“We’re re-negotiating with suppliers before we start production with this new line,” a General Manager friend told me the beginning of November. “With the rate at which inputs are dropping, something of that twenty-percent rise across-the-board suppliers were demanding eight months ago has to be cut.”

Indeed, an article in last week’s Financial Times cited:
“The options market is pricing in a growing likelihood that oil prices could sink as low as $40-$45 a barrel before the end of the year, with the cost of insuring against such an event jumping more than 90 per cent overnight…

“Base metals extended their retreat, with copper breaking the $3,500 level to touch a three-year low of $3,430 a tonne, before recovering to $3,467 a tonne, down 3.6 per cent on the day…

“Aluminium shed 4.7 per cent to $1,78 a tonne, under pressure from a surge in LME stocks, up 20,850 tonnes.

“Lead dropped 3.5 per cent to $1,187 a tonne. One of China’s lead producers, Xinling Refining Company, said it was mothballing 60 per cent of its 100,000 tonne capacity.

“Zinc was 0.4 per cent lower at $1,175 a tonne and nickel lost 4.3 per cent to $10,000 a tonne.”

These drops in the cost of raw materials come as a pleasant shock to many of us who believed the price of inputs was only going to go up. I recall a conversation with a Western production manager four years ago who complained about how much more expensive copper and aluminium had become at the time, doubling and trebling in cost within a year.

And with salaries of Chinese nationals moderating in and around Shanghai, rippling outward into Jiangsu Province, the cost of production may actually return to levels that haven’t been seen for five years. Of course, issues such as exchange rates and VAT rebates will have to be thrashed out for exporters; however, there is something to look forward to in the near future.

Manufacturers that are able to successfully ride out the global economic downturn over the next year-and-a-half — both domestic players and exporters — will contribute to a new boom in China’s GDP growth in 2010, something comparable to 2003, just after SARS.

There is indeed light at the end of the tunnel. If you squint hard enough.