Buyers should prepare for higher prices for specialty passives components, and only modest price declines for commodity passives for the rest of this year and into first quarter 2009.

Suppliers say rising raw materials costs are impacting prices of capacitors, resistors, and other components. Rising labor rates in China and currency exchange rates are also affecting prices.

“The number one factor influencing pricing for components right now is raw materials and a lot of it is metal-related,” says Shawn Harrison, vice president and senior research analyst for electronics supply chain at Longbow Research in Independence, Ohio. “Depending on the component, it may be palladium, silver, copper, gold, nickel and tin. All those costs are up year over year.”

At the same time there are “oil-related charges whether it's for transportation or if there is plastics content,” Harrison says. “The final pieces are currency and higher operating or labor rates in China.

He says there are some transportation surcharges being passed along to distributors, but price increases for capacitors aren't getting through to distribution or to buyers. Buyers will not tolerate large price increases for passive components, says Harrison.

“Pushing price increases through due to raw material cost is becoming increasing difficult as industry buyers are less prepared to accept increases, especially when supply exceeds demand,” says David Yeo, commodity director, passives and memory for electronics manufacturing services provider Celestica in Toronto. However, he says passive component pricing will eventually be impacted by the escalating raw material costs.

The types of raw materials having an impact on passive component pricing vary depending on the type and technology of passive components, says Yeo. “For example, raw aluminum pricing will impact aluminum capacitors, trimmers and resistors network, while copper cost will have strong implications on the price of film capacitors, mica capacitors, wirewound resistors and ceramic capacitors,” he says.

Besides copper, tin and nickel will both have significant impact on cost of ceramic capacitors.

Yeo expects overall pricing for capacitors and resistors to be relatively stable to slightly down.

Harrison says distributors and buyers at electronics manufacturing service (EMS) providers will get low single-digit price declines, from suppliers, rather than 8-9% price drops because of the higher raw materials costs. Suppliers say rising costs for metals and plastics used in component production and higher transportation costs will result in stable to slightly down pricing.

For instance, the average price for commodity multilayer ceramic capacitors (MLCCs) is expected to be flat or down by about 2% in 2008. MLCC prices typically fall by about 5% each year.

However, prices will remain stable for high-capacitance and high-voltage parts. Resistor makers have been hit hard with rising costs for ruthenium, the biggest cost factor for thick film chip resistors, says Mario Zuchovicki, vice president and general manager at Bourns in Riverside, Calif.

Ruthenium price increases have been the worst, rising 1,500% over the past year, Zuchovicki says. Two other increases that hurt almost as much are copper, which has risen about 670%, and gold, which increased by 210% since second/third quarter of last year, he says. In addition, silver pricing has increased by almost 300%.

As a result, Bourns will pass along some price increases this year on a case-by-case basis. However, Zuchovicki says the company strives to look for continuous improvement such as improving throughput and reducing scrap to avoid price increases. Late last year, Bourns passed along price increases in the range of 1% to nearly 50% for some selected parts due to material content and cost associated with oil.

“Cost of freight with fuel surcharges is also hurting,” Zuchovicki says. “And on top of materials costs, you have rising labor costs around the world.”

Resistors also have precious metal content including silver, palladium and copper. Silver and palladium are used for terminations for surface-mount devices, while leaded devices use copper.

“Rising material costs has been the biggest issue over the last year and that will continue into this year,” says Dave Valletta, executive vice president of worldwide sales for Vishay Intertechnology in Malvern, Pa. “It's really squeezing us.”

Valletta says Vishay's business has been impacted by rising price of palladium, which is used in Vishay's capacitors, and with higher prices for silver, gold and ruthenium, which are used in various components.

“There are also oil-related products increasing such as plastics, packaging materials, and transportation,” says Valletta.

Vishay has increased prices about 5% on average this year for more mature products. Higher materials costs for such products cannot be offset with any improvements in technology or increases in volume.

The leading passives manufacturer expects to see stable to slightly higher passive component prices in 2008 with increases in the range of 5-8%, depending on the commodity. “For high-volume parts, such as MLCCs, there is still some price degradation, but for specialty devices, we see increases,” Valletta says.

The bad news for both buyers and suppliers is that next year, “there doesn't appear to be any abatement in price increases of raw materials,” says Valletta. “In some cases, we see customers looking at longer term contracts to protect against price increases.”

Some suppliers don't see rising materials costs as a problem. “Raw materials are not really a factor because everything is base metal at this point with some copper and silver terminations,” says John Denslinger, executive vice resident sales and marketing at Murata Electronics North America in Smyrna, Ga. “There are not a lot of cost drivers from a materials standpoint. It's more indirect costs like energy that are impacting the cost structure,” he says.

Denslinger expects a modest decline in pricing, about 2-3% in 2008, due to a balance in supply and demand. Murata along with TDK and Taiyo Yuden have added a lot of capacity over the past two years. In addition, some Taiwanese and Chinese suppliers have increased standard MLCC production, which has resulted in a total market supply that is matched with actual demand, he says.

Denslinger also expects mostly stable pricing in 2009.