Unrest in the Strait of Hormuz has hurt China’s capital on Christmas and holiday spending

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

Lu’s company, Kitty Christmas Factory, has been manufacturing artificial trees for the American and European markets for nearly three decades. Its facility is located in Yiwu, known as the Christmas capital of China.

“Many customers are postponing orders,” she told CNBC last Friday at her showroom in the city’s International Exhibition Center. The center houses hundreds of manufacturers that contribute to the country’s huge production of artificial trees, ornamentals, decorations and other decorations in the world.

An estimated 87% of Christmas decorations sold in the United States come from China, according to the American Christmas Tree Association, and most of them are from the city of Yiwu.

Lu said that the disruption of shipping in the Strait of Hormuz and the rise in oil prices due to the Iranian conflict led to an increase in the costs per tree by 10%. The base material for its trees is oil-derived PET plastic. It said the price of the PET in its synthetic pine needles has risen by 5%, and the cost of plastic used as packaging for shipments has risen by 15%.

Lu said her revenue was down about 12% due to the lost orders.

Yiwu factories usually prepare in the spring to ensure their products are on store shelves for the Christmas shopping season.

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

Yoon said the prices of plastic used in tinsel have risen by up to 40%.

Qin Lian, which makes Christmas lights, said she feared further price increases, with suppliers moving up delivery schedules to accommodate customers worried about transportation delays.

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

To adapt, artificial tree maker Luo said it has expedited shipments. When its contracts with customers allow it, it passes on some of the costs. Next year, she said, she aims to design a wider range of low-hanging trees so that more people can buy her products.

But for this season, Lu said American shoppers will likely have to pay at least 15% more.

“The prices of Christmas trees in the United States will definitely go up,” she said. “It’s inevitable.”