"Since steel prices came down significantly recently and copper represents a much smaller proportion of our cost of materials than steel, the impact of the recent increase in copper prices would appear to be more than offset by the rather welcome declines in steel prices," said executive vice president Paul Tong.

Copper, whose prices recently hit record highs, comprises about 15 percent of Johnson's cost of materials, while steel represents 55 percent. Total raw material costs eat up about 50 percent of the group's sales.

ADVERTISEMENT

To further control copper costs, Tong said Johnson would also hedge on the metal on the London Metal Exchange.

Three-months copper rose almost 20 percent over the past six months on the London Metal Exchange, hitting a record US$3,985 (HK$31,083) per tonne last week. Steel price is on a downtrend.

Johnson's gross profit stabilized in the second half ended March, but suffered from double-digit rises in steel and copper prices in the full year. Gross margins were down at 29.1 percent from 29.8 percent a year earlier. "For Johnson, raw materials remain a concern." CSFB analyst Kenny Lau said.

Net profit at Mabuchi Motor, Johnson's larger rival, fell 51 percent to 4.16 billion yen (HK$281.2 million) for the six months to June 30, amid rising raw material costs and a drop in the sale of mini-motors for audio equipment.

The impact of raw materials on Johnson's bottom line may be seen in upcoming interim results, analysts said.

Delphi, the world's largest auto parts maker and one of Johnson's main customers, filed for bankruptcy last week. But Tong said Johnson has a highly diverse customer base, with Delphi accounting for only a small single-digit percentage of group sales. He also stressed that it was Delphi's US entity that filed for Chapter 11. Since Johnson's shipments are mainly for Delphi's overseas units, Delphi's impact on the company will be small.