Abstract
Research Overview
Growing Demand for Electricity in China to Boost Power and Distribution Transformer Markets
Exceeding the global growth rate of 3.0 percent, the installed capacity of
China's total power generation units is growing at an annual rate of 7.0
percent. The sudden boost in demand for power generation in turn increases the
need for transformers. This trend can be attributed mainly to the increasing
importance given by the two Asian giants -- India and China -- to building
their power infrastructure to keep pace with their economic growth. Also,
China's ascension to the World Trade Organization (WTO) and the exceptional
performance of the manufacturing sector has fuelled the increase in the
consumption of power by both urban and rural sectors.
Increase in Cost of Raw Materials Challenges the Local Manufacturer's Profit Margins
With China's electricity consumption growing across industrial and residential
end-user segments, the costs of key raw materials such as copper, cold rolled
grain oriented steel (CRGO), and transformer oil are also increasing. The
rising costs of raw materials is forcing transformer suppliers in China to
hike their product prices, thereby compelling local manufacturers to adopt
innovative pricing strategies to procure orders without losing profit margins.
"Due to a significant rise in the cost of raw materials, there was a huge gap
between the capacity and revenue growth rates in 2005," notes the analyst of
this research service. "In the future, this difference is likely to minimize,
supported by a decrease in the growth of raw materials costs."
Transformer Market Revenues to Grow With Planned Investments in Chinese Power Infrastructure
"The transformer market in China is poised to expand due to growth in the
economy and electricity consumption, as well as Government interests in
developing and renovating the power infrastructure," says the analyst. "The
capacity addition estimates includes new infrastructure developments,
replacement of transformers due to ageing, as well as capacity augmentation
across the utilities and industrial end-user segments."
International companies are entering the Chinese transformer market to
capitalize on the huge market potential and to offer cost-effective products.
By large, multinational manufacturers stand to gain more than local ones
because they have better access to capital and technical expertise. The
multinational companies look to expand their operations through joint ventures
with the local manufacturers and thereby, address the entire spectrum of the
transformer market. Besides, China is trying to concentrate on the short-term
power shortage problems and long-term infrastructure issues to remain
competitive and avoid losing out on opportunities to attract foreign
investments.
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