Supply Chain Disruption From May to August may Cause Serious Crisis

Zheng Chunying, the chairman of the Chinese cosmetics company JALA, said, “It is expected that from May to August, the Chinese cosmetics industry will gradually have supply chain problems and may face the situation of ‘out of stock’.”

On the afternoon of May 9th, Beijing time (all times in this article are Beijing time), the Chinese cosmetics company JALA held the “Change and Fight” Epidemic Conference. At the conference, Zheng Chunying, the chairman of JALA, mentioned a very important point. It is expected that from May to August, supply chain problems will gradually occur in China’s cosmetics industry because raw materials cannot be matched and end products cannot be supplied normally. This situation will continue until late October to early November.

Since the first quarter of this year, China’s cosmetics industry has had a very difficult time. The two major cosmetic capitals, Shanghai and Guangzhou, have both been shut down due to the epidemic. Affected by multiple factors such as epidemic control, logistics stagnation and rising raw material prices, China’s cosmetics industry is under unprecedented pressure.

In addition to Chinese cosmetics companies, international beauty groups have also suffered to varying degrees. Recently, international beauty groups released their first-quarter financial report. The financial reports of Estee Lauder, Procter & Gamble, Unilever and other groups have reflected the fact that the performance in the Chinese market has declined.

In the first quarter of this year, the sales of skincare products and hair care products of P&G in China declined year-on-year. Amorepacific’s performance in the Chinese market fell by 10% and Estee Lauder’s performance in the Asia-Pacific market fell by 4%.

As Shanghai has achieved a staged victory in the fight against the epidemic, cosmetics-related companies in Shanghai have also begun to resume production. On April 20, JALA, as the first batch of beauty companies, took the lead in resuming production. Subsequently, many international beauty companies such as Amorepacific Trading Co., Ltd., L’Oreal (China) Co., Ltd. and SHISEIDO (China) Investment Co., Ltd. were approved to resume work.

However, despite the resumption of production, the current situation is still grim. Zheng Chunying said at the meeting that in 2022, China’s economy will have three pressures, namely demand contraction (consumer demand will decline), supply shock (supply chain instability), and weak expectations (GDP growth rate will decline). “We expect the biggest impact this year to be the impact of the supply chain. Currently, the entire supply chain in China is inventory consumption. Once the inventory is consumed, supply chain problems will break out. Factories will face shutdown, logistics will be blocked and raw materials will not be able to import. If the product cannot be shipped out, the price of raw materials and freight will increase sharply,” Zheng Chunying said

Zheng Chunying added: “If we want to do a good job in ensuring supply, we need to increase the amount of inventory from now on to prevent the risk of out-of-stock in advance. We will increase the 4-month inventory of finished products of best-selling and important products and 3-month raw material inventory.” JALA includes 7 brands including MAYSU, CHANDO, Spring Summer, COMO, and ASSASSINA, with over 43,000 retail terminals and 42 million members in China.

It is worth noting that, according to relevant media reports, under the influence of the international environment and the global energy crisis, global raw material giants such as BASF SE and Dow Chemical Company have issued emergency notices, saying the supply of some products is difficult. Among them, Dow Chemical Company interrupted its ability to supply key raw materials to Dow Chemical Company’s business due to an accident at a supplier of upstream raw materials. Therefore, Dow Chemical Company announced that propylene glycol stopped supplying as a result of force majeure and the recovery time will be notified later. It is reported that propylene glycol is one of the more common basic raw materials for cosmetics.

In addition, the President of Indonesia announced the suspension of the export of palm oil and related raw materials last month. RESUN, the supplier of L’Oreal and Procter & Gamble disclosed that the prices of international crude oil, palm oil and other bulk raw materials at the end of 2021 would increase by about 40% to 50% compared with the beginning of the year, while the prices of related commodities were going to continue to rise in the first quarter of 2022.



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