JFE Mineral justified increasing prices on their nickel electrode powder because of substantial one-year price increases for raw nickel, which represents about 50% of the cost to produce fine nickel particles used in the production of capacitor electrodes.  In fact, during 2006, the price of nickel on the London Metals Exchange has increased from $15,000 to approximately $40,000 per metric ton.  In 2007, the price of nickel has already increased to $44,000 per ton through February and the price may go even higher as China consumes massive quantities of nickel for the production of steel.

Nickel electrode powder consumption for use in MLCC electrode increased by 20% in volume to approximately 1,450 metric tons in 2006 to support production of approximately 1 trillion MLCC.  Another 33% increase in MLCC demand is expected over the next three years, and capacity additions in 2007 will be primarily for MLCC using nickel electrodes.

Price increases for nickel could continue on a monthly basis throughout 2007 and into 2008 when it is forecasted that new nickel resources will be commercialized, easing the price at that time.  JFE is considering raising their price for capacitor grade nickel electrode powder that would use $15,000 per metric ton for nickel as the benchmark, and raising their prices accordingly to the current price of nickel ore.  This would increase the price of capacitor grade nickel electrode powder by 175%.  The average price of capacitor grade nickel electrode powder is about $100.00 per pound in February 2007 (using $80.00 per pound 0.4 micron powder as the standard with considerations for the higher priced 0.3 and 0.2 powders).  Thus the average price per pound of nickel electrode powder could rise to $175.00 per pound in April of 2007.

The impact on the capacitor manufacturers is subject to debate.  Since the capacitor manufacturers do not have control over their nickel supply chain as they do other materials, they are subjected to the merchant market for their nickel electrode supply chain and; therefore, must accept the price increase.  Since JFE Mineral also has the capability and the capacity to produce nickel electrode powders from 0.1 to 0.4 micron in diameter, its true competition is limited. Only a few other vendors in the world can produce powders to this small size and have the capacity to service major customers such as Murata, TDK and Taiyo Yuden.

The timing of the price increases coincides with a substantial increase in the global capabilities to produce multilayered ceramic chip capacitors.  Most of the large capacitor manufacturers mentioned in this report, along with Yageo, Walsin and Samsung, are also increasing their MLCC capacity between 15% and 20% in calendar year 2007.  While all this capacity will not come on line at once, the demand for nickel will become tighter during the year, and the major MLCC vendors will compete for ultra-fine nickel electrode powder.  Thus, the price increase will most probably be respected by the MLCC manufacturers.

Costs to Produce an MLCC with Nickel Electrode

Paumanok Publications, Inc. has conducted numerous studies with respect to the cost to produce MLCC.  In MLCC, the metal and ceramic materials dominate the cost to produce.  This excludes the cost of manufacturing these parts, which we assume will remain constant as the price of the nickel increases.  With respect to the basic raw materials cost structure to produce high capacitance nickel electrode MLCC, the mathematics required to make these estimates are based upon two criteria- first, the relative price of the materials being consumed, and 2) the amount of material consumed in the production of the finished part.  As Paumanok has conducted these studies over the past 12 years, it is interesting to note from the findings that the average weight of the electrode in general has increased from 8% in 1993 to 32% in 2007. 

In 2007, the ceramic dielectric material in a typical high capacitance MLCC in a 1206 case size accounted for 50% of the weight of the finished product, the termination accounted for 17% of the weight; and the electrode accounted for 32% of the weight.  In the capacitor body, the ceramic material is thicker than the electrode layers to maintain desired voltage of the finished product.  Other materials, such as binder agents and solvents, accounted for the remainder of the costs to produce (1%).  The second part of the equation requires the average price per pound of the raw material to be measured in accordance with the average quantity consumed.  In 2007, the average price per pound for an advanced ceramic dielectric material was approximately $15USD, while the average price per pound for copper termination material was $50USD.  The average price per pound for the nickel electrode material remained the most costly and was approximately $100USD per pound.

Thus, the true costs to produce become a function of the volume consumed and the price of the raw materials consumed.  Subsequently, 62% of the cost to produce a high capacitance MLCC is related to the nickel electrode powder; 19% is related to the ceramic dielectric material; and 17% is related to the cost of the copper termination powder.  Thus, the conclusion is that any increase in nickel electrode powder costs will impact the cost to produce MLCC.

Summary Graph:

How Much Does It Cost? I’ll Buy It! 

	Costs to Produce a High Capacitance MLCC: February 2007

Source: Paumanok Publications, Inc. Estimates

How This Might Impact the Cost to Produce and the Price of MLCC:

Thus, if the nickel electrode powder price increase in April from an average of $100USD per pound to an average of $275USD per pound (175% increase) then it will have an impact on the cost to produce because 62% of the MLCC raw material costs is associated with nickel electrode powder by weight.

Thus, in a finished MLCC, the overall cost of the raw material with respect to average unit price is about 28%, so if an MLCC costs $0.01 per unit, then the cost associated with the raw materials would be 0.0025, and within that number the cost of the nickel is approximately $0.00155.  Under the new pricing for nickel electrode powder, the cost of the nickel per MLCC would increase by 175% to $0.0043, and we assume the other material costs remain unchanged at $0.00095 per MLCC.  Thus, the overall cost to produce an MLCC increases from $0.0025 per unit to $0.00518 — an increase of 107%; and the overall price of the finished MLCC must rise by 27% to accommodate this increase in nickel electrode powder costs.

So Either Profits Are Squeezed or Prices Go Up For MLCC:

The ultimate conclusion is that the economic impact of an increase in nickel electrode powder prices will be felt by either the MLCC vendor or the consumer.  In passive components there is some measure of comparison with events that impacted the tantalum capacitor supply chain in 2000, when raw material price increases had such a major impact on the supply chain that the costs to produce skyrocketed as did the price of the finished component.  In that instance, the costs were shared by the supply chain and a similar argument was used — that if the customer needs so many capacitors he must invest in the growth of the entire supply chain, including raw materials.  Thus, in the end, there may be some compromise among the nickel vendors; the capacitor manufacturers and the end-customer to share the overall cost of materials prices that are not within their control.

Also, the number of MLCC consumed over the next five years should continue to grow at a rate of between 10% and 15% per year as new demand is created from converged handsets, dual core computers, and HDTV flat panel TV cause increased unit demand and growth.

Taken separately, each of these economic factors suggests that the price of MLCC may go up by as much as 27% beginning in April 2007.  Logically, the prices of MLCC have traditionally declined over time, as have raw material prices.  This change in materials prices signifies a potential change in that trend due to the overall cost of nickel associated in the production of MLCC.  Historically, it has been noted that price increases are traditionally shared by the industry and the supply chain as a whole, and the increase may not be that large; however, directionally, the price of MLCC should remain at least stable; and even a small increase in overall price will result in a substantial increase in revenues for the industry, since more than 1 trillion pieces will be sold in 2007.