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Tingyi (Cayman Islands) Holding Corp's plant in Tianjin. Rising costs are reducing profit margins of Chinese food producers. [Photo / Bloomberg] | BEIJING/SHANGHAI - Two major food companies said that they are facing mounting pressure from rising raw material prices which are eroding profits.
Tingyi (Cayman Islands) Holding Corp, China's biggest maker of packaged food, said cost pressures would persist in the second half as its gross margin stayed near the lowest level in at least a decade.
"It may take a longer period of time for prices to return to a lower level," the maker of Master Kong noodles and ready-to-drink tea said in its earnings statement on Tuesday.
The first-half gross profit margin was 26.1 percent, the second-lowest level for a six-month period since at least 2001, according to data compiled by Bloomberg.
Net income rose 16 percent to $229 million, Tingyi said in a statement to the Hong Kong Stock Exchange. Sales climbed to $4.1 billion as revenue from instant noodles rose 22 percent.
Tingyi's smaller rival in China, Want Want China Holdings Ltd, also said it faced "tremendous pressure" from surging raw material costs.
Want Want raised prices for some products, according to a statement to the stock exchange in Hong Kong on Tuesday.
It plans to start marketing activities in the second half to try and improve profit margins, the company said.
"Since last year and in the first half of this year, our group faced tremendous pressure from surging costs in raw materials, which significantly affected our profitability," Want Want said.
Net income for Want Want rose 3.6 percent to $167 million in the first half, with sales growing 28 percent to $1.3 billion.
China's consumer prices rose 6.5 percent in July, the fastest pace in three years.
The global economy's recovery "is not smooth, and uncertainties in economic growth and instability in the financial markets have increased significantly", Tingyi said.
Tingyi said it will strengthen cost controls and optimize production to deal with rising raw material and labor costs. "The domestic driving force for domestic economic growth remains strong."
Bloomberg News
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