This article addresses the supply chain for ceramic dielectric materials and shows how the pricing and availability of two key feedstock materials barites and titanium will have an impact on the ceramic capacitor and PTC thermistor markets over the next five years.
Introduction to Ceramic Dielectric Materials
Ceramic dielectric materials are used primarily in ceramic capacitors, including multi-layered ceramic chip capacitors (MLCC), radial leaded ceramic capacitors, axial leaded ceramic capacitors and single layered disc ceramic capacitors. Additional ceramic dielectric material markets include ceramic PTC thermistors, high frequency ceramic filters and LTCC components and substrates. Ceramic dielectric materials are primarily made from barium titanate, which is composed of barium carbonate and titanium dioxide, which are chemically formulated from feedstock materials− barites and titanium.
The focus of this MarketEye installment is ceramic dielectric materials consumed for ceramic chip capacitors; otherwise known as multilayered ceramic chip capacitors, or MLCC, which account for 90% of global ceramic dielectric materials consumption in terms of dollar value. This market relies upon barium titanate to create the ceramic dielectric in its name. Barium titanate is ultimately dependent on the mined materials, barites and titanium, in various forms.
Technical Economics of Ceramic Dielectric Materials
Ceramic capacitors are the “workhorse” of the entire high-tech economy and in almost every instance will represent the highest concentration of components on any printed circuit board. All other components, even chip resistors, are not as plentiful as the ubiquitous MLCC. Therefore, the supply chain for the ceramic dielectric materials required for their production are of keen interest.
Scientific Maxim #1: Capacitance and Surface Area
One primary scientific maxim associated with capacitors is that capacitance is equivalent to the physical size of the finished product or the total available surface area of the dielectric material in the finished capacitor. Ceramic capacitors maximize this concept through the stacking of ceramic dielectric layers on top of interconnecting layers of electrode materials. The more layers, the higher the capacitance. This places great emphasis on the quality and purity of the materials supply chain feeding the ceramic capacitor market, and also places great emphasis on the consistency of the nano-particles making up the ceramic dielectric powders and slurries required in ceramic capacitor production.
Why Ceramic Capacitors are so Economical
Ceramic capacitors have the lowest cost of goods sold when compared to the other types of capacitors (tantalum, aluminum, plastic film) because the primary cost of goods sold,- the ceramic dielectric material is much lower in price per pound in comparison. This is accomplished by employing low cost precursors (i.e. barium carbonate and titanium dioxide) and massive economies of scale (i.e. ceramic capacitors account for about 93% of all capacitor units produced worldwide by type. This massive volume is one of the largest piecework projects known to man, rivaled only by medicine (i.e. pills) and nails, nuts and bolts combined. All capacitor types other than ceramic are considered niche product lines when it comes to volume of shipments worldwide.
Industry Snapshot: Understanding the Supply Chain for Ceramic Dielectric Materials
The following chart illustrates the supply chain flow for the ceramic dielectric materials industry. This chart is important because it shows how ceramic dielectric materials come from precursors of barium carbonate and titanium dioxide. These precursors will become more important between fiscal year 2013 and 2017 because of the movement back down the supply chain to address processing of the precursors and additives before the milling of the final barium titanate. Since capacitance is equivalent to the physical area of the finished product, the ability to process high-purity, nano-scale particles consistently from batch to batch is becoming more technically challenging as the physical requirements of ceramic dielectric materials moves to less than 0.1 micron in diameter. Also, further down the supply chain, at the feedstock level for barites and titanium feedstocks, such as ilmenite, mining control becoming monopolized and subject to the whims of competing industries that consume far more feedstock materials than ceramic components, with emphasis on the pigments industry for titanium and the oil and gas industry for barites.
Supply Chain Map of the Ceramic Dielectric Materials Industry: 2012
Ceramic dielectric materials begin in the ground in the form of barites, witherite and titanium (Ilmentite and/or rutile). Both materials are abundant and have comparably low prices per kilogram. However, significant price increases have been realized in these industries in fiscal year 2012, which are passed on up the supply chain. Price increases are the result of fears of Chinese export control, or competition among industries that require the feedstocks.
Barites are further processed into powder and then mixed into barium carbonates before they can be useful as a dielectric material precursor. Titanium is also processed into powder and then chemically formulated into titanium dioxide before they can be converted into a useful dielectric material. Both barium carbonate and titanium dioxide are branded as “high-purity” by the materials vendors for use in electronics.
Barium carbonate and titanium dioxide are then chemically combined to create barium titanate, which is the primary dielectric material consumed in ceramic capacitors. The barium titanate is further modified through the addition of certain rare earth additives to create “formulations” such as X7R, Y5V, COG, X5R, Z5U and X8R for example. Variations of this theme exist and other ceramic dielectric materials are also consumed to produce ceramic capacitors and PTC thermistors, such as neodymium titanate and strontium titanate.
Figure 1: Supply Chain Map of the Ceramic Dielectric Materials Industry: FY 2012
Source: Paumanok Publications, Inc. Based on Primary Interviews With Ceramic Dielectric Materials Vendors
Feedstock Availability and Outlook 2012-2017
The following segment discusses the status of the mined feedstock materials,- barites and titanium that are consumed in the production of barium titanate and the ceramic formulations. The feedstock supply situation is alarming because of increased pricing and forecasted problems with the longevity of supply.
“The feedstock supply situation is alarming because of increased pricing and forecasted problems with the longevity of supply.”
