According to data released recently by the China Index Institute, the average price of residential buildings in 100 cities (new construction) in the country was 10,554 yuan per square meter in September, up 1.07% from August. This was also the sixth consecutive month of increase since June 2012, of which 79 cities rose month-on-month and 21 cities fell month-on-month.
Taken together, the "Yinshi" in 2013 is facing a dilemma of lack of operating rate, difficulty in guaranteeing profit margins, closing risk at the end of the year, tightening of funds and long-term prospects. The current source of rising liquidity is due to the risk hedging caused by the US sovereign debt crisis since September. Once the crisis is lifted, a large amount of excess funds will flow out of the property market, which will inevitably lead to turmoil in the domestic financial and real estate markets.
In contrast to the rapid upward movement of housing prices, the building materials market, which best reflects the country’s just-needed growth, presents another picture. Taking steel as an example, as of September 27, the total inventory of the domestic construction steel market was 6,472,900 tons, an increase of 42,200 tons from the previous week, a decrease of 0.12% from the same period of last month and an increase of 9.98% from the same period of last year. According to statistics from the Ministry of Communications, from January to August 2013, the country’s investment in fixed assets for transportation was 886.11 billion yuan. Among them, the highway construction investment was 787.63 billion yuan; the inland investment was 33.666 billion yuan; the coastal construction was 54.438 billion yuan. The fixed asset investment in August was 134.942 billion yuan, an increase of 0.16% over the same period in the previous 12 years and a decrease of 10.97% from July. The decline in infrastructure construction further reflects the sharp drop in investment demand for domestic fixed assets.
The declining trend in the building materials market supports the gradual reduction in the number of homebuyers and the bubble characteristics of current housing prices. Before such a market situation, the power of the supply and demand sides will gradually shift, accompanied by consumers' environmental awareness and energy conservation. With the increase of consciousness and the expansion of product selection, companies will face a decline in overall demand on the one hand, and will face more complaints about home building materials and housing quality on the other hand.
This is very similar to the symptom of Japan before the real estate bubble burst in the 1990s, but at that time Japanese building decoration companies learned Toyota's "lean management" philosophy in cost control, quality management, supply chain management, brand strategy, Many aspects such as marketing management, investment management, and human resources development are working hard to improve their competitiveness. Eventually, TOTO, Ina, Panasonic and other famous brands emerged.
At present, the domestic construction and decoration industry is facing serious challenges, but also contains important opportunities that Japan does not possess: The newly-increased population brought by urbanization will stimulate the demand for housing and will directly promote the growth of the building decoration industry. Although affected by real estate control policies, developers may slow down the increase in residential supply, but residential demand has a strong rigidity.
This is due to three changes in the market: (1) consumption upgrades. The consumption upgrade brings about the increase of the potential demand scale of the industry and the willingness to pay for the increase in the cost. (2) The proportion of fine decoration is improved. The level of development of the refined decoration market in China has lagged far behind other countries, and the refined decoration market is part of the future development potential of the building decoration industry. (3) Expansion of the public service market. In the process of urbanization, the domestic construction of low-rent and public-rent housing will also increase significantly, which will bring a stable and long-lasting profit margin to the public assembly market.
Regardless of whether the bubble will burst or not, how intense it is, and as building decoration companies related to it, all should learn from historical experience to make appropriate preparations to meet the challenges of the market.
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