China’s domestic refrigeration market is a big customer of the polyurethane industry. Jane Ho, takes a snapshot of the market
China is an important manufacturing base for refrigerators, but is facing challenges.
According to the country’s National Bureau of Statistics, China produced 106m household refrigerators, including freezers, in 2014, down by 7% compared to 2013. The country’s production of refrigerators slowed down in 2012; picked up in 2013, and dropped again in 2014.
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The recovery of the economy in the US and other developed countries is expected to provide a powerful impetus to China’s export drive, and almost all of the major players in China are tapping the e-commerce channel to maintain their footholds in the domestic market.
Qingdao Haier continues to lead the market in 2014 with an RMB24.7bn refrigerator revenue. Its refrigerator business is ranked the first in China’s domestic market in retail volume with a 23.6% share, and also has the largest share in the global market.
Companies in the same group include Hisense Kelon Electrical Holdings with an RMB9.8bn revenue for refrigerators in 2014, Midea Group with an Rmb9.7bn refrigerator revenue, Hefei Meiling with an RMB6bn refrigerator revenue, and Guangdong Homa Appliances with an RMB4.5bn refrigerator revenue.
Controling the market
According to Wang Liming, head of the consumer goods industry division of China’s Ministry of Industry and Information Technology, more than 55% of China’s refrigerators are made by the five largest manufacturers.
Hefei Rongshida Sanyo Electric renamed Whirlpool (China) after Whirlpool's acquisition in 2014, was the fastest-growing listed refrigerator makers last year. The company had a 32% rise in refrigerator revenue to RMB1bn. This compares to a spectacular 222% increase in 2013, albeit from a low base.
Midea Group, the fourth largest refrigerator producer in sales value in the domestic market, grew by 19.6% in 2014. Guangdong Homa's refrigerator revenue grew 4.8%. Most of the other listed first-tier manufacturers showed a revenue drop of up to 10% in 2014, compared to a two-digit growth rate in 2013.
Keep building capacity
Although few companies have production volumes that matches their total capacity; firms continued to invest in new capacity in 2014.
Skyworth Group opened a white goods park including 3.5m unit/year refrigerator capacity in Nanjing, Jiangsu; TCL opened new facilities with 1.7m unit/year refrigerator capacity in Hefei, Anhui; Sonlu Shangling completed its 3m unit/year project in Suqian, Jiangsu.
Several smaller competitors including Shanghai Sonlu Shangling, Dushi Group and freezer maker Jiangsu Baixue have been busy with expansion plans, too. White goods maker Nanjing Skyworth Electrical Technology, a newly-established subsidiary of conglomerate Skyworth Group, also completed construction of its expansion project in April 2014 with an additional 3m unit/year refrigerator capacity.
Wang Liming with the Ministry of Industry and Information Technology also points out that the country’s refrigerator manufacturing operations are in the process of relocation to central and western China as well as overseas.
Fridge or dumb-bell?
China’s current fridge market has been described as dumbbell-shaped, with small-capacity fridges targeting the rural market and large-capacity, multi-door fridges at each ends.
The country has adopted several measures to stimulate its home appliance market. These have included a policy that granted subsidies up to RMB400/unit to consumers and manufacturers for energy-saving appliances. This was launched in June 2012 and ended a year later. Another policy however, while in operation it provided a discount up to 13% for each purchase by a rural residents.
“Those encouraging policies have caused the refrigerator market to overheat in the previous years, especially in rural areas,” said Hu Xiaohong, director of the information consultation department at China Household Electrical Appliances Association. “During the coming years upgrading consumption will be the market’s major driving force.”
With a 10 to 12-year refrigerator life expectancy, China’s fridge market is likely to see a peak in sales of in the next ten years as old fridges start to wear out.
However, in the next two to three years there might be only 3% to 4% growth in the refrigerator sector, according to the editorial department of Polyurethane Industry, a journal affiliated to China Polyurethane Industry Association.* “China’s refrigerator market is already saturated, although the next few years might see sharp growth for reefers,” said a source at the association.
Although the whole refrigerator market might be overheated, some manufacturers have confidence in different market segments. According to Zhang Hui, general manager of appliance sales at Dushi Group, in the next few years high-end large-capacity fridges will come to take up a 30% to 40% market share. In 2014 Haier had a 15% rise in the sales volume of its high-end refrigerator line Casarte.
Newcomers are also adopting special strategies to secure their foothold. Hefei Snowky Electric, a fridgemaker that started production in 2012 with a 300,000 unit/year capacity, specializes in large-sized refrigerators with a capacity above 500l (17.7 cu ft). It has been an original equipment manufacturer of British brand Damiele. Hefei Snowky said it has no plans to launch its own label.
It is forecasted by China’s Ministry of Housing and Urban-Rural Development that, by the end of 2015, a total of 52% of China’s population will be living in cities. The growing middle class with increasing environmental concerns will likely create a larger demand for energy-saving refrigerators.
Another trend is the rise of smart home appliances. Several first-tier companies such as Haier and Midea have launched smart fridges with functions including auto temperature monitoring and remote control. The increasing popularity of smart appliances might accelerate the upgrading of fridges, but doubts have been cast by consumers on how pragmatic such functions could be for white goods.
Customised fridges are also an emerging trend in the Chinse market. Some major players including Haier and Aucma, have launched fridge customisation services in terms of size, number of doors or even the door’s opening direction to make the best fit in any household.
For upstream polyurethane foam suppliers, the landscape hasn’t changed much. According to China Polyurethane Industry Association (CPUIA), the sector of polyurethane systems for refrigerators in the country has been dominated by large domestic suppliers including Wanhua, Nanjing Hongbaoli, Hengfeng Polyurethane Industry, Shandong Inov Polyurethane and Shanghai Dongda Polyurethane as well as international giants such as BASF and Dow.
Barriers to entry
“It’s very difficult for smaller companies to enter this sector due to safety approval and other reasons,” said the unnamed source at the association. “If those large suppliers can meet the requirements of changing standards, the landscape is unlikely to shift.”
Several standards have been changing towards a more environmentally-friendly path. This includes tightening regulation on CFC blowing agents. “Greener products will become increasingly popular in the next few years,” Wang Liming with the Ministry of Industry and Information Technology confirmed.