(Yicai) March 19 -- Rising raw material costs and slower growth in product demand are exerting operational pressure on the Chinese air conditioner industry, affecting both retailers and manufacturers.

Aircon makers are striving to improve their business performance by launching high-end products with artificial intelligence features and offering subsidies to dealers to encourage replenishment. Meanwhile, retailers remain cautious about restocking in spring, a key stocking period ahead of the peak summer season.

The rise in copper prices has resulted in obvious cost pressure for producers, according to a senior air-con industry expert. Leading brands can overcome this by launching high-end and new products, while smaller ones will face significant profit pressure or may even be forced to exit the market.

Sales of high-end AI air-cons will rise this year, and the entry of some new smart air conditioner brands into the market will also bring new vitality to the market, Fang Xuejing, analyst at air-con industry information platform Chinaiol, told Yicai. However, it remains to be seen whether expensive AI air-cons can help manufacturers cover the profit pressure caused by rising copper prices, Fang noted.

Based on their high selling prices, AI air-cons can help manufacturers offset some of the cost pressure from the rising copper prices, which have exceeded CNY90,000 (USD13,050) per ton, said Gan Jianguo, general manager of Meipoint Guangdong Electric, a high-end smart air-con brand using Huawei Technologies’ HarmonyOS operating system.

But if copper prices continue to rise, even the pricier AI air-cons may not be enough to help manufacturers make a profit, Gan warned.

AI air-cons are a new selling point and a profit growth driver for dealers this year, but as they are 15 percent to 20 percent more expensive than ordinary models, their contribution to the total air-con sales revenue is limited, a retailer in South China told Yicai.

Because of the spike in copper prices, Gree Electric Appliances slightly raised the wholesale prices of some mid-to-low-end products, while those of mid-to-high-end products remained largely stable, the retailer said.

Gree plans to spend 5 percent of its offline sales revenue from last year to encourage dealers to restock. The company will grant subsidies based on the dealers’ replenishment scale this year, the retailer noted, adding that he remains cautious about replenishment despite the subsidies, given the pressure on the air-con industry growth this year.

A retailer in Northwest China also confirmed that prices of some air-cons sold to dealers rose in March. Despite that, he said he will buy more as long as the manufacturers provide high enough subsidies.

Another retailer in Central China told Yicai that due to poor market expectations, the scale of his inventory this year is smaller than that of last year. Meanwhile, a retailer in East China said that he is now adopting a strategy of smaller but more frequent restocks for quick turnover, with prices aligned with market demand to avoid inventory risks.

Editors: Tang Shihua, Futura Costaglione