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Introduction:
As industry insiders point to double and triple purchasing of passive components by customers; lead-times are stretching out to uncomfortable levels; raw material prices are increasing, and component prices are going up.
Passive Component Lead-Times: April 2010
Lead-times for passive electronic components continued to increase in April 2010, as supply continued to tighten amidst increased customer demand. In a survey conducted by Paumanok Publications, Inc. comparing lead-times on April 25th, 2010 compared to March 10th, 2010 for the top 14 passive component product lines in the capacitor, linear resistor and discrete inductor product groupings; it was noted that the average overall 45 day increase was 4%; but that certain product lines showed a substantial increase in lead times, while others showed none at all. It is also important to note that none of the product lines showed any decrease in lead-times. The key product lines that showed an increase in lead times averaging anywhere from 1% to 23% included thick film chip resistors, DC film capacitors, tantalum capacitors, wirewound resistors, aluminum capacitors, and MLCC (See graph and table below):
Graph and Table Explanation: The following graph and table show the 45 day change in passive component lead times by product type, with the graph showing “red flags” above each product grouping that showed an increase in lead times. “Green flags” indicate no change in lead times over the past 45 days.
Thick Film Chip Resistor Lead-Times:
Lead-times for thick film chip resistors had the largest increase with respect to lead-times over the past 45 days. Lead-times for thick film chip resistors increased by 23.1% on average, going from 14.3 weeks in March to 16.2 weeks in April 2010. The largest increase was for the 1206 (EIA US Designation) case size, which saw lead-times expand from 12 weeks to 17 weeks during this time period.
Also showing some significant increases in lead times was the 0201 thick film chip resistor, which increased from 12 weeks to 15 weeks and 0402 thick film chip resistor, which increased from 15 weeks to 17 weeks; and the 0603 thick film chip resistor, which increased from 14 to 19 weeks. Reports out of China and Taiwan reported April price increases for thick film chip resistors increasing by 16% to 20% in April as vendors struggled to meet demand amidst rising raw material prices (ruthenium based inks and alumina substrates), and limited operational capacity to produce. Chinese and Japanese vendors who dominate the market (Yageo, Walsin, KOA, Panasonic, Rohm and TA-I) have been reluctant to increase capacity for thick film chips in prior years due to the extremely low prices paid for such components and the limited return on investment.
Tantalum Capacitor Lead Times:
Continuing their steady rise in lead-times is the tantalum chip capacitor, which remains at the top of the list of “hard to get” passive components. Lead times for tantalum chip capacitors increased by 13.8% between March and April 2010, and now top the chart at 18.78 weeks, up from 16.5 weeks one month ago. As Paumanok Publications, Inc. predicted in their 2010 study “Tantalum Capacitors: World Markets, Technologies & Opportunities: 2010-2015,” the supply chain for tantalum ore is becoming tighter; and the availability of the metal going forward to satisfy not only rising demand from the capacitor anode manufacturers, but also from the sputtering target, cemented carbide and superalloy additive businesses is causing tremendous pressure on the limited supply. Between 2007 and 2010, five main sources of tantalum ore have been idled, including the Greenbushes and Wodgina mines in Australia, the Cabot Tanco mine in Canada, the Noventa mine in Mozambique and the Defense Logistics Agency’s secondary supply. Primary sources in the tantalum supply chain suggest that the realistic price for tantalum ore is already in the $65 to $70 USD per pound range (much higher than the $55 per pound reported by Metal Prices) and up sharply from the $35 per pound price recorded one year ago. In the second half of 2010 it is expected that prices for capacitor grade tantalum metal powder from the main processors Cabot, Starck and Ningxia NFM will increase in accordance with rising tantalum ore prices. Buyers of tantalum capacitors are largely knowledgeable of this tightening of the supply chain and are placing double orders for tantalum capacitor parts so as not to come up short later in the year. None of the major tantalum capacitor producers are planning any capacity expansion in 2010 (although Paumanok believes there is enough equipment in place to satisfy existing demand based on peak demand numbers from a decade ago).
The tantalum capacitor product line that is most difficult to get in April 2010 is the B Case (EIA US Designation) which now averages a 28 week lead time, up from 24 weeks in March 2010, while the A, C and D Case size parts saw an increase of 3 weeks in lead times over the past month. Paumanok expects demand for tantalum capacitors to remain tight throughout the 2010 calendar year.
