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Appliance Market Report

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Home Sweet Homebuilding The rebound in housing is taking appliances along for the ride. By Myra Pinkham, Contributing Editor Spurred by the turnaround in the housing sector and improved consumer confidence, U.S. domestic appliance shipments posted large gains in 2013 for the first time in recent memory. Further gains are widely predicted for appliance sales in the next several years, which is good news for suppliers of stainless steel and other metals. "2013 was a great year for the appliance industry. In fact, it was only the second year that U.S. shipments have increased since 2005," says Evan Barrington, vice president of the Stevenson Co., Louisville, Ky. He credits the rebound in residential construction for much of the surge in appliance sales. Even though roughly 80 percent of new appliances are used to fulfill replacement demand, as opposed to equipping newly built single- and multi-family homes, the same basic economic forces influence both the housing and home appliance sectors, Barrington says. Thus the sales gains reflect the improving economy and consumer confidence. Demographics also play a part. Not only is the number of U.S. households on the increase, but more of them are occupied by baby boomers in their high-earning years. They want more luxuries and conveniences, such as the latest stainless steel appliances, and they have the money to buy them, says Jason Kaplan, senior principal metals analyst for the pricing and purchasing service at IHS Inc. While both the housing and appliance sectors are typically among the first to recover following an economic downturn, that was not the case this time around, says analyst Christopher Plummer, managing director of Metal Strategies Inc., West Chester, Pa. The latest downturn was caused largely by a historic correction in the housing market, making it anything but typical. After bottoming out at around 500,000 units in 2009, U.S. housing starts made only small gains before accelerating in mid-2012. In 2013, about 928,000 new homes were built. The National Association of Home Builders forecasts that housing starts will rise 24.5 percent to 1.15 million units this year. This includes a 32 percent increase in single- family homes to 822,000 units and a 9 percent increase in multi-family housing starts to 333,000 units. NAHB is also predicting a 35.9 percent increase in sales of existing single-family homes this year, which will spur upgrades of appliances and other amenities. "The slow and steady housing recovery will bring nationwide housing starts to 71 percent of normal by the fourth quarter of this year and 93 percent of normal by the end of 2015," says David Crowe, NAHB’s chief economist. He attributes this progress to increased consumer confidence, pent-up demand and diminishing distressed sales. Offering a similarly positive outlook, the Association of Home Appliance Manufacturers in Washington reports that domestic shipments of such major appliances as clothes washers and dryers, dishwashers, refrigerators, freezers, ranges and ovens jumped 9.4 percent last year to 39.2 million units (see chart), following a small decline in 2012. Kaplan predicts total home appliance shipments will increase another 3.8 percent in 2014 and 2.3 percent in 2015 and continue on a slow-growth path from there. Brad Goranson, executive vice president of Steel Technologies LLC, Louisville, Ky., observes that production of white goods to fulfill remodeling and replacement demand remains somewhat lackluster, especially compared with new-home growth rates. NAHB projects that spending on remodeling of owner-occupied single-family homes will increase 2.5 percent this year, representing slow but steady growth. The recovery of appliance manufacturing, both domestically and abroad, has given a boost to the coil coating industry, says Jeffrey Moe, appliance marketing manager for St. Louis-based Precoat Metals. Prepainted coils are widely used to form the wrappers of household equipment, from clothes washers to refrigerators. Appliance shipments also have been bolstered by changing consumer preferences, says David Yundt, vice president and general manager of Main Steel Polishing Co.'s Harmony, Pa., plant. This includes increased sales of "French door" refrigerators with top or bottom freezers, rather than the formerly trendy side-by-sides. The popularity of front-loaded clothes washers also has declined, replaced by the introduction of more energy efficient top-loaded units. Many consumers are opting to replace their older appliances with power-saving Energy Star models. In general, consumers are upgrading to more value-added appliances, Plummer says. "Not only have stainless steel appliances continued to gain market share, but there has also been a move toward 'smart' appliances that, through a computer link, control part of the house or other appliances." "We are excited by the innovation we are seeing in the appliance market," and its potential for new stainless steel sales, says Steve Davidson, sales director for Outokumpu Americas, Bannockburn, Ill. "At Outokumpu, we have a global innovation and research and development department that often works with customers on design specifications, size selection and testing to support the design concepts from today's appliance manufacturers." Some consider stainless steel to be a mature finish for household appliances. Designers reportedly are considering attractive and cheaper alternatives, such as a "retro" look with a wider range of exterior color options on carbon steel. Kaplan is among those who question whether this is just a marketing pitch or a trend in the making. There have been some takers, says Moe at Precoat Metals. He points to a push for a sleeker, more European look with a smoother appearance using less textured exterior metals. The muted colors that have become popular for fabric care appliances, such as gun metal grays and deeper purples, are also making their way onto kitchen appliances, he says. While each of the major appliance manufacturers now offers four to five kitchen appliance colors, it appears stainless steel is here to stay. "It is still the material of choice for most North American consumers," Davidson maintains. "While the aesthetic appeal of stainless was once the original driver for its purchase, now its practical benefits, including its long life and hygienic properties, are also very important factors for homeowners." In fact, even though stainless steel tends to be more expensive, consumers appear to be opting for the "real thing" as opposed to faux stainless or carbon steel that has been polished or coated with a laminate to look like stainless steel. OEMs are increasingly using cheaper 200- and 400-series stainless steels, which contain little or no nickel, instead of types 304 and 316. They allow stainless to compete with such materials as galvanized, cold-rolled and painted steels on a pricing basis, Plummer notes. With domestic producers keeping stainless steel prices very cost competitive--among the lowest in the world-- production of some appliance components actually has moved back to the United States from Asia, Yundt says. There also has been some "right-shoring" of full appliance manufacturing back in the United States due to reduced domestic production costs and the globalization of the appliance market, Kaplan adds. While there are many reasons for lower U.S. manufacturing costs, at the top of the list is cheap energy from the abundant shale natural gas. Major moves by appliance makers to date include General Electric Appliances' decision to bring some refrigerator production back from Mexico to its Louisville plant. GE Appliances installed two new assembly lines costing $100 million at its Louisville Appliance Park. The company is also planning an $88 million expansion of its La Fayette, Ga., cooking products plant. This investment is part of the company's overall $1.0 billion investment program to modernize its U.S. appliance production facilities. In the process it will create over 3,000 additional jobs by 2015. Whirlpool Corp. is expanding output at its Clyde, Ohio, washing machine plant by transferring production of commercial front-loading washing machines from Monterrey, Mexico. This is part of company's strategy to build most products in the regions where they are sold. Whirlpool also is spending $19 million to expand capacity at its Tulsa, Okla., appliance plant. Both of these projects are part of the company's plan to invest $1.0 billion in its U.S. appliance production operations. Such moves by GE, Whirlpool and other appliance makers represent new opportunities for the domestic supply chain. But while prospects for the U.S. appliance industry are good and getting better, the market remains 25 to 30 percent below its 2005 peaks and will not likely return to those levels until 2020 or beyond, Kaplan says. "At least it is finally going in the right direction," he adds.