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Volatile raw materials market

|We expect the prices of raw materials in 2012 to be at the level of the previous period's average prices. Due to the impact of specific market factors, the prices of copper and aluminium will grow faster. There will be also a great uncertainty about the future movement of prices of oil and plastics due to strained and unforeseeable geopolitical events.

The costs of sheet steel, plastics, electronic components, compressors, glass and glass ceramics have a major impact on our operating costs. Different coloured metals (copper, aluminium, nickel) are also extensively used in production through various electrical components and steel products. 

The volatility of raw materials markets has strongly increased after the last crisis due to financial instability and unpredictability of economic circumstances. The price movement of raw materials is affected by numerous factors: macroeconomic environment (the rate of recovery of the global economy, GDP growth, inflation, global trade, etc.), key market factors in raw materials industries (supply, demand, inventories, new projects for exploitation of sources), psychology of stock exchange investors, exchange rate movements ( particularly the US dollar), and unexpected political and environmental events.

In the climate of high volatility in global markets, we use various methods of protection against adverse effects of the market prices of raw materials. With the help of market analyses and timely perception of trends, we decide, together with our suppliers, on the best method of protection in terms of timing, costs, risk, and duration of contract / lease. Various tools and methods are applied to reduce exposure to raw materials pricing risk, including forward leases, derivative financial instruments, and cap price contracts.

Numerous market indicators show that raw materials prices bottomed out in the last months of 2011. Forecasts for slow global economic growth and unstable financial conditions will limit demand for raw materials and curb extreme price increases in the near future. Prices of raw materials in 2012 should be at the level of the previous period's average if conditions of a moderate economic recovery without recession are present. The impact of specific market factors will cause the prices of copper and aluminium to increase faster. Uncertainty about future movements in oil and plastics prices will also exist due to strained and unforeseeable geopolitical events. An important factor influencing raw materials prices is the value of the US dollar since a weaker euro affects increases in raw materials prices which, as a rule, are listed in US dollars.

Forecasted price movements of raw materials will further reduce pressure on production costs and bring the effects of raw materials closer to the previous year's level. The positive effect on the major performance ratios will also be supported by favourable leases of metals and sheet metal for the major portion of annual requirements.

Share of raw materials in the costs of materials of the Home Appliances Division
Steel 18%
Plastics &chem. 16%
El compo. 15%
Compressors 8%
Glass & glass ceramic 8%
Ferrous compo. 8%
Motors 7%
Packaging 4%
Gas 4%
Others 12%
Source: Data from Gorenje Group
Changes in the prices of major raw materials of the Home Appliances Division
Brent crude oil 31% 17%
copper 42% -24%
aluminum 20% -19%
zinc 2% -20%
nickel 46% 32%
Plastixx (polymers) 28% -1%
Steel sheet CRC EU 36% -3%
Source: Data from Gorenje Group