DC Film Capacitor Lead-Times:
Lead times for DC film capacitors took an unexpected jump in lead times between March and April, with average lead-times increasing from 14.6 to 16.22 weeks- an increase of almost 12% in one month. The largest increase in lead times during the past 45 days was for standard safety type film capacitors used for interference suppression (X and Y); primarily in power supplies and lighting ballasts, which increased from 18 weeks in March to 23 week lead time in April. Other DC film capacitors that experienced increased lead-times included both axial and radial leaded metallized PET film capacitors used for filtering in a variety of consumer and professional electronic devices.
Wirewound Resistor Lead Times:
Leadtimes for wirewound resistors increased by 8.8% between March and April 2010, going from 11.3 to 12.3 weeks. Overall lead-times for wirewound resistors remain comparatively short, but the short term increase in lead-times, coupled with short term growth in DC film capacitor lead times, suggest upward movement in the power markets. We note that axial leaded type power wirewound resistors had the greatest increase in lead times between March and April 2010.
Aluminum Electrolytic Capacitor Lead Times:
Lead-Times for aluminum electrolytic capacitors showed a modest increase between March and April- increasing by only 4.3%; however, the aluminum dielectric capacitor remains one of the most difficult components with respect to extended lead times. Aluminum electrolytic capacitors are used primarily in consumer audio and video imaging equipment and computers. Standard radial leaded aluminum capacitors and vertical chip aluminum capacitors remain the most difficult components to get, with lead times at 19 weeks and 17 weeks respectively. Axial leaded aluminum capacitors, which are consumed in automotive and lighting ballast markets are also at 19 weeks; as are traditional snap-in designs consumed in the computer industry. Conductive polymer aluminum capacitors are still relatively good with respect to lead-times averaging only 13 weeks.
Multilayered Ceramic Chip Capacitor Lead Times:
Lead times for the ubiquitous MLCC remain comparatively low in lead times; averaging about 13.88 weeks in April, up only 1.3% over March lead times of 13.7 weeks. Standard MLCC in the picofarad range remain in the 12 to 14 week lead time range, with only the 0805 (EIA US designation), showing an increase in lead times between March and April 2010. High CV/g MLCC for applications between 2.2 and 100 microfarad remain substantially elevated at 18 weeks, with no change between March and April.
Summary of Lead-Times:
The summary of lead-times for selected passive electronic components shows an interesting pattern. Demand for capacitors between 2.2 and 300 microfarad are now in the 18-20 week lead-time range, with high capacitance MLCC and tantalum chips showing the longest lead times. One-month movement in film capacitor and radial leaded aluminum capacitor industries suggests an increase in demand from the consumer audio and video imaging markets; as well as an increase in demand from the lighting ballast and power supply industries. Other products such as inductors, thin film chip resistors, carbon film resistors and tin oxide resistors have shown stability between March and April with respect to lead-times. Nichrome film resistors have also shown stability between March and April with respect to lead times, however this product line remains in the 16-week range; which is among the longest lead times for any passive component.
The reader should also note that lead-times for inductor products remain relatively stable, but that this is inconsistent with movements in the other discrete passive component product lines, and therefore, it may be likely that the next components that face longer lead times are the chip coils, ferrite beads and throughole discrete inductors.
Rising Raw Material Prices Impact Cost of Goods Sold:
As lead times for passive components increase due to limitations in the operational capacity for vendors to produce, prices for critical raw materials required for the production of passive components to create dielectrics, resistive elements, electrodes, and terminations have also increased accordingly- impacting the costs of goods sold. As we have previously reported in Marketeye, the passive components raw materials index (shown below) had a 105% increase between January 2009 and January 2010. A subsequent review of raw material prices for this article, conducted April 27, 2010 shows an additional increase of 27% between January 10th 2010 and April 27, 2010. What is most alarming is the increase in pricing for palladium and ruthenium, which showed an additional increase in the past four months of 33.3% and 29.9% respectively. Palladium is a key material for the production of picofarad MLCC, especially low layer count X7R and most NPO type MLCC. Ruthenium is the critical resistive element consumed in thick film chip resistors, which account for more than 90% of all resistor units sold worldwide. Other increases in raw material prices over the past four months of particular note include nickel and aluminum, with nickel prices increasing 37.6% and aluminum prices increasing by 19.1%. Nickel is the electrode material of choice for high capacitance MLCC between 1.0 and 100 microfarad; while aluminum is consumed in etched anode and cathode foils for the aluminum electrolytic capacitor industry. Also in the table below we are showing tantalite prices at $70.00 per pound, or a 49% increase between January and April 2010. This price per pound cannot be independently confirmed by secondary sources, but is based upon primary interviews with vendors in the supply chain who have stated that the tantalite price is now at $70.00 per pound, up from $47 per pound in January due to limited supply.
