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Coronavirus Crisis: Respite For Appliance Makers As China Production Partially Revives

In January 2020, the situation looked bleak for consumer durables firms after the Coronavirus (COVID-19) outbreak first reported in China led to widespread factory shutdowns. Almost 50 days later, there are some signs of revival with production resuming in parts of China.

For Indian appliance makers, China is a key source of components like air compressors for air conditioners and air coolers, as well as LED panels for televisions.

Rakesh Khanna, Managing Director of Orient Electric told Moneycontrol, for almost any appliance either the raw material or component was brought from China.

“Now we are hearing that Guangzhou and Shenzhen factories have partially resumed. So this is good news,” he said.

There were fears of a price increase in appliances due to a production shutdown in China. With the situation normalising, it is likely that the inventory level for white goods makers will start getting replenished.

Kamal Nandi, Business Head and Executive Vice President, Godrej Appliances and CEAMA President said, “We are getting reports that plants are operating at 50-60 percent capacity. It was not operating earlier but production has begun now.”

China, the epicentre of the outbreak, is a major exporter accounting for almost 23 percent of global electronic goods. Among products, mobile phone supplies saw the steepest impact as manufacturers were left with stock for only a few months.

For ACs and refrigerators, the air compressor that is a critical component in cooling is also imported from China. Since a major part of AC and refrigerator sales occur between February and April, shortage of products or its key components directly impacts revenue.

Industry sources said complete production revival in China could take at least 40-50 more days.

Unfortunately, the disruption in the supply chain had come just ahead of the onset of summer when Indian consumers begin to buy appliances such as refrigerators and ACs.

Importing a finished product turns out to be costlier since there is a 20 percent import duty on completely built units. With imports also ruled out, a price increase on the available stock is the only option at the moment.

Make in India initiatives for key components like compressors has not yet taken off. Hence, the production of a finished good in India is dependent on the import of parts from China.―Money Control

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