Material Market Update – Q1-2023

Electronic Components: Market Sales & Forecasts

In Figure 1, Semiconductor sales confirm that sales have turned a corner, and the industry is now in a negative growth period. Memory has performed worst on an annualised basis down 38.3% on 2021 levels (see figure 2), with Logic and Analog both showing growth albeit much reduced.

With global events affecting Macroeconomic factors It is expected that this slump will last for 3 to 4 quarters, before the next growth period which is anticipated in 2024. The current market slump will create a surplus supply scenario. However, it is likely to be limited to the Memory and Micro markets, with Analog and Logic only expected to return to pre-pandemic stock levels by around Q3-2023.

It is expected that the next wave of growth will create another period of constrained supply across most, if not all markets.

Semiconductor sales worldwide from 2012 to 2022, by month (in billion U.S. dollars)

12:12 IC Growth Rates

Electronic Components: Wafer Fab Update

In 2022 semiconductor capex spending increased over 20% to just below US$200 billion resulting in a record high of 33 new semiconductor Fabs starting construction in 2022. With a further 28 more Fabs expected to start in 2023 additional capacity will certainly be available within the next 1-5 years.

The investments have been spurred on by incentives from the US Chips and Science Act and the European Chips Act. This record Fab expansion has also meant it has also meant is has been a record year for equipment manufacturers, despite restrictions imposed on them to stop exports to China.

Whilst it is good news that the extra capacity will start to come online, there is a note of caution. Many of the new fabs will be built to produce newer technologies. There is seemingly very little interest in increasing capacity to support legacy items.

Additionally, with a downturn in semiconductor forecasts for 2023 – it is widely expected that some expansion plans will be paused during Q1 and Q2 of 2023 delaying some of the excess capacity from positively impacting the supply chain scenario.

Electronic Components: Supply Projection

Foundry Utilisation rates in global wafer fabs continue to decline and are projected to pass through the 85% barrier, which is regarded as the point as which we move from normal supply to moderate or severe surplus.

2023 offers some hope that the constraints seen in the supply chain since Q2-2020 are lifting, and it is anticipated that there will be a severe surplus stock scenario on certain commodities, with Memory and Micro best positioned to benefit. Analog and Logic supply will however remain tight.

GIISST and Foundry Utilization Rates

Electronic Components: Pricing and Lead Time Trends

In our last update, we reported that during 2022 pricing had trended upwards in almost all commodities. Market updates from our key suppliers show that pricing trends are starting to level off, however this softening is not expected to lead to price reductions in 2023. In fact, due to macroeconomic factors a high level of volatility still exists today, and pricing could change at any moment.

To secure the best pricing place orders as early as possible, and where program funding is available it is recommended to drive inventory into stock at the earliest opportunity.

Allocation still exists for some manufacturers and/or technology types, so we advise customers to provide the clearest visibility of program nature and special contractual exceptions which can be applied.

In general lead times are starting to improve but remain very high in comparison to pre pandemic levels.

Table

Electronic Components: Pricing and Lead Time Trends (continued)

Resistors:

CUR SENSE - Lead Times

METAL FILM - Lead TImes

THIN FILM - Lead Times

Capacitors:

CERAMIC - Lead Times

TANTALUM - Lead Times

Printed Circuit Board Update

The downward trend in demand for semiconductors has had a knock-on effect to the PCB market. The softening reported in Q4-2022 report continues to present itself.

The slowdown in consumer electronics continues to drive a very competitive market. This slowdown is expected to reduce the demand for raw materials, however demand is still seen as greater than supply.

During 2022 exponential rises in energy costs only served to negate the reduction in some raw material costs, but with global inflation levelling off, costs have started to stabilise somewhat.

Material lead times continue to be stable, with most material available in 15 to 20 working days. All PCB suppliers, recommend forecasting demand for raw materials to ensure programs can continue to ride any market volatility. Whilst flex materials remain a concern, lead times continue to be stable but are extended.

Manufacturing Lead Time will vary from site to site. Depending on the complexity of design typical lead times remain anything from 4 – 11 weeks.

Metalwork Update

During 2022 nearly all metals reduced in price. In this report we focus on Aluminium, Copper, Gold, Steel and Tin. Rising energy costs balanced off any potential savings resulting a stabilised pricing scenario for the market.

Metalwork Update

During Q4-2022 nearly all metal markets turned a corner, and pricing has risen since. Copper, Gold, Steel and Tin have seen the greatest increases, which is expected to impact pricing during 2023.

Material availability remains stable.

Macroeconomics

Definition:

Macroeconomics is a branch of economics which deals with the performance, structure, behaviour, and decision-making of an economy as a whole. For example, using interest rates, taxes, and government spending to regulate an economy's growth and stability. This includes regional, national, and global economies. According to a 2018 assessment by economists Emi Nakamura and Jón Steinsson, economic "evidence regarding the consequences of different macroeconomic policies is still highly imperfect and open to serious criticism."Source: Wikipedia

Between 2020 and 2022 there were no shortage of global events that contributed to the challenges for macroeconomics. Some events have been and gone, whilst it looks like others are going to be with us for long haul. Below is an overview of some of the events that contribute the volatility we see today in the market we serve.

Ukraine conflict

The immediate effect of the Russian invasion of Ukraine was a sharp rise in the prices of commodities. Those issues were further exacerbated by the restriction of movement of goods through the region. Economic sanctions put in place also added to the strain on supply chain.

With Europe getting between a quarter and third of its oil and gas supplies from Russia, there was an immediate impact on European pricing.

Globally, Russia and Ukraine were leading global producers of nickel, copper and iron – which put immediate pressure on supply chains for these raw materials

This event is a main contributory factor to the rise in interest rates during 2022. With little sign of the conflict ending, this event will continue to play its role in adversely affecting the market.

China Zero Covid Policy

In 2020, with the emergence of COVID-19 China adopted a strict Zero Covid policy. The policy locked borders, movement of people and more importantly movement of goods. These restrictions impacted Supply Chains across the world directly and impacted the semiconductor industry. The supply of its goods at a time when the semiconductor market was in its post Covid growth period, served to stifle output in all market sectors of the electronics industry.

At time of writing China has now scrapped nearly all covid policies. On the face of it, this is good news but a severe disruption from the inevitable COVID outbreak will create short-term on Supply Chain and Logistics.

Winter Storms in USA

Energy Crisis, Inflation, and Interest Rates

Since the Russian invasion in Ukraine, energy pricing has risen to levels never seen before. This impact is felt throughout society as businesses looks to manage their rising costs, which in turn impacts everyone. With inflation levels generally between 3-12% in the G20 countries, consumer confidence has been directly impacted. Households have been prioritising their spending with the upgrading of consumer electronics and new automobiles typically the first to go. As spending goes down, this further exasperates the issue leading to a genuine local and global recession scenario in the coming months.