Component Lead-Times Continue to Stretch; While Raw Material Prices Decline

07.06.2010 // Posted by: Dennis Zogbi // Posted in: Articles, Passives

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Introduction:

Lead-Times for the core passive component products- capacitors, resistors and inductors- continued to increase in June 2010; while prices associated with their raw materials continued to decline. Passive components and their related raw materials are excellent indicators of global economic health of the supply chain. In this article we investigate the ramifications of extended lead times for components and lower raw material prices.

Lead Times Continue to Stretch in June

The average lead-time for passive component shipments from manufacturer to customer increased another 2% in the 30 days ending June 25th 2010. Lead-times for capacitors, resistors and inductors stretched to 14.8 weeks, up from 14.5 weeks the prior month. Many individual product lines continued to show extended lead times as is shown in graphs below:

Summary Graph: Average Lead-Time in Weeks For Passive Electronic Components, Including Capacitors, Resistors and Inductors Combined

Lead-Times by Product Grouping: Capacitors, Resistors and Inductors:

Lead-times between passive component product groupings differ, as is shown in the graph below. Capacitor lead-times, which now average 18 weeks, are extended far beyond those of resistors and inductors, which average about 14 weeks and 11 weeks respectively.

Lead-Times by Individual Component Type:

The following table and graph shows lead-times for passive components by sub-type, with the most prominent component showing extended deliveries as being the tantalum capacitor; which is now at a 23.4 week lead time (on average) and far more extended than any other individual product line. Tantalum capacitors remain difficult products to obtain on-time due to limitations in operational capacity among the vendors; and a supply chain disruption caused by the closing of key tantalite mines in 2009. Following tantalum capacitors are thick film chip resistors, which are showing 18-week lead times on average. Thick film chip resistors have extended lead times due to limitations on operational capacity by the major vendors in China and Japan, and shortages of the alumina substrates used in their production. Other products of note with substantially extended lead times are the DC film capacitor (metallized PET), the precision nichrome metal film resistor (MELF and Throughole), the aluminum electrolytic capacitor (primarily the V-chip and H-chip types) and the resistor networks (Arrays, SIPs and DIPs). The reader should note that high capacitance type MLCC are also in short supply, however lead times remained in the 14.2 week range overall for MLCC due to available capacity in picofarad type MLCC and because of new capacity for high cap MLCC coming on line in June.

Summary Table and Graph: Average Lead Time In Weeks For Passive Components By Sub-Type: As Of June 25th 2010

Raw Material Price Index for Passive Components Declines Again in June

The raw material index for passive components showed an additional 6% drop between May and June 2010, after the significant 25% drop Between April and May 2010. Prices for almost all key metals and materials continued their downward price trend, except for palladium, which showed an increased in price per Troy ounce for the 30 days ending June 25th, 2010.

Summary Table: Key Price Indicators for Raw Materials Consumed in the Passive Component Industry: 2009-2010

Final Analysis and Conclusions:

What's interesting is that passive component lead times continued to INCREASE in June, while raw material prices DECREASED. This of course excludes tantalite raw material, which remains in a precarious situation due to the unique problems with that specific supply chain.

There is visibility out to September now, and orders are not slowing down. It is a contradiction. The raw material prices are a better indicator of what is happening in the larger picture because materials such as aluminum, nickel, copper, etc., are used in so many other industries and they are sensitive to overall volume of demand. The decline in overall raw material prices used to produce passive components suggests that the larger economic condition is beginning to show serious signs of a slowdown, but the high-tech economy remains somewhat insulated from this event.

In passive components we are experiencing a unique situation. All major consumers of passive components- OEMs, EMS and the major distributors began to work down inventories in the December quarter of 2008 and the March quarter of 2009 rather then buying new parts from the merchant market. For the later part of 2009 and into 2010, OEM and EMS customers built up inventories again and began to buy more passive components than they needed as a competitive stance amidst the serious threat of not getting parts at all, which is evident in the lead times shown in this MarketEye article.

However, I expect a market correction to occur. The rate of orders and deliveries are not sustainable for the long term. Still, the probability of a market correction happening in 2010 is not likely; however, a market correction in the March quarter of 2011 does seem like a serious possibility if not a statistical certainty.

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