Slow growth is tending to keep material's availability up and prices down, but there are significant exceptions.
It should be an ideal commodities scenario for some appliance companies. While economies around the world have been sputtering, in the U.S. and some other countries consumers have been avidly scooping up major appliances, air-conditioners, digital cameras, and other consumer goods. Because of lackluster world economies, you would think that the materials used in these "hot" appliances should be readily available and relatively low priced. In fact, that isn't necessarily so.
While looking at the bigger picture is helpful, the reader has to remember that the raw materials appearing in appliances often pass through one or more intermediaries. These may turn copper into pipes, steel into coated coils, various feed stocks into plastic resin for refrigerator liners, or raw glass into pyrolytic oven door glass. Other companies are primarily involved in distribution. To give a better picture of how appliance companies are being affected, this report includes input from companies that directly supply the appliance industry.
The outlook for refrigerants remains a mixed bag, observes Mark C. Wolff, OEM segment manager for DuPont Fluoroproducts (Wilmington, DE, U.S.). "Newer HFC products still are on an introductory curve, and HCFC-22 is in decline. With respect to HCFC-22, declining global demand has outstripped the announced capacity rationalizations. As a consequence, prices continue to be compressed. This is particularly true outside the U.S. and has resulted in increased imports to the U.S. The U.S. EPA HCFC Allocation Rule is nearing publication, which may limit these imports.
"The most established HFC product is HFC-134a," he adds. "Demand has kept pace with supply, and global utilization will remain high. New capacity will continue to be needed as demand continues to grow.
"The newest HFCs - HFC-32 and HFC-125 - are major components of R-404A, R-410A, and R-407C. Additional capacity has been added somewhat faster than the transition, so market tightness a few years ago has been relieved. However, HFC-125 growth remains on a steep curve and market conditions bear watching."
Bayer Corporation officials (Pittsburgh, PA, U.S.) estimate household refrigerator products grew approximately 3.5 percent in 2002, and freezer production was up 14 percent. "In light of the weak economy in 2002, this was good growth for virtually any industry," comments Mark Cekoric, business director for Appliances in the Polyurethanes Division. "We believe that the continuing strength of single-family housing starts and existing home sales contributed to this growth. And the consumer trend to replace their household refrigerators with larger appliances certainly bolstered this performance.
"However, the outlook for 2003 is uncertain," he notes. "The pace of the U.S. economic recovery remains slow, and there are growing concerns that the market for new and existing homes will slow. This could have a significant impact on the appliance market.
"Currently, the supply of the major polyurethane raw materials used to formulate rigid polyurethane foam appliance insulation - diphenylmethane diisocyanate (MDI) and polyols - is in balance with market demand. This should continue through 2003.
"However, other factors could influence the cost of these materials," he adds. "The price of key raw materials used in the production of MDI and polyols remain high and could rise again in 2003. Additionally, we are concerned that natural gas prices could rise again this winter. Despite initiatives at Bayer to reduce the risk and impact of raw material and energy price increases, higher prices can dramatically raise our manufacturing costs."
David Fischer, global vice president of Dow Polyurethanes (Midland, MI, U.S.), sees 2003 as a year of slow recovery for polyurethanes. "In 2001, the downturn in the economy seriously impacted demand for many polyurethanes raw materials and caused prices to fall for MDI, TDI, and polyols. Subsequently, margins in the polyurethanes business have fallen to roughly 10-year lows. We have been unable to raise prices to the level required to restore margins.
"2002 is showing some signs of recovery, and as we move into 2003, we anticipate higher operating rates and improved pricing," he predicts. "In October, we increased the price of a number of our products. But these have not yet returned to a profitable position from the lows we experienced in 2001. The recovery in pricing and market volumes for the North American polyurethanes business has been slow, making these increases necessary."
For glass fiber insulation, John Wilson, national sales manager at Johns-Manville (Denver, CO, U.S.) notes that in 2002 the commercial construction business was very soft, while residential showed moderate growth, with the result that his company had excess capacity going into 2003. "We hope to see an upward incline in commercial construction in 2003. In HVAC, which is the bulk of our appliance business, we are hearing from our major OEMs that they anticipate flat to a slight increase in commercial shipments. Depending on the markets, we hope to capture a small but necessary price increase in 2003."
Read the complete 2003 Materials Forecasts:
Plastics: Monomer Impact
Refrigeration Systems: Keeping Cool