Chinese language - What'll be the cost of cool air this summer?

BIZCHINA / Weekly Roundup

What'll be the cost of cool air this summer?

By Diao Ying (China Daily)
Updated: 2007-04-18 09:10

Summer is yet to arrive and the weather is still cool, but air
conditioner prices are already a hot topic of discussion.

Analysts say the air conditioner market, which experienced a downturn
last year, won't change much. While consumers could be easily swayed by
news of price cuts by foreign air conditioner firms, a closer examination
reveals that projections of retailers and manufacturers vary considerably.

Suning Appliance Co Ltd, the country's second-largest electrical
appliance chain, last month announced that foreign brands cut air
conditioner prices by 20 to 40 percent. A week later, the buzz was that
domestic brands were following suit.

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Gome Electrical Appliances Group, Suning's rival and the largest home
appliance retailer in China, also released its predictions. "The
possibility of a downward price movement is small," said the retailer in
its White Paper.

Last year, Gome predicted prices would go up while Suning had forecast a
downward movement.

Adding to the confusion over prices, air conditioner makers themselves
have joined the din. The manufacturers have said they are not cutting
prices, the cost of raw material remains high and the profit margin
narrow.

LG Electronics, for instance, said the price cut at some regional markets
was the result of a promotion drive by retailers.

These conflicting statements from retailers and manufacturers reflect the
battle to control prices in the competitive home appliance segment,
analysts said.

"The discussion on air conditioner prices is always hot in March and
April. Retailers want to grab the attention of consumers with such
discussions," said Xu Dongsheng, from China Household Electrical
Appliances Association.

But despite all the talk, the air conditioner market won't change much in
2007, according to Xu.

Air conditioner sales declined in 2006 for the first time in 16 years.
The sales volume decreased by 7.24 percent while sales revenue declined
by 1.98 percent.

"The market has saturated after surging for decades," said Xu, "and the
time for large-scale updating of air conditioners has not arrived yet."

Sales of air conditioners declined by 64 percent in first-tier cities in
2006, while the consumption potential of the third- and fourth-tier
markets has not been fully realized, according to a White Paper released
by the State Information Centre last year.

The air conditioner market is still controlled by domestic brands such as
Haier and Gree, the largest air conditioner makers in the world by
output. Japanese and South Korean brands, with higher price tags, mainly
occupy the high-end segment.

Air conditioner prices slid 30 percent from 2000 to 2005 and went up by
10 percent in 2006 as copper prices rose. The current price for copper
remains high at 50,000 per ton. Given that the demand will remain low in
the following years, prices of air conditioners in 2007 are not likely to
change much, Xu said.

(China Daily 04/18/2007 page15)

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