Apr 08, 2022
The conflict that erupted recently between Russia and Ukraine, the most serious geopolitical conflict since the beginning of the 21st century, is impacting global politics and economies. It will also undoubtedly cast a dark shadow on the air conditioner market, especially in Russia, Ukraine, and other Eastern European countries. There is a high trade volume between China and the EU, and the conflict will affect the economic and trade exchanges between the two sides, including the export of air conditioners.
The Russian room air conditioner (RAC) market used to boast the largest scale in Europe. Due to the economic recession, however, it has been losing its growth momentum in recent years, with fluctuations impacted by temperatures every summer.
China has been the largest RAC exporter to Russia and its export volume exceeded 3 million units at the peak. According to China Customs data, Chinese RAC exports to Russia in 2021 increased by 54% year on year to about 2.65 million units, with Russia ranking third among all Chinese RAC export destination countries.
In the Russian market, China-made RACs including original equipment manufacturing (OEM) products recently accounted for more than 90%. Midea, Gree, and TCL have high market shares in Russia.
The Ukrainian RAC market also relies on imports from China, with nearly 150 brands on the market. Gree and Haier are very active in Ukraine. Chinese RAC exports to Ukraine in 2021 increased by 38% year on year to about 668,000 units, and Ukraine ranked 26th among all Chinese RAC export destinations.
In 2021, Russia experienced a hot summer and absorbed almost all RAC inventory. Therefore, the Russian RAC market should have performed better this year, if the conflict had not occurred. Affected by economic sanctions imposed by many countries, Russian stocks collapsed and the currency is depreciating sharply. Accordingly, purchasing power in Russia is projected to plunge in 2022, and this will adversely affect sales of RACs that are among the more expensive home electronics products. Unfortunately, Ukraine is in a dire state with no motivation to purchase RACs. In addition, consumer psychology in neighboring countries such as Poland and Romania has been severely impacted, and this will also affect the RAC market.
As a consequence, RAC exporters to these countries are projected to suffer losses this year, with the Chinese manufacturers being the hardest hit, and the South Korean and Japanese manufacturers negatively affected to a lesser extent.
Moreover, in case of exports to Russia, some manufacturers in countries that impose economic sanctions on the country independently decided to stop their exports, taking into account the country’s current situation. In the heating, ventilation, and air conditioning (HVAC) segment, Sweden-based Systemair announced at the beginning of March 2022 that it is temporarily discontinuing all deliveries to Russia and Belarus. Systemair has been operating in Russia since 1990 and its sales in Russia and Belarus correspond to approximately 4.5% of the group’s sales.
At the same time, Japan-based Panasonic also announced that it stopped shipments in March 2022 of home appliances from the Panasonic group outside of Russia. Its sales subsidiary in Russia is operating as usual, and it seems to be selling in-stock products for the time being. Panasonic’s sales company in Ukraine has already been closed.
For Chinese RAC manufacturers, exports to Russia are projected to decline at least this year, due to an economic depression, currency depreciation, rising raw material prices, and trade setbacks, etc. However, the outlook for the future could be different. If economic sanctions on Russia are prolonged, Chinese and Russian cooperation could expand, bringing opportunities to Chinese RAC manufacturers.