Companies

China’s Covid lockdowns could hit component supplies of durable players in India

Meenakshi Verma Ambwani | | Updated on: Apr 02, 2022
A worker in a protective suit keeps watch on a street, as the second stage of a two-stage lockdown to curb the spread of the coronavirus disease begins in Shanghai, China April 1, 2022. 

A worker in a protective suit keeps watch on a street, as the second stage of a two-stage lockdown to curb the spread of the coronavirus disease begins in Shanghai, China April 1, 2022. 

To aggravate challenges amidst hardening commodity prices, robust demand for cooling products

Challenges for the consumer durables industry which has been battling hardening of raw material costs amidst the Russia-Ukraine crisis, could further aggravate with the latest round of Covid lockdowns seen in China.

Players said that with robust pent-up demand trends for cooling products in the summer season, the emergence of supply chain constraints of components due to Covid lockdowns in China could lead to a short supply situation from May onwards in India.

Kamal Nandi, Business Head and Executive Vice President – Godrej Appliances told BusinessLine, that the company has already seen a spike in demand for air-conditioners by 15-17 per cent in March compared to the pre-pandemic levels and expects to see similar strong demand trends in the coming weeks with rising temperatures.

‘Critical geopolitical conditions’

“Commodities such as steel, copper and aluminum have been hardening for the durable industry for some time now which have got further aggravated due to the geopolitical conditions. Now, the Covid-induced lockdowns in China have created a supply crunch situation for components. This will create further challenges for manufacturers in terms of production and there could be a short supply situation at the industry level kicking in sometime in May due to strong pent-up demand trends,“ Nandi added.

The industry players, which have been witnessing high commodity cost since December, are in the process of taking a second price hike in this year. While some players have already implemented a price hike of 3-4 per cent from April 1, others are expected to take it during this quarter.

‘Commodites such as steel, copper and aluminum have been hardening for the durable industry for some time now’

‘Commodites such as steel, copper and aluminum have been hardening for the durable industry for some time now’

“The commodity prices have gone up by nearly 28-29 per cent starting from December 2020. In comparison, industry players have only been able to hike product prices roughly by 16-17 per cent. So there is still a gap of about 12 per cent, so further price hikes are inevitable. Some brands have already increased prices from April 1, others will be taking it during this quarter across categories. While consumer spends have got impacted due to inflationary pressures but with rising temperatures, we believe discretionary spends from other categories are likely to move to cooling products,“ Nandi said.

Avneet Singh Marwah, CEO, Super Plastronics Pvt Ltd (SPPL) also pointed out to concerns of short supplies due to pandemic-induced lockdowns in China. The company, which is the brand licensee of Thomson and Kodak, has raised prices by 7-10 per cent starting this month.

Delayed arrival of raw materials

“The pandemic-induced lockdown in China has further aggravated challenges of consumer durable firms in terms of components. The time of departure and arrival of raw material consignments from China has gone for a toss and lead times have extended. If the situation in China does not get normalised, the industry could start seeing shortages in the May-June period, “he added.

Gurmeet Singh, Chairman and Managing Director, Johnson Controls-Hitachi Air Conditioning India Ltd said that the company will increase prices by 3-4 per cent in April.

“The current global scenario due to the Russia-Ukraine conflict, component shortage, global supply chain disruptions, commodity price inflation, and the impact of rising fuel costs is definitely going to push up the costs of everything. However, there is a huge pent-up demand for ACs this year with the onset of early summer. The pent-up demand might also lead to a shortage of air conditioners this season putting manufacturers under extreme pressure to meet the herculean consumer demand for ACs and cooling products,” he added.

Published on April 02, 2022
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