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Trends looking strong to OEMs for 2014 and beyond

Jul 31, 2014 | 08:00 PM | AMM staff

Tags  economy, consumer demand, appliances, Jeffrey R. Immelt, General Electric, Association of Home Appliance Manufacturers, stainless steel, steel aluminum

An improving housing market, a gently humming economic recovery and natural life-cycle rates for durable goods have all contributed to a solid year so far for appliance manufacturers.

“With the U.S. real estate market in recovery, we are expecting to see an increase in consumer demand for upscale appliances for new homes and remodeled kitchens,” said Seong-jin Jo, president and chief executive officer of Seoul, South Korea-based LG Electronics Inc.’s Home Appliance Co. division.

Although disposable income has been stagnant during the recovery, sales continue to tick slowly upward and original equipment manufacturers (OEM) of home appliances remain optimistic about a robust market in the near term. U.S. home appliance sales are recovering along with consumer confidence and the housing market, according to appliance manufacturers.

“The U.S. gets a little bit better every day. Europe is improving,” said Jeffrey R. Immelt, chairman and chief executive officer of Fairfield, Conn.-based General Electric Co. “The growth markets continue to expand and will provide growth during the year, even with volatility. Weather impacted our appliances business, but improved in March.”

Domestic shipments of the most popular home appliances, including washing machines, dryers, dishwashers, refrigerators, freezers, ranges and ovens, jumped more than 10 percent in May from the previous month and were 8.9 percent higher than a year earlier, according to data compiled by the Washington-based Association of Home Appliance Manufacturers (AHAM). Year-to-date shipments have risen 7.2 percent from 2013, the statistics show.

Appliances comprise an important part of end-user markets for steel, stainless steel, aluminum and other metals. Solid demand in sectors such as automotive and appliances could give the current market long legs, one Midwest mill source said. “The supply-side (shortages) are a part of it, but demand has also improved.”

Another more generic market factor that has helped boost overall manufacturing is cheap domestic energy, especially the recent boom in natural gas. This is such an important factor, some said, that its continuation could be critical to the health of many manufacturing segments, including appliances.

Calgary, Alberta-based TransCanada Corp.’s proposed Keystone XL pipeline is one such example, according to Michael Rippey, president and chief executive officer of Chicago-based ArcelorMittal USA LLC, who is pressing the Obama administration to approve the project. “The studies have been done. It’s very clear that the pipeline can be completed in an environmentally safe and thoughtful way,” he said, and projects like the Keystone XL will help lower energy prices and consumers’ utility bills. “And if you can put money in the consumers’ pockets ... they’ll get out and buy that car and buy that appliance and motivate our economic recovery.”

All of that has an effect on steelmakers, among others. For example, high-quality iron units from Nucor Corp.’s direct-reduced iron (DRI) plant in St. James Parish, La., has helped the company boost its role in high-end markets--including energy, appliances and tank cars--thanks in part to the facility’s reliability based on affordable energy, said chairman, president and chief executive officer John J. Ferriola. The DRI operation makes Charlotte, N.C.-based Nucor “less susceptible to forces out of our control, like weather, that can disrupt the supply chain and negatively impact our ability to produce the products our customers need on time.”

But underneath it all, retail demand is still the important driving factor. U.S. electronics and appliance store sales hit $8.82 billion in May, down 0.3 percent from $8.85 billion in April but up 1.3 percent from $8.71 billion a year earlier, according to U.S. Census Bureau data.

Appliance makers and stores described mostly improving commerce in May, early June and the year thus far, said Jill Notini, AHAM vice president of communication and marketing. A long and unseasonably difficult winter hurt sales early in 2014, but those effects had mostly disappeared by May.

“Although our volumes in North America in January and February were impacted by the unusually severe weather conditions, we remain confident that the market will continue to recover,” said Keith McLoughlin, president and chief executive officer of Stockholm-based Electrolux AB. “We also noted a strong volume rebound during March. Market demand for appliances in the U.S. is expected to grow by 4 percent in 2014.”

Many OEM executives said they believe that U.S. and even global consumers are feeling more confident about purchasing big-ticket items as home values recover, the stock market continues to improve and housing demand remains on the rise.

“Electrolux continued to achieve strong organic sales growth, totaling 4.5 percent for the (first) quarter,” McLoughlin said. “Following a long period of market decline, European demand for appliances improved during the first quarter of 2014. The results for our European operations recovered during the quarter, driven by an improved product mix and lower costs. Our operations in North America were negatively affected by the harsh weather conditions in early 2014. However, the underlying performance remains solid, with a very strong recovery in March.”

Such numbers are expected to be good for some time, according to a report from Albany, N.Y.-based Transparency Market Research. The global household cooking appliances market, which was valued at $56.6 billion in 2012, is forecast to expand more than 40 percent to $79.8 billion by 2018, the report said.

“For North America, specifically the U.S., despite a challenging first part of the quarter we remain confident in our industry demand assumption of 5- to 7-percent demand growth for the year, as we expect growth in U.S. housing for the full year, increased demand related to the replacement cycle of appliances and significant improvement in discretionary demand that we’re currently seeing improving,” said Jeff M. Fettig, chairman and chief executive officer of Benton Harbor, Mich.-based Whirlpool Corp.

The household appliances market is currently dominated by such renowned white goods industry leaders as Electrolux; GE; LG Electronics; Whirlpool; Dongbu Daewoo Electronics Corp., Seoul, South Korea; Fisher & Paykel Appliances Holdings Ltd., East Tamaki, New Zealand; Haier Group Corp., Qingdao, China; Koninklijke Philips NV, Amsterdam; Panasonic Corp., Kadoma, Japan; and Robert Bosch GmbH, Stuttgart, Germany. There are also many niche players operating in regional markets and presenting stiff competition to global leaders through low-priced quality products, custom-made to regional cooking styles.

Marc Bitzer, president of Whirlpool North America and Whirlpool Europe, Middle East and Africa, said his company’s forecast is growing rosier.

“While extreme weather created a temporary softness in U.S. appliance demand in January and February this year, we’ve already seen a significant increase in March ... and we continued to see positive trends in April,” Bitzer said during a conference call to discuss the company’s first-quarter financial results. “Additionally, we remain optimistic about both new construction and existing home sales, and we see increased demand from normal replacement purchases as well as discretionary purchases driven by improving consumer confidence. So we remain confident in our 2014 industry guidance of up 5 to 7 percent for the year, and in addition we expect positive net cost productivity for our business.”

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