Export growth rates of China-made hand tools have consistently averaged 20 percent over the past several years. Outbound shipments for 2004 far exceeded this average, increasing 28 percent from US$493 million in 2003 to US$630 million. However, the industry grew by about 14 percent in terms of volume, indicating a rise in export prices and an increase in overseas shipments of high-value professional hand tools.
Most China hand tool suppliers are small makers that use the most basic equipment to perform conventional manufacturing processes. Their output consists mainly of low-end hand tools for the DIY market. Midsize and large companies, however, are shifting to the fast-growing line of professional hand tools. These suppliers make substantial investments in importing advanced machinery to produce hand tools of higher precision levels and more durable quality than low-end DIY tools.
The following are some of the key trends we see in China's hand tools export industry:
• Suppliers are trying hard to keep prices at 2004 levels in the face of soaring raw material costs. Steel costs are forecast to increase further this year after Shanghai Baosteel, one of China's biggest suppliers of the material, agreed to a 72 percent increase in the cost of iron ore, which is the base material used to make steel.
• Despite the high production costs, export growth will be in the double digits, riding on improved product quality and soaring demand.
• Overseas shipments of professional tools are expected to rise as intense competition in the low-end DIY sector forces many makers to shift their focus to midrange and high-end tools.
• Since capacity utilization is currently high, many makers will be boosting capacity by as much as 50 percent through equipment and technology upgrades. Some will automate production, not only to increase output but also to cut down on material wastage and other operating expenses in the long run.
China suppliers offer a wide selection of hand tools. For the purposes of this report, these are categorized into six main types: pliers, wrenches, screwdrivers, hammers, saws and chisels.
Pliers make up 30 percent of exports while wrenches and screwdrivers account for about 20 percent each. Saws currently constitute only 7 percent of exports, but it is the fastest growing product line, registering a growth rate of 38 percent in 2004.
About 65 percent of China-made hand tools are designed for the DIY segment of the market and are exported mainly to the United States. The rest of output consists of professional tools shipped mostly to Europe.
The Products & Prices section of this report discusses the main factors that differentiate low-end, midrange and high-end hand tools from each other. This section describes typical China-made hand tools and also includes a price guide for a variety of products in each tool category.
Modifications and other efforts to improve existing tools are described in detail in the R&D section.
The main processes in the production of hand tools remain basically the same across all tool categories. Details about how these processes are typically done in China factories are included in the Manufacturing section of this report.
Industry Overview
China's exports of hand tools are still on the upswing. Overseas shipments increased 28 percent to US$630 million in 2004 from US$493 million in 2003, according to customs statistics. This is a significant increase over the 20 percent growth rate the country has been averaging in the past several years. In addition, exports grew about 14 percent in terms of volume, indicating an increase in overall export prices. Much of this is due to the fact that suppliers are passing on part of raw material cost increases to buyers.
The high growth in value terms also indicates a rising number of midsize and large makers that are exporting professional tools, which are more expensive than models for the DIY market.
China has a long history of hand tools manufacturing. This highly mature industry already has a 4,000-strong supplier base, more than 80 percent of which are small makers that export mostly through trading companies. And as more makers, attracted by the low entry barrier, join the line, the supplier base and the resulting competition will grow.
There is very little product differentiation in the line and the only obvious competitive strategy for makers is to break into the midrange and high-end markets, particularly in the European Union, with a selection of tools designed for professional use. However, only midsize and large suppliers can afford the substantial investments necessary to upgrade their manufacturing lines to produce high-end tools.
Many of these companies are now importing advanced machinery from Germany, Sweden, Japan and Taiwan, especially to use in making tools such as wrenches and sockets that require high-precision, sophisticated equipment. Wrench factories need at least two production lines equipped with friction pressing machines, while facilities for the manufacture of sockets need cold-forging machines.
Suppliers are also automating their production process to boost capacity, in view of increasing demand for hand tools.
Aside from improving precision and quality of output, these automatic machines serve another purpose. They cut down on material wastage and other operating expenses in the long run, thus helping suppliers cope with another difficulty: the continuously soaring costs of raw materials. Some makers are in fact automating their production facilities solely for this reason.
The majority of China's hand toolmakers, however, feel there is no urgent need to shift upmarket or invest in advanced machinery, as demand for low-end hand tools remains high, especially in the United States. These suppliers manufacture mainly DIY hand tools using conventional production processes that require only the simplest drilling, grinding and punching machines.
Nevertheless, investments in advanced automatic equipment will eventually become necessary as more suppliers are forced to expand their hand tool selections to include midrange and high-end products for the professional market.
Supplier Profile
Berton Tool Mfg Co. Ltd
Berton, established in 2003, is a Taiwan-invested company specializing in the manufacture of hand tools and other hardware. The company has three production facilities, one located in Taiwan and the other two located in Shanghai and in Yuyao (Zhejiang province).
All of the company's exports are under OEM. It counts Facom of France, Beta and MMA of Italy, Powermaster of the United Kingdom, Orbit, Marson and Pop of the United States, and ThurPer of Mexico as its major OEM customers.
Hand tools account for all of the company's total annual sales, which amounted to US$2.1 million in 2004. It exported 522,000 units of hand tools last year, almost 90 percent of its entire hand tool production.
Products
Berton manufactures adhesive rivet guns, tool sets, screws, pipe cutters, screwdrivers, and toolboxes. Its main product line is socket wrench sets, which it produces at the Taiwan factory. Most products meet GS and CE standards.
About 4.8 percent of annual sales is invested in R&D, which currently focuses on new product development and enhancing durability. The 10-member R&D team uses Pro-E, 3D and CAM software for product design. The company hires professional engineers for research and development of tool sets.
Starting in 2005, Berton plans to introduce eight new series of riveters and 25 new tool sets every year. In the second half this year, the company will develop rivet guns for the domestic market. It will also introduce a new series of hand tool sets featuring new packaging geared towards retail sales.
The company increased export prices by almost 20 percent last year due to the more than 40 percent rise in alloy steel costs. However, it plans to keep prices stable in 2005.
All this column of information contained in China Sourcing Reports is the result of original, independent and impartial research conducted by Global Sources analysts.
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