Copper and other raw materials go high, go low, or pull costs down

SMM network: Copper, which accounts for a large share of air-conditioner manufacturing costs, showed a tendency to open higher at the beginning of the year. Coupled with the large fluctuations in exchange rates, this adds uncertainty to the cost control of manufacturing companies.

China's household electrical appliance manufacturing industry, which is already in a low-margin situation, is absolutely critical in terms of how to control costs and improve profitability in the face of reduced state subsidies, and both domestic demand and external demand. Unlike Japanese household electrical appliance companies that have obtained high profits through core technologies and key components, home appliance companies in China have used a low-cost advantage for many years to snatch a large number of orders. Today, this advantage is gradually weakened and corporate profitability is limited.

It is not hard to find from the recent major company’s announced 2011 operating performance forecast that many household electrical appliance companies including Meiling Electrical Appliances, ST Kelon, and Wanjiale have noticed a declining performance in 2011, of which Meiling Electric’s net profit dropped by as much as 66% year-on-year. Continuing inflation, appreciation of the renminbi, rising prices of raw materials, labor costs, transport costs and other factors of production factors leading to product costs, cost increases and other factors is one of the important reasons for the decline.

Undoubtedly, in 2012, when the overall market demand is small and the outlook is uncertain, the cost is an item that the major companies pay special attention to and strictly control.

Looking at the trend of international bulk commodities and domestic copper prices, the downward trend of raw material prices in 2012 has increased, which is good news for companies.