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.
Industry suppliers are reporting that demand for raw glass has been strong. "Things started to tighten in the summer, and intensified in the fall," says Mark Delp, executive vice president at Gemtron (Sweetwater, TN, U.S.). "Much of the tightness is due to strong auto production, continued residential construction, and temporary shutdowns on some raw glass float tanks, which are being rebuilt.
"As a result, there have been glass price increases in June and October from the seven industry suppliers," he continues. "Glass fabricators are getting double-digit price increases. On top of that, glass suppliers are again applying surcharges, tied to a natural gas index. It is calculated several ways, but currently works out to about 2 percent. A third factor is that suppliers have tightened their payment terms.
"I expect our business to the appliance industry to stay positive and to grow," he adds. "Appliances continue to recover from a 2001 recession, and we should see 2-3 percent growth in 2003. On top of that, we are seeing more glass in appliances, notably refrigerators and ranges. This is due to the production of more upscale products, which tend to use more glass.
"I see housing staying above 1.6 million starts, similar to 2002. Automotive is a question mark, since it is unknown whether car makers can continue to keep selling at such a high level while giving cash rebates and zero percent interest rates to create demand."
"Glass supply has gotten progressively tighter throughout 2002," affirms President Fred Fowler, Marsco Manufacturing in Chicago, IL, U.S., whose products include glass for oven doors. "Overall glass demand, largely driven by auto and residential construction, usually grows several percent a year, and there have been no new float tanks in recent years.
"Pricing on the raw glass we receive has been increased midyear and in the fourth quarter, and energy surcharges, now at about $200 a truck load, have been added, after being off for about a year. All bets are off in January, with winter temperatures and Iraq among the unknowns.
"For appliances, we are looking at 2003 being flat or up or down just a few percentage points. Recent appliance growth has been driven by housing starts, but we've noticed some softening toward the end of 2002."
Rick McCurdy, business segment leader for specialty glass products at Pilkington (Toledo, OH, U.S.), predicts a tight supply in 2003. "This is due to a number of furnaces going down for repair late in 2002 and into 2003, on top of an already tight supply and two clear float glass price increases in 2002. Fortunately, though, this should be a short term effect."
"Earlier in 2002, our appliance producing customers were looking at a solid year for 2003," reports Chuck McClinch, director of Sales and Marketing at Schott HomeTech North America (Yonkers, NY, U.S.). "However, the future has become increasingly cloudy due to a number of factors. The possibilities of war and terrorism and rising energy costs may negatively impact 2003 results. Housing, low mortgage rates and consumer spending are still positive factors, but not as encouraging as they were.
Read the complete 2003 Materials Forecasts:
Plastics: Monomer Impact
Refrigeration Systems: Keeping Cool