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The pandemic-led shortages of components—from semiconductors to compressors—were supposed to be resolved by now. Instead, the makers of consumer electronics and appliances are fearing fresh bouts of supply chain chaos in the New Year as China reports a surge in Covid-19 cases.
Companies told BQ Prime that they are stretching their minimum stock level of imported raw materials to hedge against delays in shipments as they closely monitor the Covid situation in the world’s largest electronics hub. They are also advancing the dates of shipments of key components ahead of the Chinese New Year, which falls in the third week of January, when workers are on long holidays and many factories remain shut.
“Currently the situation in China is unpredictable and is creating a panic within the industry,” said Avneet Singh Marwah, chief executive officer at Super Plastronics Pvt. “The lead time is increasing every day, and if things in China don’t improve in the next 15 days, then shipping time can extend up to 90-100 days from the 60-day delay that we are now experiencing.”
Super Plastronics, the exclusive licensee of brands like Thomson, Blaupunkt, Westinghouse, and Kodak in India, has increased its minimum stock level twice and continued purchasing even in the post-festive lull period to remain “well-covered” for the upcoming quarter, said Marwah.
Arjun Bajaj, director of Videotex International Pvt. concurred.
“Shipments are taking longer than expected to arrive, necessitating an increase in capital investment,” he said.
Videotex manufactures televisions for companies like Realme, Hisense, Toshiba, and Lloyd, among others in India.
Haier Appliances’ President, Satish NS, also said the company is preponing some shipments after sensing some disruptions in the supply chain.
Neeraj Bahl, managing director and chief executive officer at BSH Home Appliances (India and SAARC), however, said: “I don’t see a big gap in supplies for at least the next six months as of now. We’re fairly prepared to meet the January-to-June demand.” Though he cautioned that “there is a sense of unpredictability that continues to loom in some shape and form, so we’ll have to play it by ear depending on how things pan out.”
Most companies have adequate stock to last until the March quarter.
But if there is not much improvement in the global Covid situation beyond February, then the appliances industry may see an impact on air-conditioning production by the June quarter, Kamal Nandi, business head and executive vice-president at Godrej Appliances told BQ Prime.
Firms that make air conditioners and refrigerators typically begin stocking up on components from December onwards, ahead of the Chinese New Year holiday period, to prepare for the summer season that starts in April. This time, companies are stocking up more, having learned from the supply chain chaos that rocked trade in the last two years. But even as they get used to the short supplies, what is worrying them is the jump in prices.
Marwah is concerned that the panic situation will lead to an increase in raw material purchases and an “artificial” price increase for goods.
“This could result in sales crashing at a time when consumers’ sentiments haven’t fully recovered from their lows,” he said, adding that he expects China to issue notices about possible closures well in advance if the number of cases goes up so as to avoid such disruptions.
“Our channel checks and conversations with various consumer durable companies suggest a sharp drop in discretionary demand in the past few weeks,” according to a Dec. 23 note by Kotak Institutional Equities.
The slowdown in consumption, it said, is due to a combination of factors—a possible slowdown in new hiring in the organised sector, withering of pent-up demand especially after the festive season, elevated inflation sapping household savings, and an increase in EMIs due to a jump in interest rates.
“We also note ‘tail risks’ from the sharp increase in global Covid-19 cases in recent weeks… And given the underlying economic challenges, we do not expect a rapid turnaround in demand (ex-staples),” the brokerage said.
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Image and article originally from www.bqprime.com. Read the original article here.