Appliance Market’s Holding Its Own
Metals suppliers to the appliance industry see their prospects improving.
By Myra Pinkham, Contributing Editor
Home appliance demand is holding up better than expected, considering that its main driver, the housing market, remains so weak. Appliance sales have been propped up by pent-up replacement demand, increased remodeling activity and the slow but steady recovery of economic activity in the United States.
Metals suppliers to the appliance industry are increasingly optimistic about their improving prospects, especially as the use of stainless steel continues to expand for both exterior design elements and corrosion-resistant internal parts on most kitchen and laundry equipment. Nevertheless, stainless consumption by appliance makers is forecast to grow a modest 3 to 5 percent this year, less than the stainless market as a whole, and it still has a long way to go to regain pre-recession levels, say the experts.
Appliance Makers Switching to Lower-Nickel Stainless
The majority of major home appliances use stainless steel for both exterior and interior components. In the face of nickel’s continuing price volatility, appliance manufacturers are turning to low- or no-nickel stainless steels to stabilize their costs.
Over the past several years, there has definitely been a migration to lower nickel alloys, says Steve Wasil, director of national sales for ThyssenKrupp Stainless North America, Bannockburn, Ill. Many OEMs have gone from Type 304 stainless, which is about 8 percent nickel, and Type 301 stainless, which is 6 percent nickel, to Type 201, which is 4 percent nickel, or Types 430 and 439, which contain no nickel at all.
This type of substitution is nothing new. Many appliance makers turned to the non-nickel-bearing ferritic stainless steels several years ago when nickel prices skyrocketed to nearly $50,000 a metric ton. Most did not switch back to the austenitic grades even after prices fell back to $10,000 a ton or less during the depths of the economic recession. The switch to 400-series stainless steels has been a huge savings for the appliance makers, says Dave Yundt, vice president and director of stainless for Main Steel, Tinton Falls, N.J.
Now, as the nickel price approaches $30,000 a ton, bringing stainless raw material surcharges along with it, several holdouts—primarily makers of high-end appliances—reportedly are considering the switch. “The large percentage of companies have already shifted to Type 430 and Type 439 stainless steels, but there is still some opportunity for further conversion,” says Wasil, who maintains that such a change should not be viewed as a downgrade. “It isn’t the nickel that makes stainless steel stainless steel. It’s the chromium that gives stainless its corrosion resistance. Nickel just helps producers increase the chromium in the stainless steel so that it will be more formable and bendable.”
Brad Hite, general manager of Stainless Steel Corp. in Chicago, is not surprised by appliance makers’ conservative forecast for consumer demand, given the continued housing slump and high unemployment rate. The rising price of stainless steel and other raw materials is also having a negative effect on appliance price tags.
Some observers feel appliance demand is on the verge of an upswing, though industry figures can be misleading. The Association of Home Appliance Manufacturers reports that domestic shipments of its AHAM 6—washers, dryers, dishwashers, refrigerators, freezers, and ranges and ovens—grew by 4.6 percent in 2010, from 36,497,900 to 38,169,100 units. January 2011 shipment data shows a 12.7 percent decline compared to the previous January, however, which suggests the year is getting off to a slow start. Industry experts note that aggressive discounting by retailers produced strong holiday sales in December, which might otherwise have occurred in January. Also pulling demand forward was the Cash for Crispers appliance stimulus program, which ran in most states from February to May of last year.
Cash for Crispers was a state-by-state mix of programs aimed at encouraging consumers to trade in their old appliances for more energy-efficient models. Its proponents hoped for the same success generated by the Cash for Clunkers program, which helped to jumpstart the U.S. auto industry. But while the program generated impressive sales gains of 10 to 20 percent in some months, in the end it fell short of its aspirations. “People just bought what they were planning to buy anyhow over the next two years or so, only earlier,” says Markus Moll, managing director and senior market research analyst for Steel & Metals Market Research, Reutte, Austria.
Jill Notini, a spokeswoman for Washington-based AHAM, says that while this smaller, state-by-state approach did get the word out about the energy efficiency of new appliances, “we recognize that if we attempt a stimulus program again, we will do it on a national basis, like Cash for Clunkers.”