Summary Table:
Price Adjustments for Key Feedstock Materials Consumed in The Passive Electronic Component Industry: 2009-2010
- Tantalite price increase is a Paumanok Publications, Inc. estimate based upon interviews with vendors in the supply chain in April 2010. We have been advised by capacitor manufacturers and materials suppliers that the realistic price for tantalum ore is now at $70.00 per pound, although this cannot be independently confirmed by secondary sources.
Table Sources: London Metals Exchange, Comex, Metals Bulletin, TTI Marketeye.
Price Increases in Passive Components: 2010
Prices for passive electronic components have already increased by 15% to 20% between January and April 2010 and we forecast that an additional price increase of 15% to 30% will impact the market in the second half of CY 2010 because of the higher raw materials prices. In addition to raw materials prices, increased competition among customers to get passive components is also driving up prices, with companies throughout the key end-markets in communications, computers and consumer AV products genuinely concerned that they will not have enough capacitors and resistors to get their products out the door for the holiday buying season.
Capacity Expansion: 2010
An added factor that has to be considered is the reluctance on the part of the passive component manufacturers to increase production capacity to satisfy current levels of demand. There is concern among major Asian and Western passive component companies that demand is not real and that there is panic buying in the market resulting in a growth bubble that is soon to burst. The only sector where we see substantial capacity additions coming on line is in high capacitance MLCC, where Japanese, Korean and Chinese vendors are adding equipment to meet what they perceive as a serious shortage of parts to meet demand. In the electrolytic capacitor space- in aluminum and tantalum- for example, we see very little in the way of capacity expansion to meet demand, as vendors remain reluctant to add capacity due to skepticism about the true needs of the supply chain, and the historical reference of the downside of such exuberant buying patterns.
At Paumanok Publications, Inc. we see that the truth, as usual, lies somewhere in between. We see continued growth activity in flat panel display television sets and telecommunications infrastructure equipment (especially in wireless LAN); and a nice recovery in the global automotive markets (especially in China). We see higher component content in wireless handsets as every vendor endeavors to have “smart designs.” However, we also see customers trying to replenish depleted inventories in the distribution level and at the EMS and OEM levels in accordance with somewhat robust internal forecasts. We are tempered by the high unemployment rates worldwide (9.7% in the USA; and a similar percentage in overall Europe- with Spain, an important market- at 19%, and Ireland at 13%) and the continued tight credit markets.
Final Word: Proceed With Caution
The final word on the current state of affairs in the global passive component industry is to proceed with caution- keep one eye on the future, but one foot firmly planted in the realities of the past. Excessive buying on the part of the customer has historically lead to a downturn, and we fear we are in such a cycle now. Raw materials prices are increasing at a rate that exceeds the reality of the current market conditions, and this is being passed onto the consumer in the form of current and expected price increases for passive components. Raw material prices are increasing because demand exceeds supply, especially for rare earth metals, where renewed growth in competing industries (such as metalworking and superalloys) is placing added demand on primary feedstock materials. Also, many of the top consumers of passive components have revenues that exceed the entire revenue base of the worldwide TAM in passive components, and therefore they are willing to spend more money now to get parts that they “might” need in the coming months. The sobering statistics are currently focused on worldwide unemployment, especially in the USA and Europe, where consumption of electronics goods is critical to the health of the passive component supply chain. We fear that internal forecasting at some of the major EMS and OEM customers may be too excessive, resulting in another downturn that this time may be focused on components as opposed to being a worldwide phenomena.
