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Raw material price increases were substantial for European appliance producers in 2006. Italy's Candy Group said material costs will not have a significant impact on positive 2006 results "“ but chairman Aldo Fumagalli said 2007 will bring new challenges as many raw materials supply agreements are renegotiated.

The European appliance market should record a 3-percent average growth by year's end 2006. Candy Group total sales are also forecasts to show 3 percent growth over the company's 2005 results of 1.018 billion euros (approx. U.S. $1.339 billion).

Manufacturing volumes at year-end 2006, including acquisitions, should reach 7 million units, up 17 percent over 2005.

In Western European markets, the purchase of high-efficiency appliances (Classes A, A+, A++) is showing slow but steady growth as consumers become more environmentally aware and, according to Candy, appear to better understand the need to reduce wasted energy by replacing their obsolete appliances.

European households have about 188 million appliances that are more than 10 years old.

While the 2006 Western Europe market is growing, on average, by more than 2 percent, Candy said, Russia and East European countries are recording increases of about 7 percent.

Candy strengthened its position in fast growing markets in 2006 through the acquisition of Jinling in China, the third largest domestic producer of washing machines. Candy said China is the world largest market for washing machines: about 15 million units.

The Candy Group's Raw Material Observatory

Copper in the raw material market has gone wild since many months: in Italy, as recently reported by media, it was even stolen by truckloads. Copper price triggered a significant increase of the industrial cost of household appliances.

The Candy Group's Raw Material Observatory has monitored a 155 percent increase in copper prices since January 2006. Copper prices come in addition to the upward movement of the price of nickel, a critical component of stainless steel. In fact, Candy said, the movement in nickel process helped lead to a doubling of the cost of stainless steel.

The price of steel coil, used for appliance cabinets, has remained largely unchanged for past three quarters, Candy said, and is now on the rise: since September 2005, it has recorded a 30 percent rise.

Looking at a "standard" washing machine as reference, Candy said, the increased in the cost of raw materials translates into a 5-percent overall increase in the production costs of an appliance. The situation is expected to worsen in 2007, when supply agreements will be renegotiated.

"It will be quite difficult to absorb such a cost increase in 2007. We forecast that, as the best case option, the prices of raw materials stay where they are now, while we also expect a 5% additional charge due to the higher cost of logistics," said Aldo Fumagalli, chairman, Candy Group. "It will be rather difficult to let consumers accept higher final prices because they also have to digest the environmental fees for recycling each electrical and electronic equipment on sale after the implementation of the European Directive on waste (WEEE) in all member countries."

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