PCB shortage: Materials are getting more expensive

PCB Materials are getting more and more expensive. April. 2021  Source: Elektronik PRAXIS

The circuit board is mainly composed of copper, resin, and glass fiber. These ingredients are becoming scarcer and therefore more expensive. What is going on, what can you do now?

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The printed circuit board industry has only a few suppliers for each component, so in terms of the importance of electronic products-the industry’s foundation is very narrow.

“Smile, it might be worse! I smiled and the situation got worse.” I wrote at the beginning of the year that the threat of rising prices and shortages existed. But no one can foresee those further problems will exacerbate the situation in the electronics industry as they are now. We have now-in April 2021-reached a stage where people will hardly be surprised when things get worse.

The starting point is a small virus that is disrupting the world. The rise in the number of infections and the high mortality rate has brought social and economic life to a standstill. The lack of supply chain personnel has led to a reduction in output in all industries, but here is only a more detailed examination of the printed circuit board industry.

Printed circuit boards are basically composed of only a few basic materials: copper, resin, and glass fabric (there are hundreds of different components in the finished assembly). The printed circuit board industry has only a few suppliers for each component, so in terms of the importance of electronic products-the industry’s foundation is very narrow.

Copper

Approximately 40% of the world’s copper production comes from Chile and Peru. Due to the rapid increase in the number of infections there, production has fallen-especially in the second quarter of 2020. In terms of deep processing, China has more than one-third of the world market share, and more than three-quarters of the top ten. Due to the lack of staff there, the number of global availabilities fell by 2%. In the next few years, the increasing demand for electricity (such as renewable energy) and electronic products may cause serious supply bottlenecks.

Copper prices doubled after the low of US$4617.50/ton on March 23, 2020, and reached a high of US$9614.50/ton on February 25, 21. At the same time, it has declined, but the price is still at a very high level. Goldman Sachs has predicted that it will reach or exceed the historical high of US$10,148/ton on February 14, 2011.

Copper foil

The PCB industry uses 18 µm and 35 µm foils as standards, and high current applications require up to 400 µm. Semiconductor manufacturers’ chip substrates and the 5G technologies currently under development require thinner, more complex, and more affordable foils.

In addition, with the development of electric vehicles, electronic products have become competitors of already scarce foils in several ways: thinner foils are required, and the technical requirements are not so high. In this case, the achievable price is even higher. Copper foil is sold per square meter, which means thinner films generate more revenue from the same weight unit. Therefore, it is understandable that a small number of suppliers focus on profitable areas.

Production expansion is under construction or at least planned to be carried out in 2021 and 2022, but the necessary facilities are already in place, such as T. Delivery time is 18 months. Therefore, it is impossible to produce thicker copper foil, which means further restrictions on the automotive and solar industries.

Epoxy resin

At the end of 2019, the economic forecast for 2020 has been very cautious. With the emergence of the coronavirus, the outlook has further deteriorated. Therefore, production capacity has been closed and maintenance work has been carried out in advance. The manufacturer was surprised by the sudden economic recovery in the second quarter of 2020, but the decision made is irreversible. This triggered the first wave of resin prices.

In the first week of November 2020, two epoxy resin plants in China exploded and a fire broke out in a bisphenol-A plant in South Korea, causing prices to double within a few hours.

As a result, the Chinese authorities have significantly increased the safety requirements for such power plants, and it is not clear whether the two destroyed power plants will receive reconstruction permits. The unusual cold snaps in China and the United States exacerbated this situation, as production capacity had to be reduced.

Glassware

The situation with fiberglass cloth is the same as with resin: capacity shutdown and early maintenance. The melting furnace must first be cooled, the brickwork is removed, and the furnace is lined again until the heating phase can be carried out—a process that takes several months in total. Therefore, there has been a supply bottleneck since May 2020.

The capacity reduction and fires of glass filament fabric manufacturers in July caused fabric bottlenecks and prices began to rise in May. According to fabric density, the price will rise by as much as 50% in the first half of 2020, and it will increase by 5-10% in November, and it is expected to increase further this year. Since these manufacturers also have more favorable markets (for example, 5G, IC substrates), laminate manufacturers who have a demand for standard fabrics get a smaller number.

