The price of copper has dropped by more than 30%! Is the home appliance industry opportunity for improvement under the "three-year cold winter theory"? Jul 13, 2022

In this context, the mid-stream and downstream manufacturing industries may be expected to welcome the opportunity of expected improvement in profit. The home appliance industry has also attracted the attention of the market, but how much impact does the fall in commodity prices have on the industry, and is the home appliance industry expected to usher in an inflection point?

Copper prices have fallen sharply, and the home appliance industry has come to an inflection point?

In February this year, the international situation was turbulent and unstable. The sanctions imposed by Western countries on Russia led to a sharp rise in the prices of oil, copper, nickel and other materials in the international market. The bulk raw materials used in the production of home appliances are steel, aluminum, copper, plastics, etc., and these raw materials account for 5-60% of the cost of refrigerator, air-conditioner and washing machine.

In this regard, home appliance companies have to increase prices in order to maintain product profits. But in the face of the already low market demand, the price increase is undoubtedly aggravating.

But recently, the prices of upstream bulk materials that have caused many home appliance companies a "headache" are falling. As the "leading big brother", the price of copper continued its downward trend.

On July 6, the London LME copper price once dropped below $7,300 per ton, hitting a new low in a year. Compared with the high point of the year, the decline amounted to 32.77%. In the second quarter, the average price of aluminum fell by 7.1% month-on-month, and the cold-rolled sheet fell by 2.18% month-on-month.

According to industry experts, the drop in the prices of the above-mentioned bulk raw materials will reduce the production costs of home appliance companies. Copper prices are falling the fastest, and companies in the air-conditioning industry chain that use more copper materials are expected to benefit first. In the context of the continuous increase in the average price, white goods are benefit the most.

Today, the fall in the price of bulk materials is undoubtedly beneficial to the cost reduction of home appliance companies, but it may not be the case that the turning point of the home appliance industry has come.

In fact, in May of this year, Midea Group, one of the three major home appliance giants in China, revealed the content of a conference call on the Internet. At the meeting, executives explained and interpreted the company's strategic plan for 2022.

At the meeting, Fang Hongbo, chairman of Midea Group, said that the company's goal in 2022 is to achieve reasonable income and return to profitability, with the focus on improving profitability. The specific goal is to return to 2019 profitability levels.

It is worth mentioning that Fang Hongbo also said, "The industry will face greater difficulties in the next three years, which is an unprecedented cold winter."

The word "cold winter" may be a little exaggerated, but the difficulties faced by the home appliance industry are indeed obvious.


The home appliance industry is hard

As we all know, home appliances, as the downstream supporting industry of the real estate industry, have been dependent on the development of the real estate market for more than 20 years. Even if there is a lag of about 6 months in real estate sales for home appliances, it is still undeniable that the golden decade of the real estate market has also Driven the rapid development of the home appliance industry.

However, in recent years, with the outbreak of the Covid-19 epidemic, the economy has been under pressure and the real estate market has tightened. In 2021, my country's real estate industry will enter a trough period, and property market sales will be sluggish. The home furnishing building materials suppliers deeply bound to the real estate industry were first affected, and the home appliance industry began to grow weakly.

Data shows that the scale of my country's home appliance market reached its peak in 2018, approaching a trillion-dollar scale, and has shown a downward trend since then. Affected by the epidemic in 2020, the home appliance industry was hit again, and the market size fell to 833.3 billion yuan, a year-on-year decrease of 6.5%.

In 2021, although the home appliance market will recover due to the demand restrained by the epidemic, the intensity will not be strong. According to data released by CCID Research Institute, the size of my country's home appliance market in 2021 will be 881.1 billion yuan, a year-on-year increase of 5.7%.

The time comes to 2022, and the situation for the industry is even more difficult.

In addition to the previously mentioned rise in raw material prices, more attention should be paid to the decline in market demand.

In addition, under the support of policies such as home appliances going to the countryside in the home appliance industry, the popularity of traditional home appliances such as refrigerators, washing machines, color TVs, and air conditioners has been very high. This also means a reduction in the remaining space. Coupled with the impact of the epidemic, the market's consumption sentiment has declined, which has further compressed market demand.

Therefore, even if the epidemic situation has improved and the property market has begun to pick up, the home appliance industry has begun to recover gradually, and the performance of some companies is expected to improve. .

Opportunities and Challenges

The question is, is the home appliance industry no longer worth paying attention to? of course not.

In fact, although the home appliance industry as a whole has gone through a relatively difficult period, a closer look will reveal that structural opportunities still exist.

While the demand for traditional home appliances is relatively weak, the demand for small home appliances has risen against the trend, which also brings new vitality to the home appliance industry.

The essence of the so-called home appliances is an item that serves the two major needs of consumers "lazy" and "optimized life", and such needs are never out of date.

On the contrary, in today's era of younger consumer groups and the prevailing home economy, such demand is infinitely amplified. How to be convenient, how to be smart, and even how to be beautiful, these are the most real needs of the current younger generation of consumers.

As a result, the market for small household appliances is unprecedentedly hot, with sweeping robots (300024), air fryers, dishwashers, cooking robots and other products emerging in an endless stream, and these small household appliances even have the advantage of rapid updating and iteration of traditional large household appliances. Take the sweeping robot as an example, the function and performance of the one bought two years ago and the one bought now are vastly different.

The small home appliance industry is still in the process of continuous development. In 2020, the market size of my country's small home appliance market has reached 450 billion yuan, and it is estimated that it will reach more than 600 billion yuan in 2023.

However, with the popularity of the small home appliance market, the competition in the entire small home appliance industry will become more and more fierce, both online and offline. For enterprises, they can be invincible only by digging deeply and getting close to the needs of customer segments.

While the home appliance industry is moving forward in the transformation, there are always challenges and new opportunities.

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