Tight Material Demand Surge PCB Industry Will Rise Again

 Higher prices at Hybrid Fab, higher prices at testing plants and now higher prices at PCB plants seem to be the curse of the electronics industry as a whole.

Performance goes hand in hand with price increases
In the first quarter of this year, the output value of cross-strait PCB of Taiwan enterprises reached 6.108 billion US dollars, hitting a record high in the first quarter of a year, growing 26.7 percent compared with the same period last year. Taiwan enterprises accounted for 63.2 percent of the production in the mainland region, and it is estimated that the output value in the second quarter could reach 6.2 billion US dollars. A-share listed enterprises in the PCB plate in 2021Q1 performance is also exceptional eye-catching, income increased 43.7%, net profit attributable to the mother increased 45.6%.
In addition to the slowdown in soft-hardboard growth due to the change in product design of AirPods, Taiwanese companies' soft-board, multi-layer, and HDI (high density interconnection) boards all saw growth rates of more than 20 percent. TPCA believes that this is benefited from the high-end 5G mobile phone, the trend of remote office and teaching driven by the epidemic in the PC market, as well as the improvement of the global automobile market and other terminal products.
Other research firms cite similar reasons, pointing to the growth of the semiconductor industry as a whole this year, which has led to the growth of IC and HDI boards.
      But in the growth of performance at the same time, PCB manufacturers have also opened a price model. For example, Singhong Technology said on the interactive platform that the company's PCB products follow the market-oriented pricing principle, will consider the market supply and demand, raw material price fluctuations and other negotiations with customers to price, the current price rise of raw materials may lead to the price rise of the company's products.

Rising prices for raw materials have been the main driver of the increase, much like in 2018, when prices for various raw materials continued to rise as demand for copper foil outstripped supply.
In fact, the upstream raw materials of PCB have continued to rise from the end of 2020 to the present, and it is normal to overbook, compete for capacity and raw materials. The terminal demand is high, the problem of the upstream raw material supply is also difficult to solve in the short term, we see the traditional peak season of electronic products is coming, if the demand continues unchanged, we can not rule out the possibility that there will be continued growth in the third quarter.

The basic material of PCB manufacturing is CCL (Copper clad laminate copper foil laminate), and its upstream is mainly copper foil, glass fiber cloth, epoxy resin and other raw materials.
Mainland China has become the world's largest producer of copper clad panels, accounting for 65% of the global industrial output value, but the production capacity is mostly in the low-end field. Currently, the average unit price of domestic copper clad panels is far lower than that of other countries in the world.
Upstream material prices for copper cladding began to rise across the board last year. LME copper prices rose nearly 90 per cent between April 2020 and the end of the first quarter of this year; The price of epoxy resin has increased by more than 55% since Q3 of 2020; The current price of electronic fiberglass fabrics has nearly doubled from 3.7 yuan per meter in the first half of 2020.
     The explosive growth of new energy vehicles, 5G, IDC, energy storage and other fields this year has driven the rapid growth of the demand for copper foil. At the same time, because the supply of copper foil cannot be effectively solved in the short term, it is expected that the situation of short supply will remain for a long time.

CCL supply chain revealed that copper foil is now in a state of serious supply shortage, the delivery period continues to lengthen, the price increase is also a wave after wave.
And this time, most industry insiders believe that electric vehicles and 5G business opportunities have indeed arrived, with the opportunity for short supply to become a daily occurrence in 2-3 years before the newly established copper foil capacity is in place.
     Epoxy resin in late May since the entry of a more obvious weak downward. Some time ago, the epoxy resin enterprises in Huangshan, Anhui Province, reported that the local solid epoxy resin enterprises were in the production limit stage after the entry of the environmental protection inspection team. Huangshan area of Anhui Province is the main solid epoxy resin production base in China, the output of which accounts for about 60% of the national total.
At present, the production limit only affects the supply end, but the early high price has inhibited the downstream demand. Although the current epoxy resin price has appeared an inflection point, but compared with the same period last year, it is still at a high level.
      In the first half of 2021, there is basically no new capacity in the electronic fiberglass fabric industry, and the production capacity may still be reduced due to the suspension of foreign companies. However, with the launch of new capacity in the second half of the year, the price may fall somewhat.

Tenghui, the supplier of CCL, said recently that due to the overall price rise of important PCB raw materials, such as copper foil, glass cloth, resin, and related chemicals, the price rise is as high as 30 ~ 100%, Tenghui has successively adjusted the price in batches and is expected to complete the price adjustment in the near future.
It is still uncertain whether the material will continue to increase in the next quarter, but there is almost no doubt about the increase in the second quarter. The bargaining power and product specifications of PCB manufacturers continue to be tested. Large PCB factories with large production capacity and technological advantages may adjust their quotations to downstream customers according to the market.

great demand

       At present, the whole PCB market is in the upward channel. In the third quarter of 2020, OV, Xiaomi and other manufacturers have placed orders for HDI boards significantly higher than before. PCB manufacturers have been fully loaded with production capacity until the fourth quarter of 2020, and orders have been lined up until the Spring Festival in 2021. At the same time, Apple orders are also quite strong, Jianding, Huatong, Baicheng and other HDI capacity has been booked.

      However, the biggest capacity will still come from 5G infrastructure. 2020 is the big year of 5G infrastructure. Only the Chinese mainland will open 600,000 base stations throughout the year. It is estimated that there will still be a 30% growth in 2021, or it will reach 800,000 to 1 million. No wonder Japanese PCB manufacturers said at the beginning of 2021 that "the capacity of single 5G industry has reached full capacity".
Consumer electronics is also showing a high density trend, with HDI downstream for the end market, which is expected to be one of the fastest growing circuits in PCB applications. In 2021, domestic PCB manufacturers will accelerate the layout of HDI products and focus on putting first-order and second-order production capacity, mainly for mobile ODM manufacturers including Wentai and Huaqin. The introduction of high-end products still needs time, and the high-end production capacity above the third stage is in short supply.

      Into 2021, IC carrier continues the very strong trend of last year, and continues to grow this year, the demand end is very strong. Therefore, PCB factories have been expanding their IC board capacity to meet the strong demand of clients. As the gap between supply and demand in the benefited IC board market reaches 26%, Xinxing, a leading PCB manufacturer, has decided to increase its capital expenditure in 2021 and 2022 by a total of 436 million US dollars.
At present, PCB manufacturers in Taiwan have leading technology advantages, and PCB manufacturers in mainland China have huge domestic demand support, the development prospects of both are also predictable. However, this round of raw materials rise far higher than the previous round, so the PCB industry companies will face greater pressure on gross profit margins and performance. In the PCB industry, where price transmission mechanisms are imperfect, these producers are likely to suffer a period of declining gross margins.