The rally of the PCB industry will continue

printed circuit board e1623337748800 - The rally of the PCB industry will continue

The price of wafer fabs and packaging and testing plants have increased, and now PCB (printed circuit board) factories are also increasing prices. The entire electronics manufacturing industry seems to be unable to get rid of the curse of price increases.

Performance and price hikes fly together

According to data released by the TPCA (Taiwan Circuit Board Association), the PCB output value of Taiwanese companies in the first quarter of this year reached 6.108 billion US dollars, a record high in the first quarter of the year, a growth of 26.7% over the same period last year, and Taiwanese companies accounted for about 63.2% of the mainland’s production. , The output value of the second quarter is estimated to reach 6.2 billion US dollars.

According to data from CITIC Electronics and Shenwan Electronics, the performance of the PCB sector in A-share listed companies in 2021Q1 is also exceptionally eye-catching, with revenue increasing by 43.7% and net profit attributable to parent companies increasing by 45.6%.

In addition to the growth and decline of rigid-flex boards due to AirPods’ changes in product design, Taiwanese companies’ flexible boards, multilayer boards, and HDI (high-density interconnect) boards all have a growth rate of more than 20%. TPCA believes that this is due to the benefits of the high-end 5G mobile phones, the trend of remote office and teaching driven by the epidemic in the notebook market, and the improvement of the global automotive market.

Other research institutions also gave similar reasons, and believe that the entire semiconductor industry has grown substantially this year, which has also driven the growth of IC carrier boards and HDI boards.

But at the same time as the performance growth, PCB manufacturers have also started the price increase model. For example, Shenghong Technology stated on the interactive platform that the company’s PCB products follow the principle of market-based pricing and will consider market supply and demand, raw material price fluctuations, etc., and negotiate pricing with customers. The current increase in raw material prices may cause the company’s product prices to rise.

The rise in raw material prices is the main driver of this round of price increases. This scene is very similar to the situation in 2018. It was also because the supply of copper foil was in short supply that year, which caused the prices of various raw materials to continue to rise.

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, grab production capacity, and grab raw materials. Terminal demand remains high, and the problem of tight upstream raw material supply is also difficult to solve in the short term. Seeing that the traditional peak season for electronic products is coming, if the demand remains unchanged, it is not ruled out that the third quarter will continue to rise.

 

Upstream of the supply chain

The basic material for PCB manufacturing is CCL (CopperCladLaminate copper-clad laminate), and its upstream is mainly raw materials such as copper foil, fiberglass cloth, and epoxy resin.

Copper Clad Laminate e1623337620381 - The rally of the PCB industry will continue

Mainland China has become the world’s largest producer of copper-clad laminates, with a global share of the industry’s output value reaching 65%, but most of its production capacity stays in the low-end areas. At present, the average unit price of domestic copper-clad laminates is much lower than other countries in the world.

The price of upstream materials for copper-clad laminates has risen across the board since last year. According to the research report of Minsheng Securities, the price of LME copper has increased by nearly 90% from April 2020 to the end of the first quarter of this year; the price of epoxy resin has increased by more than 55% since Q3 of 2020, and the current price of electronic fiberglass cloth has been higher than that of 2020. In the first half of the year, 3.7 yuan/meter increased nearly doubled.

The explosive growth of new energy vehicles, 5G, IDC, energy storage, and other fields this year has driven the rapid growth of copper foil demand. At the same time, because copper foil supply cannot be effectively solved in the short term, it is expected that the shortage of supply will continue for a long time.

The CCL supply chain revealed that copper foil is now in a state of serious shortage of supply, and the delivery time has been continuously extended, and the price increase has also been wave after wave. And this time, most people in the industry believe that electric vehicles and 5G business opportunities have indeed come. Before the newly established copper foil production capacity is in place, short supply has the opportunity to become a daily routine in 2-3 years.

Epoxy resin has entered a relatively obvious weak downward trend since late May. Some time ago, epoxy resin companies in the Huangshan area of ​​Anhui reported that after the environmental inspection team moved in, the local solid epoxy resin companies were in the stage of suspension of production. The Huangshan area of ​​Anhui is the main domestic production base of solid epoxy resin, and its output accounts for about 60% of the national total.

Industry insiders believe that the current production restriction only affects the supply side, but the early high price has restrained downstream demand. Although the current epoxy resin price has seen an inflection point, it is still at a high level compared to the same period last year.

The electronic fiberglass cloth industry has basically no new production capacity in the first half of 2021, and the production capacity may still be reduced due to the suspension of production by foreign companies. However, in the second half of the year, prices may fall as new production capacity is launched.

CCL supplier Tenghui recently stated that because of the overall price increase of important PCB raw materials, such as copper foil, glass cloth, resin, and related chemicals, the increase is as high as 30-100%. Tenghui has adjusted prices in batches. It is estimated that the price adjustment will be completed in the near future.

Whether the material will continue to rise in the next quarter is still inconclusive, but there is almost no suspense in the second quarter. The bargaining power and product specifications of PCB manufacturers continue to be tested. Large-scale PCB manufacturers with large-scale production capacity and technological advantages may adjust their quotations to downstream customers based on market conditions.

 

Demand surge

circuit board e1623337905329 - The rally of the PCB industry will continue

Currently, the entire PCB market is in an upward channel. In the third quarter of 2020, manufacturers such as OV and Xiaomi placed orders for HDI boards significantly higher than in the past. PCB manufacturers’ production capacity has been fully loaded until the fourth quarter of 2020, and orders have been queued until around the Spring Festival of 2021. At the same time, Apple’s orders are also very strong, and the HDI production capacity of Tripod, Huatong, and Baicheng have all been booked.

However, the largest production capacity still comes from the 5G infrastructure. 2020 is the year of 5G infrastructure construction. Only in mainland China, 600,000 base stations will be opened throughout the year. It is estimated that there will still be a 30% growth in 2021, or 800,000 to 1 million base stations. No wonder that in early 2021, Japanese PCB manufacturers have stated that “single 5G business has reached full capacity.”

Consumer electronics are also showing a trend toward higher density, and HDI downstream faces the end market and is expected to be one of the fastest-growing tracks in PCB applications. In 2021, domestic PCB manufacturers will accelerate the layout of HDI products, and will focus on the first- and second-tier production capacity, mainly for mobile phone ODM manufacturers including Wingtech and Hixih; the introduction of high-end products still takes time, and high-end production capacity above third-tier is facing a shortage.

Entering 2021, IC substrates will continue the very strong trend of last year, and this year will continue to grow, and the demand side is very strong. Therefore, PCB factories have expanded the production capacity of IC substrates in response to strong customer demand. PCB manufacturer Xinxing benefited from the 26% gap in the supply and demand of the IC substrate market and decided to add a total of 436 million US dollars in capital expenditures in 2021 and 2022.

At present, PCB manufacturers in Taiwan have a leading edge in technology, while PCB manufacturers in mainland China have huge domestic demand support, and the development prospects of both are also promising. However, this round of raw material rise is far higher than the previous round, so the gross profit margin and performance of PCB industry companies will face greater pressure. In the PCB industry with an imperfect price transmission mechanism, these manufacturers may still suffer a period of decline in gross profit.