LPG Shortage Disrupts Indian AC Production, Driving Up Costs: Nuvama Report
Indian air conditioner manufacturers are grappling with a significant production crisis as a tightening supply of Liquefied Petroleum Gas (LPG) disrupts essential manufacturing processes nationwide. According to a recent report by Nuvama, this shortage is hitting the consumer durables sector at a critical juncture, just as the industry prepares for peak summer demand.
Geopolitical Tensions and Supply Chain Bottlenecks
Ongoing geopolitical tensions and supply-chain bottlenecks have compelled the government to prioritize household LPG consumption, leaving commercial users and Electronic Manufacturing Services (EMS) firms to contend with a shrinking pool of available fuel. This strategic shift has created a severe disruption for manufacturers who rely heavily on LPG for heat exchanger brazing, a process widely regarded as the most efficient method for constructing air conditioning units.
Shift to Alternative Fuels and Associated Risks
In response to the LPG shortage, major industry players have transitioned to using oxy-acetylene for brazing to keep their assembly lines operational. However, this alternative comes with its own set of vulnerabilities. Oxy-acetylene production depends on crude-linked feedstock or limestone, both of which are heavily import-dependent. The report highlights that a staggering 94 percent of India's limestone imports originate from the Middle East, making this fuel source highly sensitive to global trade fluctuations and further supply risks.
Broader Industry Headwinds and Price Hikes
These fuel challenges coincide with a broader array of headwinds for the cooling industry. After a lackluster summer in 2025, firms are now dealing with unseasonal rains in Northern India, which have softened consumer momentum in recent weeks. To combat rising input costs, brands have implemented price hikes ranging from 5 to 10 percent at the end-customer level. The report notes that "oxy-acetylene is aiding continuity in production temporarily, albeit at higher costs."
Financial strain is evident, with LG Electronics India (LGEIL) announcing a "10% price hike for RACs across all SKUs and 5% across other categories." This move follows a previous price increase of approximately 9 to 10 percent for room air conditioners since January 2026. Additional pressures stem from the depreciation of the Indian Rupee and the transition to new star rating regulations, which ramp up compliance costs. The report suggests that the combination of cost inflation and rating-related changes necessitates total price hikes between 8 and 14 percent.
Outlook for Brands and EMS Players
While brands are expected to post modest revenue growth in the fourth quarter of the 2026 fiscal year, EMS players face significant challenges regarding both their revenue and margins. The report states, "Nonetheless, we believe brands are likely to post modest revenue growth in Q4FY26 with decent margins while EMS players could face challenges on both fronts." This disparity underscores the uneven impact of the LPG shortage across the industry, with smaller firms and suppliers bearing the brunt of the crisis.