Laminate

Laminates used in the production of printed circuit boards are made from three primary products. Since up to 90% of the production cost of basic materials is determined by primary products, manufacturers have to increase some of their prices. The top 10 manufacturers have a global market share of approximately 75%, and they are all in Asia.

The shortage caused prices to rise from the second quarter of 2020, and to be allocated from the third quarter of 2020. Even “good” regulars won’t receive the amount they received in the previous year, let alone additional requirements. Due to the deterioration of the supply situation, only pre-orders are accepted, and the price is only valid for one month (until now-April-only in Asia, but Europe should also be added soon.

Of course, manufacturers also have more profitable areas (thinner laminates and more complex resin systems), so the production of standard materials is reduced. In addition, 7628 and 2116 fabrics are seriously in short supply, which is why individual manufacturers even stopped producing double-sided standard materials in April 2021-at least for the foreseeable future.

Starting from the beginning of 2020/21, the delivery time has increased from 2 weeks to 12 weeks or more. Production capacity in the third quarter is already scarce (the peak season for Christmas business in Asia), and it is expected that the fourth quarter of 2021 will bring relief. To make matters worse, in mid-April, a fire broke out in one of the top ten laminate manufacturers, destroying key production facilities, causing massive production losses, and further exacerbating the already tense situation.

Logistics

The details described so far are bad enough, but logistics also has a major impact on the problem. Due to the corona, maritime traffic was interrupted and no more calls were made at the port. Due to the lack of truck drivers, the domestic logistics collapsed with the return of containers.

Container loading and unloading usually only takes two to four days, but in 2020 it will increase to a few weeks. Although there are approximately 40 million containers worldwide (about half of which are constantly moving), since mid-2020, too many containers have been placed in the wrong place. This resulted in an increase in freight from Asia to Europe from approximately US$1,300 in April 2020 to US$8,300 in March 2021 (a 6-fold increase).

This year, all ships from Asia to Europe will arrive two weeks later than planned on average. In addition, confirmed departures can be canceled within a short period of time. When accidents like “Ever Given” occur, all plans are in vain. Airfreight is not an alternative, as the lack of passenger flights (usually carrying 60% of the cargo) means that there is no capacity here either.

Outlook for 2021

At every level, in every industry, delivery capacity and demand are clearly out of proportion. Overall economic development and new technologies have driven higher demand. The government’s plan to support the economy created additional demand—and further created bottlenecks. Due to historically low inventory levels, short-term additional demand cannot be met under any circumstances. This means that availability, delivery time, and prices are all changing. This affects all areas, including key industries. This situation is likely to continue in the coming year.

Competition for raw materials, primary products, and parts will increase significantly; some industries will try to increase their advantages at the expense of other industries. As long-distance travel may be reduced by as much as 60% in the foreseeable future, air freight will still not be able to provide sufficient quantities.

The current situation is unique in the history of electronic products, because there is no supply or security of supply, no price guarantee, and even more frustratingly, no prospects for improvement. Therefore, it is now necessary to improve risk management, check and shorten the supply chain.

Must strengthen market observation and include other aspects (supply components to customers, because fewer components = fewer circuit boards). The “bargainers” who changed suppliers in the past will be sad because suppliers will first serve their regular customers based on their possibilities.

What should I do?

The most important suggestion is not to panic, but to communicate closely with the supplier to discuss and coordinate the required quantity and possible delivery time. Remember, your supplier is eager to deliver to you, so it will not help if you put pressure on him because he is only one link in the supply chain after all.

You should place a fixed date order in time and book any additional quantities only after negotiation with the supplier. The open delivery plan is unlikely to work this year.

Order only the quantity that meets your needs (in any case, you may barely get more quantities than last year).

Take over possible deliveries to your own warehouse immediately, because the possibility of consignment storage should be getting smaller this year (and you can also ensure the current price).

Instead, talk openly and honestly with your customers, stay in close contact and ask for early orders on fixed dates. Refer to market conditions (even if some buyers try to put it aside).

It is inappropriate to categorically reject the price increase and postpone the automatic response this time. It’s all about obtaining raw materials and being able to deliver them or not.

The most important

It does not make sense to use double and triple orders to exacerbate this situation, because this time, if the bubble bursts, suppliers are likely to insist on buying. Trusted cooperation is now becoming more important and will have an impact on future business relationships.

 


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