China wants to seize the market for cutting tools

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Industrial cutting tools are the next field in which China wants to overtake foreign manufacturers - and it could soon succeed. An overview of the current situation.

While European companies struggle with rising electricity costs and other problems, in China one large company after another goes public and is able to improve its product quality and production capacity. It is almost a surprise that, according to the latest statistics, China's imports of cutting tools are still larger than its exports - at least in terms of value. After all, the upper end of the Chinese market is still dominated by Japanese, German and Swedish manufacturers, in that order, followed by manufacturers in Israel, the USA, South Korea, India and Thailand.

But the trend of what is lauded in China's state media as the patriotically correct "domestic substitution" of foreign goods with domestic ones is progressing. According to recent data from the China Machine Tool Industry Association, imports of coated blades have remained roughly the same year on year from 2019 to 2022. It has always been around 800 tonnes or 100 million pieces with a total value of around 380 million euros.

The average price for the imported product was around 3.8 euros per piece. In the same period, production and sales of domestic coated blades (“CNC cutting tool inserts”) in China increased from 250 million to almost 600 million units. The price per unit averaged 89 cents. The “teeth of the industry” have made enormous progress in terms of domestic substitution, writes the Chinese industrial newspaper Zhongguo Gongye Bao proudly.

Only the fact that high-quality goods are still predominantly produced in other countries has so far kept the statistics from reversing the usual ratios. “At present, most industrial cutting tools manufactured in China are still products in the lower price segment or everyday products,” writes the industry newspaper.

But domestic manufacturers are catching up fast, the paper adds, and the price pressure from high electricity prices for European competitors, as well as the weakening of the labour market there as a result of the Corona measures, are now a historic opportunity for China to turn the tables, the report says. What supports this optimistic analysis is the fact that the spread between import and export prices for cutting tools in China is gradually narrowing.

The unit price for coated industrial blades has fallen slightly from 2019 to 2022, from around 467 euros to around 456 euros. This represents a decrease of 2.4 percent. Over the same period, however, the unit price of coated industrial blades exported by China grew from around 139 euros to around 164 euros, an increase of 18 percent. In other words, Chinese manufacturers of industrial cutting tools are slowly but surely working their way up the global pecking order. The IPOs of many large companies enable large investments in research & development and the acquisition of state-of-the-art equipment.

One market sector in which this trend is particularly clear is that of cemented carbide inserts. Here, Chinese producers are catching up particularly quickly with their foreign competitors. According to official statistics, the export value of cemented carbide inserts has increased by 74 percent and the export volume by 50 percent in the three years already mentioned. "The core competitiveness of Chinese carbide inserts in the world market has improved rapidly," writes the industry newspaper.

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China's largest additive manufacturing companies

This year, according to various media reports, the largest cutting tool manufacturers in China are preparing for an export offensive. China Tungsten, OKE, Huarui Precision and other leading Chinese producers have set their sights on increasing their exports abroad this year.

They do so with great aspirations. One example is OKE. From 2017 to 2022, the company has already more than tripled the share of its turnover generated by exports (from around 26 million yuan to 107 million yuan, or about 13.5 million euros). That was about ten per cent of the total turnover. However, sales in Europe in particular were now growing rapidly and this year foreign markets were the focus of OKE's business strategy, it said.

* Henrik Bork is Managing Director at Asia Waypoint, a Beijing-based consulting agency specialising in China. "China Market Insider" is a joint project of the Vogel Communications Group, Würzburg, and Jigong Vogel Media Advertising in Beijing.

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