Expect 5% increases for many passive components
A perfect storm of higher materials, energy and labor costs likely means higher prices for passive components.
By Gina Roos -- Purchasing, 11/13/2008 7:00:00 AM
What a difference a few months makes. Last August, buyers and analysts were predicting that passives prices would be flat to down in 2009. Now, the story is different.
Despite their efforts to keep prices for capacitors, resistors and other components stable, suppliers now say higher tags may be in store.
What's changed? Raw-materials and transportation costs, already high, have escalated. And suppliers say it's nearly impossible not to pass along some price hikes for larger devices that use a greater amount of material. In addition, component manufacturers aren't agreeing to usual requests for cost reductions during contract negotiations.
Passives component makers say they are faced with a perfect storm of rising costs. The price of raw materials, including tantalum powder, ruthenium, palladium, gold, silver, copper, and some metals are still rising. At the same time so are transportation costs because of higher energy prices and increased labor rates in China and other countries where component manufacturing has migrated.
"A weak dollar has a big impact on labor costs and it hasn't helped in China and India, where labor rates tend to rise faster in these developing areas," says David Valletta, senior vice president of global strategic sales for Vishay Intertechnology in Malvern, Pa.
"Rising material costs have been our biggest challenge and I expect it to continue to be an issue, but it's difficult to see too far ahead right now with what's going on in the economy," he says.
The materials with the biggest impact on pricing are probably gold, silver, palladium and ruthenium, says Valletta. "Gold and silver are looking at an increase of 30% per year, ruthenium about 50% per year, so we're looking at substantial increases over what we planned for," he says.
In addition, copper, tin, aluminum and palladium are also impacting pricing, Valletta says. Palladium reached $500–$600/oz. at one point, although recently the price started to drop.
"As a component supplier you're getting squeezed because the rate of price increases per component is not as high as the rate of [the raw materials] cost increase," he says. "You tend to increase prices on parts that are very material-dependent with a high content of a metal." For example, multilayer ceramic capacitors (MLCCs) that use palladium are more likely to have price increases.
In general, Valletta expects price increases in the range of 5–10% for capacitors, resistors, and inductors, depending on the product line.
In the capacitor market, the rising cost of tantalum powder has given capacitor manufacturers the biggest headache this year, and most likely, in 2009 (see page 28E1).
The companies that mine tantalum ore say they will increase their prices to refiners 85% in January 2009, says Dan Lane, marketing manager, AVX Corp. in Myrtle Beach, S.C. Refiners say they are having problems making money and can't take an 85% increase, and they have already imposed a 20–40% price increase on suppliers like AVX, Lane says.
As early as June, two of the major refiners posted price increases, depending on the particular powder, Lane says. "We've seen the impact of some of those increases and expect it to get worse depending on what happens in January," he says.
AVX implemented price hikes starting in May in anticipation of high costs, Lane says. There were also some increases in the distribution channel to ensure reasonable margins.
Lane says large case parts, typically C case and larger, were impacted the most with price hikes in the double digits. AVX tried to hold the line for some of the smaller case sizes. Buyers did not see usual quarterly price declines for commodity tantalum capacitors because of the higher tantalum costs.
Commodity products such as those with lower equivalent series resistance (ESR) and higher voltage ratings will certainly be impacted because they use more refined powders, which are more expensive, says Lane.
Valletta has also noted that tantalum powder pricing has recently shot up about 10–20%. "It's wreaking havoc on capacitor pricing, forcing the industry to come in with significant price increases. It's not something the industry can absorb. Price increases will be the norm next year and we are starting to see it already," says Valletta.
Ceramic capacitor buyers can expect price stability. Prices had declined despite increases in raw materials costs. However, with higher materials costs, suppliers cannot continue to reduce prices. The good news for buyers is tags will be stable and not increase.
This trend will continue into 2009 as long as the market stays strong. "It really depends on what happens in the general economy and how it affects the electronics industry," Lane says.
The pricing scenario is similar for resistors. Suppliers have been able to keep pricing stable for some resistors despite increases in the costs of silver, palladium and copper, which is used in resistor terminations. For instance, KOA Speer is keeping prices stable on smaller cases, though it is implementing price hikes for larger sizes, like their capacitor counterparts.
"We're holding the line for smaller sizes, but we're not giving price reductions," says Jeff Rice, vice president of sales and marketing, KOA Speer Electronics Inc. in Bradford, Pa.
"Raw materials costs are a big concern for manufacturers. We have no choice but to adjust a little bit on larger case sizes. We are working through customer contracts and will readjust where we can," says Rice.
The cost of ruthenium shot up 800% after demand increased when it started to be used in hard disk drives, says Rice. Although cost has come down, it is still much higher than it used to be, he adds.
Another factor impacting pricing is the cost of freight. "It's a big expense for these low-cost, high-volume parts," Rice says. "We are trying to be more cautious in stocking and anticipating customer demands. We try to bring material in via ocean freight instead of air freight and stock material here to shorten cycle times," he says.
Bourns has also held pricing stable for commodity resistors, though older products that are not compliant with the Restriction of Hazardous Substances (RoHS) law are more expensive, says Bob Holmes, vice president, product management, resistive products divisions at Bourns in Riverside, Calif.
Bourns has also tried to hold prices stable for inductors, though it has been a bit more difficult due to significant increases in factory costs over the past few months. Much of those increases have been driven by materials and increased labor rates in China.
"In the past 60 days we have seen metal commodities come down, but not before multi-year continuous price increases," says Jim Somers, product line general manager for magnetics and ESD products at Bourns in Cork, Ireland. "We have fought raising prices for a number of years and suffered margin decreases, but finally had to do some price raising, ranging from 15–30%," he says.
He says volatility in demand is a major concern. A sudden increase in demand might mean that leadtimes can stretch and costs increase if a high level of manufacturing efficiencies isn't achieved.
"There is a risk of us having to look at pricing again in 2009 but I don't expect it will be because of raw material increases, but maybe other issues from a manufacturing perspective," explains Somers.
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