year-on-year decline of 42 percent. Sales consequently plunged 43 percent to $1.4 billion.

The slowdown can be traced to the slump in shipments to the EU and North America, among the top destinations for the line. The former procured 152 million kilograms worth $235 million in the six months ending June 2009, 73 and 70 percent lower in terms of volume and value. Exports bound for the US and Canada fell 41 percent year on year to 254 million kilograms, pulling sales down 34 percent to $354 million.

Suppliers attribute this contraction to two factors shaping buyer behavior. Both markets, for one, are still feeling the pinch of economic challenges. While clients that have cut back on sourcing since last year are now replenishing inventories, tight budgets are prompting them to maintain a cautious stance. Many are therefore placing fewer orders or stipulating smaller volumes per transaction than they normally did prior to the crisis.

Companies are also losing sales due to the anti-dumping duties imposed on China-made fasteners. The US implemented a 70 to 206 percent tax on steel threaded rods in October last year, while carbon steel screws shipped to Canada have been subject to 170 percent levies since February. The EU enforced 63 to 87 percent tariffs on carbon steel fasteners in January.

With such limitations in place, suppliers have had no other choice but to raise prices in order to sustain profitability. The adjustments, however, have upset existing clients in the aforementioned markets, many of whom turned to other hubs for their sourcing requirements.

Wary of price increases, even buyers from countries that have just initiated anti-dumping investigations are canceling orders. Mexico's probe, which began in February, targets carbon steel nuts originating from China. Starting May, Russia has been looking into imports of steel nuts, bolts and washers.

With demand dwindling since late 2008, one-third of fastener enterprises in China have closed shop, said Feng Jinyao, president of the China Machinery and Fastener Association. Most were small operations that relied heavily on Western countries to generate sales.

To shake off their dependence on the EU and North America, makers are redirecting exports to certain economies in Asia. While this strategy cannot completely fill the gap left by flagging shipments to traditional markets, it can nonetheless provide companies with new clients.

Among the emerging alternatives are Malaysia, Iran and India.

Between January and June, shipments to Malaysia increased 18 percent year on year, topping 24 million kilograms. Sales climbed 12 percent to $30.7 million. The country, as a result, rose from being the 24th biggest market in 2008 to the 10th in the first half of 2009.

Iran-bound exports were up 47 and 43 percent in terms of volume and sales, totaling 18.4 million kilograms worth $19.2 million. This made the country, which was ranked 30th the previous year, the 14th largest importer of fasteners from China.

Not even among the top 30 destinations in 2008, India held the 18th spot during the six months ending June 2009. Shipments surpassed 15 million kilograms and were valued at $20 million, 43 and 27 percent higher compared with the same period the previous year.

Overall, the Asia-Pacific region absorbed $413.4 million worth between January and June, accounting for almost 30 percent of total exports and effectively surpassing the EU as the line's biggest market.

To optimize profitability, companies are also cutting down their allocation for export production, diverting resources instead to the domestic market.

While margins gained from overseas business have shrunk to less than 8 percent, sales at home could provide returns of up to 50 percent or more.

In addition, consumption in China has been rising since the release of the central government's $586 billion stimulus plan. A huge portion of the package is meant to be invested in public infrastructure, disaster building and rural development projects, spurring fastener usage.

To establish their domestic presence, suppliers such as Cixi Chuangzhi Machinery Industry Co. Ltd and Ningbo Exact Fasteners Co. Ltd are expanding their sales teams and networks of local trading partners.

But makers are not abandoning their export lines completely. This is because, in terms of cash flow, transacting with foreign clients is less risky. For overseas orders, the payment is made prior to delivery. Terms for domestic purchases extend to a half year or even longer.

Currently, China's fasteners output is split evenly between shipments abroad and at home.

Thanks to healthy domestic demand, the industry's overall sales are still expected to top $6 billion in 2009. This, however, will only be 6 to 9 percent higher than 2008 figures, making it the slowest pace of growth for the line in recent years.

In 2007 and 2008, the country's revenue from fasteners increased by 15 and 10 percent, respectively.

Prices of China-made fasteners are likely to rise 5 to 10 percent in the months ahead due to higher steel costs. Suppliers, however, are inclined to hold off the adjustments if competition intensifies or the market condition worsens.

Industry composition

	Self-drilling screws from Cixi Chuangzhi come in carbon or stainless steel with a zinc, phosphate or Dacromet finish.

Although the consolidation trend has hit China's fasteners industry, the manufacturing base remains strong. The country currently has more than 5,000 enterprises in the line, securing its position as the largest production hub worldwide.

Locally owned companies dominate the supplier pool, making up at least 90 percent. The rest have outside financing, mostly from Taiwan and Hong Kong.

Less than 5 percent of operations are considered large, with annual sales topping $10 million and factory areas exceeding 10,000sqm. The minimum workforce size is 700, including at least 10 personnel each in R&D and QC. Production covers standard and specialized fasteners for both the domestic and export markets. Almost all manufacturing processes are conducted in-house.

Generating more than $1 million in revenue each year, midsize companies constitute 30 percent of the industry. They carry out 50 to 80 percent of production processes in plants that occupy between 2,000 and 10,000sqm. Employees number over 100, with fewer than 10 assigned to R&D and to QC. Output can be a mix of standard and specialized fasteners or consist entirely of one type. Some suppliers engage solely in exports, while others also cater to the domestic market.

More than 60 percent of manufacturers operate on a smaller scale and with more limited financial and labor resources.