Rising raw material prices trigger a domino effect in the LED industry?
Since the beginning of this year, LED chip prices have continued to rise. Starting in March, Shenzhen Mulinsen Optoelectronic Technology Co., Ltd. raised the shipment price of its B2121SRGB01 product. Subsequently, in May, chip manufacturers such as Epistar, San'an, and HC SemiTek also adjusted their prices. At the end of August, LED chip and packaging companies collectively raised prices even further; some small and medium-sized product prices from Xiamen San'an rose by 10%, effective August 25; the RGB lamp bead prices of Ampu Optoelectronics, Xinda Optoelectronics, and Mulinsen Optics were also raised by 5%, effective September 1.
Do repeated price hikes signal a recovery of the LED industry market? Or do they trigger a domino effect in the LED industry, intensifying industry reshuffling and divergence? We leave it to industry insiders to answer.
What are the reasons behind the frequent price hikes in the upstream LED sector?
It is understood that the main reason given by upstream manufacturers for the price hike is the recent rise in various raw materials and labor costs, which has exceeded the cost accounting price. To maintain profitability, they can only choose to raise prices.
So which raw materials specifically have seen price increases? According to reporters from Meiri LED, sapphire, aluminum substrates, copper foil, gold wire and other raw materials used in LEDs have all seen price increases to varying degrees.
Shenzhen Chengzhiyi Circuit Co., Ltd. specializes in the R&D and manufacturing of LED aluminum substrates and PCB boards. According to General Manager Lin Yiming of Chengzhiyi, LED raw materials have seen two consecutive price hikes since August this year, with the supply chain of copper foil used in aluminum substrate manufacturing being tight. As he understands it, on the one hand, environmental protection-related production halts during the G20 Summit led to supply contraction; on the other hand, the booming lithium battery market has caused a shortage of copper foil supply. Therefore, LED aluminum substrates have also seen price increases to varying degrees.
In addition, affected by domestic and international economic conditions, raw materials such as sapphire and gold wire have also seen price increases to varying degrees.
As an upstream LED components enterprise, Chengzhiyi is an aluminum substrate supplier for LED companies such as OPPLE. Over the past two years, through changes in supply channels, Mr. Lin believes that the LED industry is currently experiencing severe polarization. Large enterprises have more and more production orders and are getting increasingly busy, while orders for SMEs have become less stable — this is also a manifestation of the further intensification of industry reshuffling.
How does the LED price increase affect the midstream and downstream markets?
Regarding the LED market assessment, Lin Yiming believes that the market is in steady development. This year's market prosperity will not be better than last year's, but it won't be much worse either. After all, product prices have already broken through the bottom line.
Lin Yiming believes that companies without financial strength and reputation will be more affected by this price increase, while companies with financial strength and brand power will not fear price increases.
Liu Chuanbiao, R&D Director of the RGB Device Business Division of Nationstar Optoelectronics, revealed that recently there are indeed many LED packaging companies raising prices. Since the beginning of the year, gold prices have risen nearly 30%, and Nationstar's packaged RGB LED devices use pure gold wire, coupled with upstream LED chip price increases, which has indeed caused certain pressure on the company. Regarding the price increases by upstream chip manufacturers and peer packaging manufacturers, Nationstar is actively analyzing and evaluating, and there is no final decision yet on whether to raise prices. Currently, Nationstar Optoelectronics has been continuously expanding production, amortizing costs through technological advantages and scale effects. The market in the second half of this year is expected to be relatively optimistic.
Lin Jintian, Chairman of Xuyu Optoelectronics, also stated that the recent LED raw material and chip price increases have indeed brought certain pressure on the company's operations. Since Xuyu's LED packaging products all use pure gold wire, gold price increases have affected Xuyu's production costs, but Xuyu will not raise prices in the short term, and will observe the market later.
From this perspective, the current price adjustments by some LED chip and packaging manufacturers have a significant impact on the midstream packaging industry chain. Industry insiders say that the downstream finished product market is unlikely to collectively raise prices due to upstream price increases, and whether midstream packaging companies raise prices depends on their control over the market. At present, it is hard to say whether LED chip price increases can trigger a domino effect in the downstream industry. Many companies are taking a wait-and-see attitude. However, if LED packaging manufacturers collectively raise prices, other manufacturers will follow suit, and ultimately the pressure will be passed on to finished product manufacturers.
Because market prosperity is not as expected, many downstream manufacturers do not dare to raise prices rashly. A careless move would make them a victim of the reshuffling period. Therefore, companies are also very cautious at present.
Is the impact of LED price increases on the LED market good or bad?
Although price increases have caused cost pressure on some LED manufacturers, the industry as a whole maintains a positive and optimistic attitude toward the LED price increase wave.
Liu Chuanbiao pointed out that from the semi-annual reports recently published by listed companies, the overall performance of the LED display industry this year has been quite good. GuoXing Optoelectronics also achieved double growth in revenue and profit in the first half of the year, with sufficient orders for LED display devices in the first half and consistently strong demand for small-pitch products. Market performance in the second half of the year is expected to continue to improve. Liu Chuanbiao believes that the concentrated price increases in the chip market should be a sign of the market returning to rationality, while factors such as tight chip supply in the first half also led to the overall price increase situation. This is a positive trend for the market.
Lin Jintian believes that the upstream chip price increase is because previous pricing had been pushed too low; now it is merely a catch-up adjustment, returning to a reasonable price level. However, this round of price increases does not signal an improvement in industry prosperity. In fact, this year's market may be even worse than last year's. LED companies need to sort out their cash flow, raise manufacturing standards, secure high-quality customers while tightening relationships with "bad debt" customers, ensure the healthy operation of their capital chain, and expand steadily—in this way they can resolve the crisis.
At the same time, Lin Jintian also believes that in the long run, price increases are not a bad thing. If the industry continues to "decline endlessly," it will only fall into the trap of a vicious cycle. The collective price hikes by suppliers signal that the industry has raised its entry barriers and is moving in a healthy direction. In the future, LED companies must base their competition on quality rather than abusing price wars. As long as they can weather the market turmoil of the past two years, companies will welcome a healthy competitive environment, and the market outlook remains very promising.
Tang Guoqing, General Manager of Samsung LED China, even wrote a special article praising the LED chip price increase. Mr. Tang believes that, in a market competition environment, the LED industry cannot go far by relying solely on price-cutting competition. Only when LED products return to their intrinsic value and the LED industry returns to a rational competitive environment can the market have hope and the momentum for long-term development.