Home Appliance Packaging Hits a Cyclical Turning Point: Suppliers Warned to Guard Against Pitfalls as RMB 100 Billion Market Braces for a Tougher Second Half

The first half of the year left the home appliance sector split down the middle: demand at home ran cold while export orders ran hot. With domestic competition capped and volumes limited, the industry has slipped into an "involution" phase, and exports — however busy — have yet to deliver real profit. For the RMB 100 billion home appliance packaging market, the second half is expected to bring heavier pressure, and packaging suppliers would be wise to shore up their defenses now.

AVC's monitoring data tells the story. Squeezed by rising raw material prices and soft domestic demand,

China's home appliance retail market managed only 12.3% sales growth in the first half of 2021, a 10.3% decline against the same period of 2019. From the second quarter onward, the market slid further into the doldrums.

Color TVs: cumulative sales of 17.81 million units in H1 2021, down 14.7% year on year, against sales value of RMB 59.4 billion, up 15.1%, and an average price of RMB 3,332, up 34.9%.

Air conditioners: retail volume of 27.216 million units from January to June 2021, down 5.7% year on year, with retail value of RMB 85.79 billion, up 3.3%.

Refrigerators told a two-speed story: first-quarter all-channel retail volume reached 6.74 million units, up 43.9% year on year, generating RMB 20.9 billion, up 60.8%; by the second quarter, volume fell to 9.21 million units, down 11.3%, with value of RMB 26.3 billion, a modest 0.4% gain.

Kitchen appliances showed a sharp split between the two quarters. Range hoods: Q1 retail value of RMB 5.8 billion, up 89%; Q2 value of RMB 9.9 billion, up 2%; H1 total market of RMB 15.7 billion, up 23%. Gas stoves: Q1 value of RMB 3.5 billion, up 60%; Q2 value of RMB 5.3 billion, down 3%; H1 total of RMB 8.8 billion, up 15%.

Small appliances — rice cookers, induction cookers, electric pressure cookers, soy milk makers and the like — recorded H1 2021 retail value of RMB 25.08 billion, down 8.6%, and retail volume of 119.11 million units, down 8.2%.

AVC's forecast: the domestic retail market will follow a "high start, weak finish" trajectory in 2021, with broad-based growth pressure in the second half.

Mounting raw material prices and thin order books have taken a toll on the two home appliance giants. Share prices for both Midea and Gree have kept shrinking, and their cash positions are tightening.

Gree launched RMB 22 billion in share buybacks over two years, yet its stock has continued to slide. Year to date in 2021, Gree Electric shares have lost 22.88%, falling from RMB 62.9 apiece at the close of the first trading day to RMB 48.51. The trend line shows a steady descent broken only by brief rebounds. With the company's market value sharply diminished, RMB 20.831 billion in loans from seven banks — among them China Merchants Bank and Bank of China — may now sit in an awkward position.

Midea Group hit a record high of RMB 106.4 in February before entering a downward channel that has wiped RMB 300 billion off its market value. On August 3, the company disclosed buyback progress: as of July 31, 2021, it had repurchased 51,097,951 shares through its dedicated securities account, spending RMB 3.538 billion in total.

On the export side,

home appliance exports reached 1.85 billion units in the first half, with total export value exceeding RMB 3 trillion, up 35.8% year on year.

But three factors — higher raw material prices, surging international shipping costs and sharp currency swings — meant revenue growth did not translate into profit. Half a year of hard work produced little more than thin air.

On July 15, Li Chengwu, deputy general manager of Guangdong Elite Electrical Appliances Co., Ltd., told our reporter in an exclusive interview that 2021 has been a year of simply enduring. Elite's export business grew more than 30% year on year in H1, and full-year sales are expected to rise by around 20%.

"Breaking even is already our highest target this year — we just need to get through it. It's not about how much we earn right now; it's about not starving and holding on to these businesses and customers," Li said.

The export surge, however, rests on European and American markets pulling forward future consumption. As US dollar reverse repos continue to scale up in the second half, the order boom looks increasingly hard to sustain.

That leaves a real possibility that both export and domestic demand orders decline in the second half.

The knock-on effect for packaging is easy to anticipate: tighter cash and softening orders across the appliance industry will flow downstream, and home appliance packaging suppliers — already working with long payment terms — will feel it most.

— Reprinted from China Packaging Network (pack.cn); original link: http://news.pack.cn/show-377956.html