Summer is yet to arrive and the weather is still cool, but air conditioner prices are already a hot topic of discussion.

Analysts say the air conditioner market, which experienced a downturn last year, won't change much. While consumers could be easily swayed by news of price cuts by foreign air conditioner firms, a closer examination reveals that projections of retailers and manufacturers vary considerably.

Suning Appliance Co Ltd, the country's second-largest electrical appliance chain, last month announced that foreign brands cut air conditioner prices by 20 to 40 percent. A week later, the buzz was that domestic brands were following suit.

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Gome Electrical Appliances Group, Suning's rival and the largest home appliance retailer in China, also released its predictions. "The possibility of a downward price movement is small," said the retailer in its White Paper.

Last year, Gome predicted prices would go up while Suning had forecast a downward movement.

Adding to the confusion over prices, air conditioner makers themselves have joined the din. The manufacturers have said they are not cutting prices, the cost of raw material remains high and the profit margin narrow.

LG Electronics, for instance, said the price cut at some regional markets was the result of a promotion drive by retailers.

These conflicting statements from retailers and manufacturers reflect the battle to control prices in the competitive home appliance segment, analysts said.

"The discussion on air conditioner prices is always hot in March and April. Retailers want to grab the attention of consumers with such discussions," said Xu Dongsheng, from China Household Electrical Appliances Association.

But despite all the talk, the air conditioner market won't change much in 2007, according to Xu.

Air conditioner sales declined in 2006 for the first time in 16 years. The sales volume decreased by 7.24 percent while sales revenue declined by 1.98 percent.

"The market has saturated after surging for decades," said Xu, "and the time for large-scale updating of air conditioners has not arrived yet."

Sales of air conditioners declined by 64 percent in first-tier cities in 2006, while the consumption potential of the third- and fourth-tier markets has not been fully realized, according to a White Paper released by the State Information Centre last year.

The air conditioner market is still controlled by domestic brands such as Haier and Gree, the largest air conditioner makers in the world by output. Japanese and South Korean brands, with higher price tags, mainly occupy the high-end segment.

Air conditioner prices slid 30 percent from 2000 to 2005 and went up by 10 percent in 2006 as copper prices rose. The current price for copper remains high at 50,000 per ton. Given that the demand will remain low in the following years, prices of air conditioners in 2007 are not likely to change much, Xu said.

(China Daily 04/18/2007 page15) 

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