Fisher & Paykel Cuts Costs as Prices Rise
May 18, 2004
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New Zealand appliance maker Fisher & Paykel Appliances Holdings Ltd. is cutting costs "everywhere," according to Chief Executive John Bongard, as low-cost imports from China and South Korea are putting more pressure on the appliance company as prices for materials such as steel and nickel continue to soar.

"It's not just a matter of costs going up and raising prices because you have got a lot of low-cost importers," Mr. Bongard said. "There would be nothing more that we would like to do than to look to try and recover some of that cost, but at the moment to us it doesn't seem possible."

Fisher & Paykel competes with Qingdao Haier Co., China's biggest appliance maker, and South Korea's LG Group in its main markets of Australia and New Zealand, which account for three-quarters of sales. About half of the stainless steel used by Fisher & Paykel is nickel-based "300 grade." Nickel futures in London last traded at U.S. $10,850 a metric ton last Friday, up 33 percent from $8,140 a year ago.

Mr. Bongard declined to give details of cost cuts, saying they would be made "everywhere." The company is also seeking to reduce its reliance on Australia and New Zealand; last month it agreed to supply Lowe's Cos., the second-largest U.S. home improvement store chain.

Not only is Fisher & Paykel facing increased competition from China, soaring demand from Chinese companies is pushing up the price of nickel and other metals. China's economic growth of 9.1 percent in 2003 fueled demand for stainless steel, causing prices to more than double.

China's government is clamping down on lending to industries, including steel, cement, autos, and real estate to slow economic growth to more sustainable rates. Still, global steel demand will rise 7 percent this year, while tighter raw material supplies may prevent steelmakers from meeting demand, the International Iron and Steel Institute has said.

Next year, China will require about 30 percent of the 960 million tons of steel globally, according to the institute's estimates.

Fisher & Paykel's purchasing team is in Asia talking to suppliers about new steel contracts, Mr. Bongard said. The appliance company, which sources steel from Japan and Korea, favors 3- to-6-month contracts and doesn't trade in the spot market or buy futures, he said.

Mr. Bongard declined to say if the company was able to make enough savings in other parts of the business to counter the increased costs.

"It's a constant grind," Mr. Bongard said. "We are looking everywhere we can all the time" for efficiency gains, he said. (Bloomberg)

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