Orient Securities released a research report stating that while El Niño elevates the upper limit of air conditioner demand, whether this translates into high shipment growth for manufacturers primarily depends on inventory levels, the slope of trade-in subsidies, and the pricing environment. Current air conditioner inventory levels are relatively high. Against the backdrop of manufacturers gradually raising prices due to rising raw material costs, the continuation of national subsidies is offsetting the impact on retail prices, resulting in a relatively moderate pricing environment. The firm expects that the high-temperature expectations driven by this El Niño event will become the core catalyst for the recovery of domestic air conditioner sales. On the demand side, there exists a need for replacement of existing units, with extreme temperatures accelerating demand release. On the supply side, channel inventory destocking is being front-loaded, and manufacturers' low production schedules leave room for flexibility. A resonance between supply and demand is expected to drive the recovery of domestic air conditioner sales.
The main views of Orient Securities are as follows:
Event: Strong El Niño Arrival, High-Temperature Benefits Expected to Drive Improvement in Domestic Air Conditioner Sales According to forecasts from the National Climate Center and NOAA, a formal El Niño state is expected to begin in May 2026, with a high probability (82%) of a moderate or stronger El Niño event forming in the summer and autumn. It is expected to peak in autumn and winter, with a 96% probability of persisting into winter. This El Niño event is projected to span 2026-2027, with high-temperature intensity potentially breaking historical records for the same period, significantly increasing the probability of extreme heat events.
Demand Side: High Temperatures Boost Replacement Willingness, Terminal Demand Expected to Grow This Summer Air conditioner consumption demand exhibits strong seasonality and temperature sensitivity. For China, El Niño typically corresponds to a climate pattern of "floods in the south, droughts in the north, and warm winters." Summer manifests as high temperatures and low rainfall in the north, with increased precipitation and enhanced humidity and heat in the south, while winters tend to be warmer. The firm believes this combination stimulates demand for appliances like air conditioners not through a single pathway, but through at least three layers of transmission: 1) Intensive Margin: Increased usage hours for households with existing air conditioners; extreme heat strengthens demand for upgrades with features like energy efficiency, inverter technology, fresh air systems, and dehumidification. 2) Extensive Margin: In regions with low ownership rates, particularly in the north and some low-penetration areas, high temperatures directly spur demand for replacement purchases and additional unit purchases. 3) Complementary Demand Diffusion: Related cooling and heat-avoidance categories such as dehumidifiers, tower fans, refrigerators, and freezers benefit simultaneously.
Supply Side: Household Air Conditioner Channel Inventory Pressure Expected to Ease, Manufacturers Have Flexible Production Adjustment Potential The air conditioning industry uses October each year as the start of the new fiscal year. Dealers typically complete channel stockpiling and inventory accumulation from November to May of the following year, gradually destocking after the peak summer season begins. Data from Industry Online shows that the peak destocking months for channel inventory in 2022-2025 were July, June, September, and July, respectively. The earlier the average number of days with temperatures above 35°C occurs in major cities nationwide (excluding Haikou), the earlier the peak destocking period appears. Current air conditioner channel inventory is at historically high levels. High-temperature expectations are expected to accelerate terminal sales, pushing forward the channel destocking node and alleviating industry inventory pressure.
Manufacturers are maintaining low production schedules, with flexible adjustment potential. Since 2026, influenced by multiple factors including rising upstream raw material prices and high channel inventory pressure, air conditioner manufacturers have proactively scaled back production plans. Data from Industry Online shows that domestic sales production plans for air conditioners for April-July 2026 are 12.55 million, 12.86 million, 11.48 million, and 10.13 million units, respectively. Compared to the actual domestic sales performance in the same period last year, these represent year-on-year changes of +1.6%, -9.0%, -6.7%, and -4.3%, leaving a sufficient window for channels to digest high inventory. As El Niño high-temperature expectations become clearer, manufacturers have relatively ample production capacity and can quickly match incremental terminal demand, ensuring effective supply-side coordination.
Related Targets: Leading white goods group company: Haier Smart Home (600690.SH, not rated).
Risk Warnings: El Niño intensity may fall short of expectations or high-temperature duration may be shorter than anticipated; consumer willingness to replace old units may be lower than expected.