China exported 391 million small kitchen appliances worth US$4.2 billion in the 10 months to October 2005, a year-on-year increase of 30 percent in terms of value and 14 percent in volume. While export sales have been rising steadily since we last reviewed the industry in April 2004, growth rate in terms of volume has decreased dramatically — from 30 percent in 2003 to less than 15 percent in 2005.
The stable rise in export value despite the drop in volume growth is an indication of higher export prices that have resulted mainly from increasing raw material and other production costs. The growth trend also indicates a gradual increase in exports of midrange and high-end appliances.
Rising production costs will continue to push overall export prices up in the next 12 months. Appliances exported to the EU will be an additional 3 to 5 percent more expensive due to the WEEE and RoHS directives.
The following are some of the trends we see in China's small kitchen appliances export industry:
• Most large and many midsize makers have started the process of RoHS and WEEE compliance. Some have even released appliances that meet requirements of these directives. It is expected that most of these suppliers will be able to offer RoHS-compliant products by the first quarter of 2006.
• However, many small companies with limited financial capability may find it difficult to comply with the regulations. While some of these suppliers will focus on markets other than the EU, others might close down or shift to other product lines.
• Despite the WEEE and RoHS directives, the EU will continue to be the favored export destination for many China makers, mainly because buyers from the region are less price conscious, giving suppliers higher profit margins.
• The key R&D focus of most companies will be developing higher-end appliances or incorporating value added features in their products.
China's small kitchen appliances exports comprise mostly kettles, slice toasters, toaster ovens, rice & slow cookers, microwave ovens, and food processors, blenders & juicers. These are also the scope of this report.
The Products & Prices section of this report details the newest features and current price ranges of these appliances. The price guides in this section also provide comparative export prices for 2004 and 2006. The Manufacturing section explains the processes involved in appliance manufacture and how these differ in small and large companies.
This report profiles some of the leading small kitchen appliance makers in China, a number of which were also featured in our 2004 report. With annual sales of US$1.5 billion, Guangdong Galanzis the top maker of microwave ovens in China. The company's annual exports of small kitchen appliances have grown 20percent to US$657 million since we last profiled the company.
Another large supplier in this report is X.J. Group, a Hong Kong-invested company whose annual sales of small kitchen appliances have grown a whopping 600 percent from US$5 million in 2003 to US$35 million at present.
Industry Overview
Small kitchen appliances continues to be one of the fastest growing segments of China's appliances sector. However, the industry is headed toward difficult times and a potential shakeout as it prepares for the EU's WEEE and RoHS directives while coming to grips with soaring material costs and fierce competition.
Overseas shipments of small kitchen appliances amounted to US$4.2 billion in the 10 months to October 2005, a year-on-year increase of 30 percent. Export growth rate in terms of volume, however, was much lower at 14 percent with 391 million units exported in the 10-month period.
Since the EU absorbs a substantial portion (32 percent) of exports, one of the main issues for many makers is compliance with the WEEE and RoHS directives. While some EU member states have already implemented WEEE regulations on producer responsibility for take-back, recycling and provision of financial guarantees, the RoHS directive will come into effect in July 2006.
Most large and many midsize appliance makers in China have already started coordinating with their buyers and testing institutes to redesign products that meet WEEE guidelines. Many of these companies are also working with their suppliers to develop RoHS-compliant components.
A number of makers have also set up separate production lines for appliances that they sell to markets other than the EU since buyers there will be unwilling to pay higher prices for RoHS-compliant products. Some also plan to maintain separate material stocks for the EU and other markets.
However, most of the smaller makers are at a disadvantage because they have limited financial resources to invest in product and production processes redesign. Surprisingly, some are still unaware of the full implications of the regulations. A number of these companies will have no choice but to stop exporting to the EU once the directives are in place. Some of them might even exit the line altogether in 2006.
Apart from the EU directives, kitchen appliance makers in China also have to deal with increasing raw material costs, particularly steel and plastic. Although oversupply and a lower pace of consumption has resulted in a drop in steel prices since April 2005, it is still 30 percent more expensive than last year.
On the other hand, consistently higher crude oil prices have greatly affected the value of plastic. The situation is aggravated by the slight undersupply of the material, despite most plastic processing companies running at full capacity.
In addition, increasing freight and labor costs are adding pressure to the industry. The rise in transportation expenses is also driven by the surge in crude oil prices in the world market. In addition, due to the labor shortage in Guangdong, many companies have had to raise salaries and improve working conditions in order to retain staff.
Expenses incurred in RoHS and WEEE compliance coupled with escalating production costs will force many suppliers to raise export prices in the next 12 months. However, stiff competition in the industry will limit these increases to 10 percent.
Industry Composition
The number of small kitchen appliance makers in China has not increased substantially since we last reviewed the industry in April 2004. There are currently an estimated 600 export manufacturers, about 50 more than there were in 2004.
Supplier Profile
Augewei Electric Appliances Co. Ltd
ISO 9001:2000-certified Augewei started out by producing vacuum cleaners on an OEM basis for the Guangdong-based Midea Group Corp.
In 2002, Augewei began manufacturing espresso makers, which currently account for 43 percent of its total sales. The company claims to be one of the earliest, and a leading maker of pump espresso machines.
It also makes vacuum and steam cleaners.
Running at full capacity, Augewei currently produces 100,000 espresso machines a month, 90 percent of which are shipped overseas. The EU is the company's key export market, where CTC and MIA of Germany, and Merloni of Italy are among its major OEM clients.
The maker expects steam pressure coffee makers to dominate exports in the next three to four years. It plans to strengthen its position by releasing new designs frequently. About 10 new models are in the pipeline for the next 12 months.
Products
Augewei produces midrange and high-end pump espresso makers. Currently, only two models are available, one of which is equipped with a steam release pipe. Both have a maximum pressure of around 3.5 bar. The US$25 model can make only coffee, while the US$30 version can also boil water and produce steam.
Housings of the espresso machines are made of ABS, and outlets are made of plastic with metallic electroplating. Boilers are made of brass because of the material's superior heat conductivity, high heating efficiency and stable price. Products have lid locks for safety.
The company has 10 designers for espresso maker R&D, who regularly visit international trade shows for design ideas. About four models are released annually, but the company plans to speed up its product development process.
All this column of information contained in China Sourcing Reports is the result of original, independent and impartial research conducted by Global Sources analysts.
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