Just weeks ago, the electronics supply chain wasn't too worried about price increases, with the possible exception of tantalum capacitors. The global supply of tantalum has some uncertainty attached to it because of movement away from so-called “conflict minerals.” (See: The Great Congo Paper Chase and Tight Supplies, Tantalums & 2011.)
Within the past few weeks, though, there has been a rash of headlines concerning the rising prices of raw materials such as copper, aluminum, nickel, iron, gold, and silver. If this trend continues, component buyers should expect to see suppliers try to raise prices.
If component makers try to pass increased raw materials costs on, this isn't unreasonable. Asian trade journal DigiTimes this week reported that PCB makers are having difficulty passing materials prices down the supply chain:
- Despite price hikes by upstream material suppliers, PCB makers are finding it difficult to pass increased cost downstream. PCB material prices began to rebound from the Lunar New Year in 2010. CCL quotes rose by nearly a 5% average per month during 2010, and fiber glass yarn and fabric prices have also climbed with many producers closed down during the economic crisis in 2008-2009 helping to limit supply.
PCB makers were able to raise quotes in May and June 2010, but were unable to do so again in the third quarter when material prices soared.
The material price hikes are largely due to an over digestion of inventory. Taiwan-based copper foil maker Co-Tech, for example, nearly emptied its inventory in December 2010 and has since bumped up quotes by 5-7% in January and a further increase is likely in February and March.
Some PCB makers are in talks with downstream clients about possible quote increase but are keeping the negotiations low profile.
- The world's biggest iron-ore miners are running at record production rates and boosting prices, maintaining the upward momentum begun in earnest in the second half of 2010. Steelmakers, the major buyers of seaborne iron ore, are taking it on the chin, warning in their coming financial results that raw material prices will sap their profits for a better part of the year.
The world's third-largest steelmaker by sales, South Korea's Posco, said this month that its profit fell 60 percent in the final quarter of 2010 from the year before, due in part to a steep rise in prices for iron.
Prices of copper foil of all specifications will likely rise to US$3.7 a kilogram from $3.3 to $3.7/kg currently, according to the BBC:
- The price of copper has hit a new all-time high, rounding off a year in which industrial metals rebounded strongly.
It peaked at $9,631.75 per metric tonne on the London Metal Exchange, its highest ever level, before falling back slightly. The metal has risen 30 percent in value this year, with half of that rise coming in the last month.The rally has been driven by the global economic recovery and most countries holding low stockpiles.
Demand for copper and other industrial metals is outstripping supply, as industrial output by the emerging markets economies surges ahead of their pre-recession levels.
Manufacturing in Europe – and even in the US according to recent data – has also picked up, the latest data suggests.
In most parts of the world, future copper prices suggest there will be further near-term rises in the metal's value.
Global copper inventories are down by about a third this year, and traders say that with supplies so tight, the risk is that prices could rise more rapidly if the recovery gathers pace.The major exception to this trend is China, which is sitting on a large stockpile that it built up during 2009, but is expected to be used up during the coming months.
Copper is not the only industrial metal to do well this year. The price of nickel is up by a quarter, while tin has risen more than 55 percent in 2010. And other commodities have also been climbing in what has been a particularly strong year, though most prices still remain well short of levels seen during the commodities surge of 2007-08 that helped precipitate the global recession. Meanwhile, precious metals have shot up amid fears over the debts and loose monetary policies in Europe and the US. The price of palladium – a precious metal used in catalytic converters – rose 94 percent this year.
There's another aspect to this buyers should keep in mind. Nobody wants to see prices increase, particularly in this market. However, the electronics supply chain, with few exceptions, has not sustained a considerable price hike since pre-2000 — right before overcapacity sent component prices on a decade-long decline. The prices of tantalum capacitors, according to suppliers and distributors, have only now reached the same level as they saw in 1999. The recent uptick in materials prices may not have an impact on component prices in the short-term, but if the trend continues, suppliers may try to make up for some of price erosion of the past 10 years.
I'm not saying that suppliers will be opportunistic — price hikes are a reality sometimes. But suppliers, distributors, and buyers should continue to work closely together to make sure that any increases are valid, reasonable, and not disproportionately heaped on any one partner in the supply chain.