MarketEye: MarketEye: Estimated Impact of the American Reinvestment and Recovery Act of 2009 on the U.S. Capacitor Industry

03.30.2009 // Posted by: Dennis Zogbi // Posted in: Articles, Passives

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Introduction to the American Reinvestment and Recovery Act of 2009

The American Reinvestment and Recovery Act (ARRA) of 2009 will inject $789 billion USD in the United States economy through a combination of direct investment ($500 Billion USD) and tax breaks ($289 Billion USD) designed to stimulate the American economy. In March 2009, Paumanok Publications, Inc. conducted a detailed analysis of the 404 page, 180,000 word “Act” to determine the potential impact on the United States capacitor market.

Initial Reaction to the Potential Benefit of the Act on Domestic Capacitor Consumption

The initial assessment has determined that the ARRA will in fact benefit what remains of domestic capacitor production, primarily as a result of political input attempting to benefit the end-markets on which domestic capacitor production continues to serve. The act also serves to benefit offshore manufacturers as well due to anticipated shortcomings in domestic production capacity to meet demand, especially for paper and plastic capacitors and industrial grade aluminum electrolytic capacitors.

How the Money will be Allocated

The money that has been earmarked for the ARRA will be segmented into eight sub-segments. These include “Tax Relief and Incentives,” which will account for 38% of funds associated with the ARRA (this is indirect spending but an important area of focus because of the incentives for renewable energy systems, which are capacitor intensive); followed by “State and Local Financial Relief” which will account for 18% of spending; Infrastructure and Science, which will account for 14% of spending, and is a key area of interest for the industrial capacitor manufacturers in North America; Citizen Financial Protection, which accounts for 10% of spending; Healthcare, which accounts for 7% of spending, and which has some interest for board level capacitor manufacturers (i.e. MLCC and tantalum) because of the potential for investment in medically dedicated handheld technology; Education and Training, which will account for 7% of spending; Energy, which will account for 5% of spending and which is of importance to the capacitor industry because of its emphasis upon the retrofit of the existing power grid, and the potential for power factor correction capacitors; and 1% which is a basket category, but which includes additional spending for HDTV conversion, and for air and sea port security systems, as well as transit security systems.

Source: American Reinvestment Act of 2009

Which Capacitor Dielectrics will be Impacted by the ARRA of 2009?

Industrial capacitors, including power factor correction capacitors (polypropylene dielectric which is included in the paper & plastic film capacitor category); aluminum electrolytic capacitors (primarily screw terminal and motor start capacitors) and single layered ceramic capacitors (high voltage) will be the primary beneficiaries of the ARRA direct and indirect spending. Board level components, such as MLCC, tantalum chips and V-chip aluminum capacitors will also be impacted by the call for direct purchases of new computer systems that permeate the entire spending plan.

The reader will note in the table below that the two dielectrics that have the greatest amount of opportunity under the ARRA are paper & plastic dielectrics and aluminum electrolytic capacitors (both in large can format). The reader will also note that it is not necessarily the amount of spending in each sub-segment that impacts the high tech economy, but those areas that impact technologies that are capacitor intensive, or where capacitors are enabling technology that the greatest financial gains for the United States capacitor market will be realized.

For example, the largest area of spending with any technology implications is in highway and bridge construction ($27.5 BB USD); however, the only area of impact will be for outdoor lighting ballast capacitors, which will be only a fraction of the spending under this segment of the ARRA. Spending on Health Information Technology is also substantial at $19.0 BB USD, but how this will actually manifest itself is not known. This part of the ARRA includes a substantial amount of funding for further study to determine exactly what is the best method to implement a national health technology system. As we move into the smaller (comparatively speaking) spending projects we start to see greater opportunities for capacitors. The best example of this is the $11.0 billion spending planned for the Electric Smart Grid (and an additional $8.0 BB for existing power grid modifications), which will require both high voltage power factor correction capacitors (paper & plastic dielectric) and also low voltage snubber capacitors (for IGBT semiconductor protection). Other opportunities for capacitors include high voltage and high frequency single and multilayer ceramic capacitors for applications in airport security equipment ($9.0 BB in overall spending is earmarked for airport security. Other opportunities will be found for capacitors in Scientific Research spending ($8.0 BB USD) which will impact power film capacitors and single layered high voltage ceramic capacitors. Other markets that will be impacted by the ARRA include high-speed rail and traction system development, which will impact power film capacitors (including DC link capacitors) and large can, screw terminal aluminum electrolytic capacitors. In addition to these large spending projects, additional opportunities for new capacitor sales can be seen throughout the ARRA- and is shown in the table below.

