Summer has already gone, but the heat of most areas around the country does not decrease. With the hottest temperature in years, the performance of air conditioning industry has been beyond expectation, ending quite perfectly.
Production and Sales: 130 million units
After several years of consolidation, torture of high inventory, and squeeze of cost, China’s domestic air conditioning market has been finally recovered. Data from ChinaIOL shows that the total scale of production and sales has broken through 130,000,000 units, reaching the record high, and the growing rates of production and shipment are all above 30%. As for scale, air conditioning products have replaced refrigerator, washer and television, becoming the first category of home appliance. As for profit, the margin of air conditioning products has become the support of this category.
It can be said that both upstream and downstream industries of air conditioning have spared no efforts. The trend of production and shipment in 2017 cold year shows that air conditioners sell well in both off and peak season. In 2016, the scale of production and sales were 8 million to 9 million units in a single month, and exceeded 10 million units in December. However, during the peak season (March to May), the production of every month were all beyond 14 million units, and the shipment even reached 15.5 million units in May. In June, the scale of production and sales were still above 14 million units, reaching unprecedented level.
Such an enormous scale is quite a severe challenge for both supply and production line of the whole industry. Besides the short supply of upstream factories, the production of air conditioning is also restricted by its capacity and problems of production line. Especially from March, the short supply of auxiliary products such as compressor, motor and chip deeply influenced the deliverability. Until July, some enterprises were still unable to deliver the products on time, which is the biggest problem.
Domestic Sales: 82.04 million units
The expansion of production and sales is mainly because of the great demand from the terminal market, especially domestic market. According to ChinaIOL’s initial calculation, the total shipment of domestic market will nearly reach 80 million units in 2017, up by 56% compared with last year. This scale breaks the record, becoming the highest in the history of China, and such a high growing rate is also unprecedented. Meanwhile, the domestic shipment occupies more that 60% of the total shipment.
Such a high shipment exceeds the market expectation. Monthly speaking, the domestic shipment was on a high level from the very beginning, and it increased by leaps and bounds in peak season. The growing rates from April to June are all above 65% consecutively. Although July is already the end of cold year, shipment still reached 10.3 million units, which not only exceeded the shipment of traditional peak season (March to May), but also created a history of China’s domestic shipment.
The domestic market has increased rapidly in the last two years, and the most essential reason comes from the drive of terminal demand. In fact, the growing rate of installation card has been beyond expectation before the peak season, and it keeps up even in peak season, which is caused by multiple factors. On the one hand, real estate market, especially in third and fourth ties cities, has been quite hot since 2016, improving the demand for air conditioning. On the other hand, the hot temperature in 2017 accelerates the release and upgrade of the demand.
Inventory: 28.93 million units
“Inventory” has always been a hotspot in 2017 cold year. Until the end of cold year, the total inventory are 28.93 million units, which is quite low compared with the industrial inventory and channel inventory of last year. The hot sale in peak season not only empties the channel inventory again, but also arise the situation of structural out-of-stock. There is still quite a bit of current production is used to make up the delayed orders. A manager from Midea said in July that the production had always been full now but the delivery is still the biggest problem. Relevant data shows that the number of Midea’s installation cards has reached three to four million in peak season (June and July), and Gree’s number has exceeded five million. Such a great demand leads to the short supply of many enterprises.
Inverter air conditioning gained a further development in 2017 cold year, and the total sales are 52,978,700 units, up by 57.3% compared with last year. Among them, the domestic sales grow by 72%, and export grows by 12.9%. Meanwhile, inverter air conditioning occupies 53.1% of domestic market. In the background of the soaring cost of raw materials in 2017, the aim of raising prices through product structure optimization and upgrading will be an equal choice for enterprises. The structure of the inverter and energy efficient products has a significant growth in 2017, in addition to price rise, the cost of inverter and energy efficient products has reduced over the past two years. The costs between every energy efficiency level narrow too, which also objectively provides space for product upgrade. The relevant accessory products, such as inverter compressor, semiconductor chip, electronic expansion valve and R410a refrigerant, are still in short supply, which confirms the rapid development of inverter air conditioning from the other side.
In addition, policies concerning the future development of inverter air conditioning and fixed frequency air conditioning have also made new progress this year. A special team was set up in March to investigate the situation of both industry and enterprise.
Refrigerant replacement has been a quite hot topic for two years, and R32 refrigerant and R290 refrigerant have also competed with each other for several years. A series of standards concerning detection, production and transportation of flammable refrigerant have been issued in recent years, paving the way for its domestic development. On the whole, there are obvious differences in the domestic development of these two refrigerants.
As for scale and structure, the development of R32 is faster than that of R290. The trend shows that China has made more than 14 million units of air conditioning products with R32 refrigerant in 2017, and market share has expanded from 9.3% to 11.5% in 2017. Japanese enterprises still occupy a lot in this industry, but besides Gree, other domestic brands are all in quiet development.
The overall development of air conditioning products with R290 refrigerant is relatively slow, and the size of the products sold in China is quite small, mainly reflecting on export market. The government and relevant institutions have been vigorously promoting the development of air conditioning with R290, having done a lot of work in terms of financial support, production line transformation, technical support and policy standard promotion.
2018 Cold Year: 2.56%
Having experienced such an inspiring cold year, everyone is quite concerned about the market trend of 2018 cold year. After such a surge in 2017, the end remains doubtful. ChinaIOL expects that the total sales of air conditioning industry will still grow by 2.56% in 2018 cold year, with domestic sales rising by 6.2% year-on-year, while export is expected to drop by 3.1%.
From our survey, the upstream accessory enterprises are more conservative and pessimistic in the future, while the whole unit enterprises are generally optimistic. Many accessory enterprises are worried about whether the industry will drop dramatically. Judging from the overall industry, this drastic change will not appear in the cold year of 2018, because the overall environment is different. Therefore, we estimate that air conditioning industry will sustain small growth.
As for domestic market, after the hot sale in the peak season of 2017, the channel inventory of the whole industry has been basically digested. 2018 cold year means the next round of inventory resupply. The current situation is that the production of whole machine and accessory compressor industry does not decrease in August and September, only the maintenance and repair of equipment reduce the production, so the inventory demand exists. It is expected that domestic air conditioning industry will maintain the relatively good rhythm of production and delivery at least before the end of this year. Prices of raw material are still expected to rise. And it also does not rule out the production boom will continue to the March and April of next year. The key now is how terminal retail market will be. Concerning the judgment of this trend, there are many differences between two institutions monitoring terminal retail at present. However, one statement shows that the real estate market’s influence on air conditioning industry is now five quarters. According to this trend, the situation of market sales will remain in the second half of this year and 2018 Q1.
It is estimated that the export market is not going to grow. Many countries in Southeast Asia and East Europe are gaining momentum this year. However, weather is not good and the channel are stockpiling large inventories, which will directly affect the market sales of next year. As for situation in the Middle East, Iraq is quite good now, but Saudi Arabia and the United Arab Emirates are common. The export of Latin America is good, but it is not clear how long it will last. There are also no good news for Africa countries due to economic development, geopolitics and foreign exchange reserve.
In a word, it is a serious question for every air conditioning enterprise to think about how to achieve the breakthrough again in the cold year of 2018. Present market prediction is just a kind of psychological expectation, and the influence of the external environment is sometimes hard to grasp. Therefore, whether the market is good or not, enterprise should be focused on every step, including products, channels and marketing.