Supply chains back to pre-Covid levels for consumer durable firms

Constraints still easing for auto firms; companies wary of commodity prices as Chinese demand may push them up

Automotive and consumer durables companies, which depend on China for components, have seen supply chain constraints ease after China ended its zero-Covid policy.

In fact, for consumer durables firms, the disruptions faced over the past two years have not just eased, supplies have returned to pre-Covid levels. For the auto sector, though, the constraints are still easing.

Before the pandemic, consumer durables companies saw components reach Indian ports in 20-30 days. But during the pandemic, it took more than 45 days for components to reach ports. That situation has now reverted to the pre-pandemic trend.

However, even as supplies reach faster, companies are closely monitoring commodity prices as they fear these could increase again as the Chinese economy opens up and there is a concomitant increase in demand for and prices of metals.

For consumer durables firms, the prices of components are already on the rise, especially for television (TV) panels. Open cells, which contribute to 60 per cent of a TV panel, have witnessed a 5-7 per cent increase. The prices of some other commodities are also on the rise.

“Restrictions have eased and factories are running at full tilt. The supply chain is now back to pre-pandemic levels,” said Avneet Singh Marwah, director and chief executive officer, Super Plastronics, a Kodak brand licensee. 

Kamal Nandi, business head and executive vice president of Godrej Appliances, part of Godrej & Boyce, echoes Marwah’s view. “We have gone back to stocking up on components based on our production as supply chain issues no longer exist,” he said.

However, Marwah said the company was holding on to high levels of inventory like it did during the pandemic, in case the situation changes, and the stock will only reduce in the next quarter.

On commodity prices, Atul Lall, managing director and vice chairman of Dixon Technologies, said: “[They] are on the rise, but it comes down to at what point one has to act.”

Auto sector

In the automotive sector, too, companies are wary of commodity prices.

“Commodity pricing outlook is speculative....The one thing we are waiting to see right now is what happens to China after opening up,” said Rajesh Jejurikar, executive director of Mahindra and Mahindra, at the third quarter earnings call.

He added that if the Chinese economy really takes off, then that could completely change the global environment in terms of demand.

“We have seen in many countries, including India, that coming out of an extended lockdown is a huge kick-up in terms of production, demand, consumption etc. China has probably had the longest lockdown. So, the one thing to watch now is what happens to the China story. This may get offset by recession in the EU and US etc. So, it’s very hard to say what will happen in terms of commodity prices. The margins in the third quarter have improved due to commodity prices softening,” Jejurikar said.

While rising commodity costs remains a concern, Balbir Singh Dhillon, Audi India’s chief, pointed out that the semiconductor crunch was not over yet and was an acute problem for luxury cars, as they use more semiconductors.

“With China opening up, we do expect some easing of the component supply chain. Audi’s supply chain is spread globally, but, yes, some parts also come from China,” Dhillon said.

S&P analyst Puneet Gupta said even those firms that had localised their supply base had some dependence on Chinese imports so factors at play there would still impact firms here. “Inflation is likely to increase in raw materials as Chinese production picks up. But recession in other parts of the globe may offset it to an extent,” Gupta said.

In lithium-ion products, more than 70 per cent of the Indian battery industry’s consumption comes from China.

“With the series of Covid-related shutdowns, most Chinese factories were operating at 50 per cent capacity adding to the already existing semiconductor shortage across the globe resulting in sharp increase in prices (in some cases almost 10x increase) of microcontroller chips used in EVs (electric vehicles). Now that Chinese factories are opening up after the Chinese New year, the cells and semiconductor supply chain will breathe a sigh of relief and the EV industry might gear up for new product launches and feature upgrades soon,” said Gautham Maheswaran, co-founder and CTO of RACEnergy.