Durable makers test alloy to replace steel

Sharp rise in prices of steel and copper forces LG, Godrej to search for an effective alternative.

Sometime next year, South Korea-based consumer durables maker LG Electronics hopes to have a new alloy that will be able to substitute steel.

PRICE CONTROL

Steel, which comprises about 35 per cent of the raw material that goes into the making of ACs, refrigerators and washing machines, has become 11 per cent costlier in the past 12 months.

It's customary for manufacturers to pass on the increased costs to consumers. The option is to cut costs, which is why some of them are working on an alternative to steel

They are working on composites based on strength, malleability, sturdiness and such parameters

The company's research and development wing is testing the feasibility of metals and composites. "We should come out with a solution by 2009," a senior executive of LG's India operations said.

Like LG, Godrej Appliances too is looking at alternatives. "Our R&D division is looking at a number of composites to replace steel. The composite will be finalised on the basis of strength, malleability, sturdiness and other such parameters," says Kamal Nandi, vice-president, sales and marketing, appliance division, Godrej & Boyce.

If LG or Godrej succeeds, the invention will be a breakthrough, the result of a sharp rise in steel prices.

Steel, which comprises about 35 per cent of the raw material that goes into the making of air conditioners, refrigerators and washing machines, has become 11 per cent costlier in the past 12 months.

To add to the woes of consumer durables makers, copper too has become more expensive. Copper, a major component in compressors for air conditioners and refrigerators (that accounts for over 10 per cent of the input materials), has become nearly 25 per cent costlier from January last year.

Margin pressure
The presence of a large number of companies and intense competition has already grated the margins on consumer durables, which has compelled manufacturers to pass on some of the rise in costs.

According to industry experts, price hikes for inputs are absorbed by manufacturers initially. But ultimately, some of the cost has to be passed on to the customer.

The margins may not be a worry for manufacturers till stocks purchased earlier at lower prices last. However, they will have no alternative but to increase prices in the long run. Which is why some durables manufacturers are exploring ways to cut costs.

Stiff competition
LG Electronics India has announced plans to increase prices by 2-4 per cent this year. While increasing prices may seem to be the easiest way to save thinning bottom lines, for most durables manufacturers, the option is not feasible on account of stiff competition. Samsung, Videocon and Godrej have refrained from hiking prices.

"The margins are bleeding, but we won't increase prices since the demand is high, supply is higher and competition is stiff," says Sunil Mehta, director (sales and marketing), Videocon.

What consumer durables manufacturers are trying now is already happening in the auto industry. Auto majors are increasingly utilising aluminium, plastic and fibre glass in place of steel for certain auto parts. Steel, which once made up nearly 90 per cent of raw material for cars, now comprises about 60 per cent.