January 2014 Lead Time Update:
During the month of January 2014 lead times for passive electronic components, otherwise known as the time it takes in weeks for a component to leave the factory and reach the customer, decreased by 2.62% to 12.66 weeks, further demonstrating the weak performance of the global passive component industry that has been evident since January of 2012. The chart below, which shows 46 months of collective passive component lead-time data, supports lackluster market performance for the first month of 2014.
A slowdown in January lead times impacted all primary passive component groupings including capacitors, resistors and inductors; with particular emphasis upon tantalum chip capacitors, radial leaded plastic film capacitors, polymer aluminum capacitors; large can inverter capacitors; specialty ceramic capacitors; thick film chip resistors, Nichrome film resistors and thin film chip resistors; as well as molded axial and radial leaded inductors. All other sub-component groupings in the capacitor, resistor and inductor markets remained unchanged with respect to changes in lead times on a month-to-month basis. The only positive signs came from certain axial leaded capacitors consumed in the automotive sector.
Source: Paumanok Publications, Inc. Monthly Market Report On Passive Components: January 2014
Lead-Time Trend is Historically Accurate:
The lead-time trend over the past 46 months, as shown in the chart above, illustrates how January is typically a down month in the supply and demand equation for passive components because the prior months are reacting to the holiday buying season. In 2014 however, the historic January downturn is being coupled with the resolution of the disruption in the fixed resistor supply chain that manifested itself in the later part of 2013. Also in January 2014 we have the industry wide concern over economic problems in emerging economies, such as China, which is impacting the overall market. There is also the added factor of fluctuating currency valuations, with respect to the yen versus the dollar and the euro.
Still, Paumanok believes that the market is overreacting to the financial data emanating from emerging economies, especially from China, whose production economy is tied to the high-tech devices that would typically experience a market slow down in the post holiday season especially in January. When we look at the market in a longer-term view- back to January 2012 for example, we can see a gradual tightening of supply and an improvement of overall demand. We expect this trend to also play out in 2014, buoyed by expected market growth in established economies in the United States and Western Europe.
A Look at the Passive Component Raw Material Index:
The Passive Component Raw Material Index (which covers feedstock pricing for many of the primary raw materials consumed in the production of passive electronic components see explanation below) showed a 1.04% month-to-month increase in January 2014. This followed a 3.78% increase in December 2013. The longer-term trend in raw material pricing for passive electronic components has been trending downward since the beginning of 2012. This downward trend supports a weak global economy (because of the dual use of the specific raw materials consumed in passive components).
Source: Paumanok Publications, Inc. Monthly Market Report On Passive Components: January 2014. The chart includes both precious and base metals consumed in passive electronic components, including nickel, aluminum, copper, zinc; palladium, ruthenium, silver, tantalite and crude oil.
Relationship Between Raw Materials and Specific Passive Components
Raw materials consumed in the production of passive components that can be readily tracked on a month-to-month basis and include base metals and precious metals, as well as crude oil. A description of their use is provided below.
Nickel: Nickel is consumed as an electrode material in X5R, Y5V and X7R multilayered ceramic chip capacitors as well as in some NPO type MLCC as well. Other uses of nickel are as additives in the production of steel, in superalloys and in electroplating.
Copper: Copper is consumed as the primary termination material consumed in X5R, Y5V and X7R multilayered ceramic chip capacitors that are manufactured with nickel electrodes. Other uses for copper include the primary conductor in electrical wire and cable, plumbing supplies and in electric motors.
Aluminum: Aluminum is a bauxite derivative material, and consumed in various forms in passive components, including its primary usage as a dielectric foil in aluminum electrolytic capacitors and as the primary substrate consumed in thick film chip and throughole resistors in the form of alumina ceramic. Other uses for aluminum include as a lightweight structural metal in trains, planes and automobiles, aluminum cans and packaging, and multiple household items.
Zinc: Zinc is consumed as the primary ceramic material in zinc-oxide varistors. Its primary use in industry is as a galvanizing metal (anti-corrosion).
PRECIOUS METALS & CRUDE OIL:
Palladium: Palladium is consumed in the electrodes of air fired low layer count multilayered ceramic chip capacitors, primarily in NPO and X7R type products. Its primary use in industry is as an auto-catalyst for catalytic converters in automobiles.
Ruthenium: Ruthenium is the primary resistive metal consumed in oxide form in thick film chip resistors and resistor networks. The primary use for ruthenium is in thick film resistors, although there are minor uses in hard disc drives and in chemical cracking catalysts.
Tantalite: Tantalite is consumed as the primary dielectric material in tantalum capacitors. Capacitor anodes are its primary application, although other applications include sputtering targets, grain inhibitors in cemented carbides and in chemical compounds.
Silver: Silver is consumed in MLCC electrodes (blended with palladium) and as the primary termination material consumed in MLCC with precious metal terminations. It is also used as the primary electrode material in single layered ceramic disc capacitors. Primary applications in industry for silver are for jewelry, dentistry and photography.
Crude Oil: Crude oil is the primary feedstock material consumed in plastics, which in turn are consumed as the primary dielectric material in plastic film capacitors. Plastics are also consumed as packaging materials for a variety of passive components. The primary application of crude oil is as a fossil fuel.
By tracking the pricing structure of the specific raw materials mentioned above which are consumed in passive electronic components we can get an additional set of data points that point toward the health of the business as a whole. Because raw materials reflect a significant percentage of the cost of goods sold for passive component manufacturers, the increase or decrease in overall pricing of raw materials can have a significant material affect in profitability for vendors of passive electronic components. However, due to the dual use nature of the raw materials consumed in passive components, increases in price for the specific materials included in the index can also reflect greater demand and therefore improving global economies. So in fact, the two-month consecutive increase in materials pricing supports an improving future global economy.
Market Summary and Conclusions:
A slowdown in lead times in January is disconcerting for the health of the global passive component markets and the entire high-tech economy in general; however it is not uncommon for the market to slow down in January, as is historically proven in chart one above. Also disconcerting is the rise in passive component raw material costs in December 2013 and again in January 2014, as noted in chart two above, which filters into the market and increases the overall costs to produce, thus negatively impacting profit margins for vendors in the field. However, increases in raw material pricing usually go hand-in-hand with improving global economies because of the dual use nature of the specific materials included in the index.
Also, the longer-term trend line points toward a gradually improving global market for passive electronic components. In fact, much of the primary economic data supports growth in the high-tech economy for CY 2014 and 2015. This growth, it is expected, will be lead by an increase in demand in the Americas and Europe, with emphasis on growth in the United States, Mexico and Canada; as well as accelerated growth (post-austerity) in Germany, France, Italy, Spain and the UK. The Asian region however, is expected to be flat year-on-year, especially China and Japan; although this will be offset somewhat by anticipated growth in India and Korea. Overall this will have a positive impact on the global high-tech economy, and passive components consumed to support production growth of the end-products supporting digital electronic products. In fact, based on our detailed country-by-country growth models, the global combined market growth for capacitors, resistors and inductors in CY 2014 should be 9.7% in dollar value for the year.
Therefore, in conclusion, it is the position of Paumanok Publications, Inc. that even though the near-term data supports a sluggish demand equation for passive components, the long term outlook for CY 2014 and 2015 remains robust.