Marc Bitzer, president, North America, for Whirlpool Corp., Benton Harbor, Mich., forecasts that U.S. appliance industry shipments will increase by just 2 to 3 percent in 2011, assuming a modestly improving housing market. While he is optimistic the U.S. appliance industry is on the path to recovery, it will remain well below the long-term demand trend, he says.
Key to appliance growth is a turnaround in new-home construction, which is not even on the horizon yet. “While builders are starting to see more interest among potential home buyers, we are also dealing with a multitude of challenges, including competition from foreclosure properties and inaccurate appraisals of new homes, which are limiting our ability to sell,” says Bob Nielsen, chairman of the National Association of Home Builders in Washington, D.C. “On top of that, an extremely tight lending environment continues to make it almost impossible to obtain credit for viable new and existing projects.”
Meanwhile, there appears to be an increasing willingness among homeowners, who are staying in their current homes longer, to undertake larger remodeling projects. “Remodeling activity has been rising slowly since the first quarter of 2010,” says NAHB Chief Economist David Crowe. Anticipated improvements in the economy and job market are beginning to increase homeowners’ confidence levels, leading to increased activity for remodelers. With remodeled kitchens come orders for new appliances.
Many people who opt to remodel rather than move spend the extra money on more upscale appliances, including those with stainless features, notes Dan Greenfield, a spokesman for Allegheny Technologies Inc. in Pittsburgh.
One indication of the economy’s progress is the gain in imports and exports of appliances, says Laura Spingola, president of Trade Resources Ltd., Chicago, who notes that U.S. imports of major appliances increased 13.3 percent last year, while U.S. exports were up 4.1 percent. This trade data suggests that demand for appliances is on the increase both domestically and overseas.
Also boosting consumption of specialty metals are appliance designs that incorporate even more stainless steel, say suppliers. Steve Wasil, director of sales for ThyssenKrupp Stainless North America, Bannockburn, Ill., notes that consumers continue to favor a genuine stainless steel exterior on their stoves, refrigerators and dishwashers, even over cheaper faux stainless substitutes. “People don’t want fake things. They want the real thing,” Wasil says.
Not just another pretty fascia, stainless is also being specified more for interior parts and components due to its durability, corrosion and heat resistance, and hygienic properties. Today’s popular front-loading washers and dryers, in particular, use more stainless than their top-loading counterparts because of their higher spin rates.
The superior energy efficiency of new appliances will continue to drive demand for years to come as new standards are phased in, says AHAM’s Notini. The standards call for a reduction in new refrigerator and freezer energy usage of 30 percent by January 2014. For top-loading clothes washers, 26 percent energy savings and 16 percent water savings would kick in by 2015, increasing to 37 percent energy and water savings in 2018. For front-loading clothes washers, the savings will be 43 percent for energy and 52 percent for water by 2015. Clothes dryers are to see a 5 percent hike in efficiency by 2015.
In what is clearly an advantage to domestic metals suppliers, several large appliance makers, including Whirlpool and General Electric, have made moves to beef up their U.S. manufacturing. For the past few decades, appliance makers have moved much of their production abroad to Mexico, China and elsewhere in Asia. More recently, some of that production is migrating back in response to quality and supply chain issues and the cost of global shipping. OEMs continue to build facilities overseas, but mainly to serve the local markets, say the experts.
What is happening at General Electric is a success story, observes Dave Yundt, vice president and director of stainless for Main Steel, Tinton Falls, N.J. Prior to the economic downturn, the international conglomerate had made overtures to sell off its appliance business. Now it is taking a whole other approach, investing $600 million in its Louisville, Ky., appliance manufacturing facility and another $68 million in its Bloomington, Ind., plant, and bringing all of its appliance manufacturing back to the United States.
Whirlpool is also investing in the United States, building a new $120 million manufacturing plant in Cleveland, Tenn. It is also investing $175 million in its manufacturing facilities in Ohio, which will produce high-efficiency laundry products, along with a $20 million investment in its Amana, Iowa, refrigeration plant and a $40 million investment in a regional distribution center in Wilmer, Texas.
All in all, 2011 should be a better year for the appliance market and its metal suppliers, agrees Yundt, “but the question is how much.” While most predictions call for a modest 3 to 5 percent increase, Hite at Stainless Steel Corp. could see the market improving by as much as 10 percent should homebuilding and employment rebound more than expected.