Why Chinese Air-Conditioning Producers Raise Prices in Off-Demand Season? SMM Reports

SHANGHAI, Jan. 3 (SMM) – Traditionally, domestic air-conditioning producers cut prices or take other promotions to stimulate sales around New Year and Chinese New Year holidays. However, conditions are different in 2016, as major air-conditioning producers raised prices in December 2016. 

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Midea announced December 26 to increase price by 50-200 yuan per set; After the 12.12 shopping day, Gree released to raise price by 50-100 yuan per set from December 19; CHIGO announced to lift price by 2 percent from December, and will grow by another 2 percent from January; Hitachi said to adjust sales price from January 1, 2017, up by 10 percent on average.

According to China Market Monitor’s data, fixed frequency hook air conditioner, the most sensitive to price, advanced to 2,152 yuan per set during the first week of December, up 100 yuan or 4.5 per cent on average from the level seen in early November.

The price gain is due mainly to following factors.

First, conditions in domestic air-conditioning sector have picked up. Domestic air-conditioning manufacturers undertook destocking in 2015 in the face of weak demand both home and abroad and high inventories. Major producers cut production in 2015 in China, and output did not return to positive growth until July 2016, finally bringing the 1 and 1/2 year-negative growth to an end. Utilization rates at major domestic copper tube/pipe producers were also down during the same period, and reached a low in February 2016, the lowest since January 2012, according to SMM data.

After de-stocking and other incentive measures, inventories of air-conditioners fell below 30 million sets in late June 2016, according to market data, down sharply from 40 million sets, the level seen at the end of cold year of 2015. The domestic air-conditioning industry finally picked up after sluggish performance for a long period, with increases both in output and sales. According to chinaiol, it was the fourth straight month in November 2016 reporting big rises both in output and sales, up by 47.22 percent and 36.05 percent, respectively, to 8.61 million sets and 7.76 million sets.   

Second, the commodity market surged across the board in 2016, including copper, aluminum, oil, paper box, and plastics, and prices of raw materials grew at air-conditioning manufacturers as a result.

Third, transportation costs at air-conditioning producers have been rising with new transportation regulations. The Ministry of Transportation, National Development & Reform Commission, and the Ministry of Industry & Information Technology, Ministry of Public Security, and General Administration of Quality Supervision, Inspection and Quarantine released a joint document of Transport Vehicle Management Working Plan on August 19, 2016 to set new regulations on transport vehicles.  

Fourth, Chinese yuan’s big depreciation inflated price in domestic market, and price gains of domestic air conditioners were bigger than those denominated in US dollar in US and European markets, SMM learns.

Domestic air-conditioning manufacturers suffered big pressures from rising raw material prices, higher transportation fees, depreciation of Chinese yuan and rising labor costs. With no inventory pressures, they recalculated production costs and finally decided to lift price during a traditionally low-demand period, SMM concludes. 

Zhang Yanbin, director at AVC, a consultancy that specializes in research on home appliances, said prices of domestic air-conditioners have reached the ceiling, and competition will become more intense in 2017.

Zhang also noted that prices after the round of hike may not prove to be sustainable after the 2017 New Year holiday. 

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