AC, fridge sales drop on rising metal prices

Prices of air conditioners and refrigerators are expected to shoot up even as summer temperatures soar in major cities.

Rising costs of copper and steel are impacting the consumer durable industry. Copper prices have increased from $5,000 to $7,500 a tonne, while steel prices have increased by Rs 2,500 per tonne in a matter of three months.

Ajay Bajaj, business group head, air conditioners, LG Electronics, says the impact of rising input costs of copper and steel will adversely impact their business.

"As copper and steel prices have surged by seven to eight per cent, we are forced to pass on the increase to the consumer for the second time this year. A price hike is imminent." The first price hike happened in January this year when LG hiked prices by five per cent.

This time around, LG is planning to increase their prices by 10 per cent for both window and split airconditioners.

For refrigerators too, the firm will hike their prices by 3 per cent for frost free and 1.5 per cent for direct cool refrigerators in the coming weeks.

Steel and copper comprise approximately 50 per cent of the raw material costs for airconditioners and refrigerators.With relatively slim margins in the industry, consumer durable companies across the board are going to pass on rising input costs to end consumers.

The price hikes come during the peak summer season. January to May contributes 70 per cent sales turnover of cooling products.

Normally, prices are increased once a year and then stabilise over the peak summer months. But this year, rising imput costs have put consumer durable manufacturers in a hot spot.

Gearing up for the mandatory energy labelling standards, effective in July is also expected to add to the pressure of keeping costs in control. For their refrigerators division, LG recently incorporated new motors and more efficient compressors, which also reflected in a 1.5 to 2 per cent price increase.

Although consumers will feel the pinch of the spiralling costs, the manufacturers believe that demand will be robust and increased costs will not dampen business projections. Says Bajaj, "Today, the consumer views consumer durables as a necessity and not a luxury. Prices will stabilise across the board as the entire industry will have to incorporate the added input costs."

Air-conditioners and refrigerators are viewed as promising flagship divisions of most consumer durable players and continue to be flagged as the growth drivers. The air conditioning and refrigeration categories have grown to become Rs 3,200 crore industry each and are projected to grow at 25 per cent and 10 per cent respectively.