2026-01-13 11:56Summary of Conference Call on China Consumer Appliances Sector Industry Overview - Sector: China Consumer Appliances - Focus: Transition from copper to aluminum in air conditioning (AC) units, particularly in heat exchangers [2][8] Key Points and Arguments Technological Shift to Aluminum - Popularity: The use of aluminum in ACs has gained traction due to a recent rally in copper prices [2] - Standardization: In December 2025, the Chinese Association of Refrigeration issued a standard for aluminum heat exchangers, and major manufacturers signed a convention to promote consumer acceptance [2][8] Cost Savings Potential - Copper Content Breakdown: A typical 1.5HP household AC contains approximately 6-7 kg of copper, with the heat exchanger accounting for 53% of this [3][10] - Replacement Potential: It is estimated that 50-60% of copper in ACs can be replaced by aluminum, primarily in heat exchangers [3][12] - Cost of Goods Sold (COGS): Copper constitutes 25-29% of an AC's COGS, and switching to aluminum could reduce COGS by 40%, leading to overall savings of 5-7% [3][12] Adoption Challenges in China - Efficiency Concerns: Aluminum has lower heat conductivity than copper, which may lead to increased electricity consumption [4][14] - Corrosion Resistance: Aluminum is less resistant to corrosion, posing a higher risk of leakage, especially in humid regions [4][14] - Welding Difficulties: The complexity of welding aluminum increases post-sales costs [4][14] - Consumer Education: There is a need for consumer education regarding the reliability of aluminum compared to copper [4][14] Gross Margin (GM) Impact - Projected COGS Growth: Blended AC COGS is expected to grow by 4% in 4Q25 and 1Q26, and by 5% in 2Q26, which could lower GM by 3-4% YoY [5][15] - Mitigation Strategies: Recent price hikes in ACs may help mitigate the cost pressures if raw material prices remain stable [5][15] Sector Implications - Long-term Outlook: While the shift to aluminum could benefit the industry's GM in the long run, immediate adoption is not expected due to existing challenges [6] - Investment Recommendations: Favorable outlook on industry leaders like Midea and Haier due to their ability to manage cost pressures and optimize operations [6] Additional Insights - Product Launches: Wanbao launched an AC made from a zinc-aluminum alloy, priced at Rmb999, which is over 20% cheaper than copper-based models [8] - Market Dynamics: The shift to aluminum has been more successful in countries like Japan and the US, where consumer acceptance is higher [11] Conclusion The transition from copper to aluminum in the Chinese AC market presents both opportunities for cost savings and challenges related to efficiency and consumer acceptance. The industry's leaders are well-positioned to navigate these changes, but significant hurdles remain before widespread adoption can occur.