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issue: January 2006 APPLIANCE Magazine

Materials Forecast
Today's Commodities Forecast: Stormy and Unsettled


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by David Simpson, Contributing Editor

In the short term there is little prospect for significant price and availability improvements, as strong global demand continues for energy and materials used in appliances.

For the last 2 years or more, short supply and higher, often volatile pricing for raw materials and energy have been hitting appliance producers like a hurricane.

For example, Whirlpool Corporation (Benton Harbor, Michigan, U.S.) reported U.S. $110 million in higher material and oil-related costs in the third quarter of 2005 versus the same period a year before.

The supply situation wasn't helped by last fall's unusually severe hurricane season in North America, disrupting natural gas and oil production and transportation, plastics processing, and even the shipping of liquid hydrogen used in steel annealing. While the immediate effect was felt most sharply in the U.S., what happens in one region today can quickly have a knock-on effect around the world.

Appliance companies are taking various urgent measures to address their costs. Not least important are price increases or even temporary surcharges to offset commodity costs. Many companies are emphasizing higher-end appliances, with their better profit margins. Engineers are designing costs out by, for instance, switching to alternate materials. Companies are improving productivity on the plant floor and elsewhere. Another approach that might eventually generate savings is to overhaul the supply chain by offering larger, long-term contracts to fewer suppliers.

Unfortunately, for the short term it looks like the stormy commodities situation will not significantly ease. Granted, suppliers continue to add steel and plastics production capacity, especially in China. But with the global economy staying relatively healthy, many commodities, as well as energy, will likely remain at a premium, at least for a while.

 

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