Hormuz disruptions hit China’s Christmas capital and holiday spending

Christmas is still eight months away, but artificial tree maker Lou Liping is already worried about a bad holiday season due to the Iran war.

Lou’s company, Kitty Christmas Factory, has been making artificial trees for the U.S. and European markets for nearly three decades. Her facility is based in the city of Yiwu, known as China’s Christmas capital.

“Many customers … are holding off on orders,” she told CNBC last Friday at her showroom in the city’s international expo center. The center houses hundreds of manufacturers that contribute to the country’s vast production of the world’s artificial trees, tinsel, ornaments and other decorations.

An estimated 87% of Christmas decor sold in the U.S. is sourced from China, according to the American Christmas Tree Association, with much of it from Yiwu.

Lou said the disrupted shipping in the Strait of Hormuz and high oil prices due to the Iran conflict have raised her costs per tree by 10%. The base material of her trees is PET plastic derived from oil. The price of the PET in her artificial pine needles is up 5%, and the cost of the plastic used as packaging for shipments is up 15%, she said.

Lou said her revenue is down roughly 12% because of the lost orders.

Yiwu’s factories normally gear up in the spring to make sure that their products are on store shelves for the Christmas shopping season.

“The war happened at a bad time — right when we need to get our shipments out,” tinsel maker Yun Zhuomei told CNBC from her booth at the expo center. “It’s very painful for us manufacturers.”

Yun said plastic prices for her tinsel are up as much as 40%. 

Chen Lian, who makes Christmas lights, said she fears further price increases, with suppliers all moving up delivery schedules to accommodate customers worried about transport delays.

“Everyone needs to deliver between May and August so demand is concentrated,” Chen said. “Material prices are bound to go up.”

To adjust, artificial tree maker Lou said she has accelerated shipments. And when her contracts with customers allow, she passes on some cost. For next year, she said she aims to design a wider variety of lower-end trees so more people can afford her products.

But for this season, Lou said American shoppers will likely be stuck paying at least 15% more.

“The price of Christmas trees in the U.S. will definitely go up,” she said. “It is unavoidable.”