Barites: Global Market Conditions and Outlook
Approximately 60% of the world’s supply of barites are controlled by Chinese mining operations. In fical year 2012 there was considerable concern among industry specialists that China would curtail exports of barites. This concern caused the price of barites to increase by 20% year-over-year, although there is no evidence of China actually curtailing exports during the year, in fact, according to United Nations Statistics, China increased barite exports by more than 10% in volume during the 2012 fiscal year. All additional barite sources outside of China, including Morocco, India, Turkey, the United States and Peru also increased their barite exports for the year by more than 10% in volume. The combination of the 20% increase in price, and the 12% increase in volume caused a 35% increase on global barite market value for the year.
Barite availability and pricing is subject to its demand coming from the oil and gas industry. Between 75% and 80% of all barite consumption goes to the oil and gas industry where it is used as a weighing agent for drilling fluids in oil and gas exploration to dampen high formation pressures and discourage well blowouts, which are considerably dangerous. Therefore barites are mission critical to continued oil and gas exploration and production. Barite demand is in direct correlation to the number of wells being drilled each year and the depth of these wells. The increase in consumption of oil and natural gas will continue to increase over time creating increased pressure on pricing for barites, which will in turn impact the overall price for barites including those consumed in chemical processes such as barium carbonate. Other applications for barites include a filler for paints, plastics and cements and in medical applications, and in its high purity chemical form, as a key ingredient in the production of ceramic dielectric materials for electronic components.
The outlook for barites over the next five years is continuity of supply but at higher prices per pound. We expect the continued perception that Chinese vendors may curtail international exports of barites as the major factor contributing to higher prices. Due to the absolute need for barites in the oil and gas industry, it is highly likely that price increases for barites will be easily absorbed by the rapidly expanding oil and gas exploration industry, and that component manufacturers will have to face peripheral price increases as a result. Unfortunately, the ceramic dielectric materials supply chain is much more sensitive to price increases for feedstock materials than many of the other industries where barites are used.
Titanium: Global Market Conditions and Outlook
The majority of all titanium feedstock materials are ultimately consumed in the production of pigments, primarily for paint, varnish and lacquer (60%), plastics and rubber (25%), paper (10%) and other materials (5%) which includes agricultural products, building materials, ceramic dielectric materials, coated fabrics and textiles, cosmetics, food, and printing ink. Titanium is also used as a hard metal super alloy in the form of an additive for carbon steel and an additive for stainless steel and tool steels. In the end, titanium feedstock consumption in ceramic dielectric materials represents only 2% of the total market for titanium feedstocks, and as was the case with barites, titanium pricing and availability are completely dependent upon market cycles occurring in other industries outside of electronics. This was highly evident in the market for titanium feedstocks in fiscal year 2012, when a 9% increase in volume shipments worldwide, caused a whopping 65% increase in price per pound, which resulted in an 80% increase in global market value for titanium feedstocks on a year-over-year basis.
According to RIO Tinto and Iluka, the two largest suppliers of titanium feedstocks. demand for titanium materials will outstrip supply between fiscal year 2013 and 2017. In fact these two major vendors predict that demand will rise to 9,000 KMT by 2017, while supply will only reach 7,500 KMET creating a tightness in the entire market that will create substantial increases in price similar to those experienced in fiscal year 2012. Since ceramic dielectric materials are considered a value-added market segment for the titanium supply chain, it is likely that they will not experience any disruption in supply, but an escalation of price amidst such tight supply and demand ratios is certainly expected. Due to the sensitive nature of the ceramic components supply chain, it is expected that these cost increases will impact the ceramic capacitor and PTC thermistor supply chain over the next five years.
Summary and Conclusion
A continuous analysis of these key feedstock materials is required to ensure the continued growth and success of the worldwide electronics industry because these materials are consumed in far greater quantities by competing industries (pigments and the oil and gas industries respectively). Our analysis reveals that barites are under threat of export control by Chinese mining concerns that dominate the industry. The primary impact is one of increased feedstock materials pricing, and we expect more price increases in the coming years. In the case of titanium feedstock materials however, the longevity of supply is in question as industry insiders have been vocal in the past years about the likelihood of demand exceeding supply creating an increasingly tight market, and this will have a direct impact on pricing. The threat of curtailed supply of titanium materials is real, however, primary vendors assure us that the electronics industry is considered a value-added segment of the supply chain and therefore it is highly unlikely that shortages will impact the capacitor supply over the next five years. Pricing for feedstock materials however, will be directly impacted by materials shortages affecting all industries over the next five years. New additions in capacity for titanium are not likely until 2015 according to industry experts due to the massive investments in capital and equipment. Therefore, price increases in ceramic dielectric materials are likely between fiscal year 2013 and fiscal year 2015. And this cost should be passed up the supply chain to the end-customers in the high tech supply chain who rely so readily on ceramic capacitors for the bypass, decoupling and filtering circuits needed in every nook and cranny of electronic equipment production worldwide.
Statements of fact and or opinions expressed in MarketEYE by its contributors are the responsibility of the authors alone and do not imply an opinion of the officers or the representatives of TTI, Inc.
Dennis M. Zogbi
Dennis M. Zogbi is the author of more than 260 market research reports on the worldwide electronic components industry. Specializing in capacitors, resistors, inductors and circuit protection component markets, technologies and opportunities; electronic materials including tantalum, ceramics, aluminum, plastics; palladium, ruthenium, nickel, copper, barium, titanium, activated carbon, and conductive polymers. Zogbi produces off-the-shelf market research reports through his wholly owned company, Paumanok Publications, Inc, as well as single client consulting, on-site presentations, due diligence for mergers and acquisitions, and he is the majority owner of Passive Component Industry Magazine LLC.