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Appeared on: Friday, September 14, 2001
Crude oil prices up, optical disc production costs rise!

The recent terrorist attack on the US has caused crude oil prices to rise dramatically, and Taiwan’s CD-R disc manufacturers may be affected, especially since 50% of CD-R manufacturing costs come from the use of petrochemicals. However, Taiwan’s CD-R manufacturers are saying they have ways to counterbalance rising prices upstream and operations should not feel negative effects anytime soon.

Ritek said it does not have a problem in this area because it always guarantees a large-volume order, and upstream suppliers happily respond by guaranteeing a lower price. Furthermore, Ritek has signed long-term contracts – at least one year, if not longer – with upstream materials suppliers. Contract prices for petrochemicals were set for the full year at the beginning of 2001.

CMC Magnetics said that since the start of the second half business has picked up considerably and the company has orders to fulfill into the fourth quarter. Anticipating a 100% capacity utilization rate before the end of the year, CMC has increased its materials inventory to 45 days’ worth. In addition, it already settled the price for fourth-quarter petrochemical supply at the end of August.

Prodisc settles a new contract price once every six months. Since the company was optimistic for a busy market in the second half of 2001, it was more than willing to sign another six-month contract in August. Prodisc suppliers will not be able to raise prices on petrochemicals until March 2002.

Although first-tier CD-R disc manufacturers are largely unaffected, second and third-tier manufacturers may not be so lucky. With less capital to expend, small-scale companies can only place orders for a certain period – sometimes a week, sometimes a month – and do not have the capacity to store large amounts of materials. The rise in crude oil prices will almost definitely lead to higher costs for these companies. However, the cost/price difference is expected to last only for a short while.


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