Summary Table:

		Paper & Plastic	Aluminum	Ceramic	Carbon	Tantalum
Direct Spending	Allocation	Dielectric					Notes
Highway and Bridge Construction	$27.50	√					Outdoor Lighting Capacitors
Health Information Technology	$19.00		√	√		√	Chip Capacitors-Handheld Devices/Computers
Electric Smart Grid	$11.00	√			√		Power Factor Correction and Snubber Capacitors
FTA Security/Airports/Other	$9.00		√	√			High Voltage/High Frequency Capacitors
Scientific Research	$8.90	√	√	√	√	√	High Voltage Pulse Discharge and Storage Capacitors
Passenger Rail-Inter City	$8.00	√	√				Traction Capacitors
Existing Power Grid Modifications	$8.00	√					Power Factor Correction Capacitors
Broadband and Wireless	$7.20		√	√		√	Chip Capacitors - Base Stations, Repeaters, & Switches
Lighting and HVAC Efficiency	$5.00	√					Lighting Capacitors, Motor Run, & Motor Start Capacitors
Energy Efficiency Research	$2.50	√			√		Power Factor Correction Capacitors & Load Levelling Capacitors
Traction System Development (HEV)	$2.00	√	√		√		DC Link Capacitors
New Rail Projects	$0.75	√	√		√		DC Link Capacitors
Rail Upgrades	$0.75	√	√				Power Factor Correction Capacitors
HEV Direct Purchases	$0.70	√			√		DC Link Capacitors
HDTV Tuners and Education	$0.65		√	√			Chip Capacitors
Computers	$0.34		√	√		√	Chip Capacitors
Efficient Appliances	$0.30	√	√				Motor Start & Motor Run Capacitors
Total Direct Spending on High Tech	$111.59
Tax Relief (Indirect Spending)
Renewable Energy	$13.00	√			√		DC Link & Snubber Capacitors
Computers/Speed Up Depreciation	$5.00		√	√		√	Chip Capacitors
Citizen HomeEfficiency	$4.30	√			√		Furnace Capacitors, Motor Start, & Motor Run Capacitors
Total Tax Relief (Indirect Spending)	$22.30
Grand Total	$133.89	14	12	8	7	5

Source: Paumanok Estimates

Estimated Financial Impact on the U.S. Capacitor Market

Paumanok Publications, Inc. estimates that by September of 2009 that capacitor manufacturers will feel the added boost of sales coming from direct investments made by the ARRA. The amount of the ARRA that will impact capacitor sales is estimated at $668 million USD. The dielectric that will benefit the most will be paper and plastic capacitors, primarily polypropylene film capacitors for power factor correction, snubbing, DC link and for pulse discharge applications. This in fact benefits many of the small capacitor manufacturers in the United States that produce power film capacitors for filtering, commutation and snubbing. Paumanok estimates that 80% of the total spend on capacitors resulting from the ARRA will be for paper and plastic dielectric, primarily for large power factor correction capacitors for both power transmission (to 850 kV), and power distribution (5 kV to 35 kV). This will benefit the capacitor divisions of General Electric and Cooper Power Systems, both of which are domestic producers of these types of specialty capacitors. Other products that will do well under the ARRA spending will be high voltage single layered ceramics (also produced domestically by such manufacturers as AVX Corporation and Dover/Novacap). Double layer carbon “supercapacitors” will also do well, primarily for applications in windmills (supercapacitors are used to adjust the massive turbine blades to move ever so slightly to maximize efficiency). This will benefit such US companies as Maxwell Technologies, Inc. for example. Spending on aluminum capacitors will largely be for large can screw terminal electrolytic capacitors and for motor start aluminum capacitors, benefiting such domestic manufacturers as Cornell-Dubilier.

Source: Paumanok Estimates

Summary and Conclusions

The impact of the ARRA on the United States capacitor industry will be realized over many years, but based upon our estimates at Paumanok Publications, Inc. the amount of spending on capacitor technology will be in the $668 million range. As we have noted, there are benefits arising from direct investment in infrastructure and other projects for the capacitor industry as well as benefits arising from tax incentives (which take time to take form). The clear winner in terms of capacitor dielectrics will be paper and plastic type products for power factor correction and snubbing applications for the new smart grid projects and for retrofit of existing power transmission and distribution systems. There will also be additional opportunities for film capacitors for applications in outdoor lighting and for power research and development programs. What is more important is that the majority of spending will positively impact American manufacturers, as there are many small ($1MM to $20MM) companies producing power film capacitors for factor correction, traction, furnace and pulse discharge applications in various regions of the country. Other dielectrics benefiting form the ARRA include industrial capacitors, such as high voltage single layered ceramic capacitors; and screw terminal and motor start aluminum capacitors, which also are manufactured domestically. So overall, the impression is that the American Reinvestment and Recovery Act of 2009 will help reinvestment and recovery of the domestic capacitor market over the next five years.

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