Raw material prices continue to rise, triggering a domino effect in the LED industry?

Does the rising price mean that the LED industry market is picking up? Or is it triggering a domino effect in the LED industry, exacerbating the reshuffle and differentiation of the industry? Let industry professionals answer everything.

What is the reason for the frequent price increases in LED upstream?

It is understood that the main reason for the price increase given by various upstream manufacturers is the recent increase in various raw material and labor costs, which have exceeded the cost accounting price. In order to maintain profitability, they can only choose to increase prices.

Which specific raw materials have experienced price increases? According to the Daily LED reporter, sapphire, aluminum substrates, copper foil, gold wire, etc. used in LED raw materials have experienced 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 Lin Yiming, general manager of Chengzhiyi, since August this year, the price of LED raw materials has increased twice in a row, and the supply chain of copper foil and other materials used in aluminum substrate manufacturing has been tense. According to his understanding, on the one hand, the environmental protection shutdown during the G20 summit led to a contraction in supply, and on the other hand, the lithium battery market was hot, resulting in a shortage of copper foil supply. Therefore, the price of LED aluminum substrates has also increased to varying degrees.

In addition, affected by the economic situation at home and abroad, the prices of raw materials such as sapphire and gold wire have also increased to varying degrees.

As an upstream LED accessories company, Chengzhiyi is the aluminum substrate supplier for LED companies such as Opple. In the past two years, through changes in supply channels, Mr. Lin believes that the LED industry is currently severely polarized. The production orders of large enterprises are increasing and becoming more and more prosperous, while the orders of small and medium-sized enterprises have become less stable, which is also a manifestation of further intensification of industry reshuffle.

How will LED price increases affect the mid- and downstream markets?

As for the judgment of the LED market, Lin Yiming believes that the market is developing steadily. This year's market sentiment will not be better than last year, but it is not much worse. After all, product prices have exceeded the bottom line.

Lin Yiming believes that companies without financial strength and reputation will be greatly affected by this price increase, while companies with financial strength and brand strength will not be afraid of price increases.

Liu Chuanbiao, R&D Director of Nationstar Optoelectronics RGB Device Division, revealed that there are indeed many manufacturers that have increased prices in the LED packaging market recently. Since the beginning of the year, the price of gold has increased by nearly 30%. However, Nationstar's packaged RGB LED devices use pure gold wires, coupled with the price increase of upstream LED chips, which has indeed put some pressure on the company. Nationstar is actively analyzing and evaluating the price increases of upstream chip factories and peer packaging factories, and has not yet made a final decision on whether to increase prices. At present, Nationstar Optoelectronics has been continuing to expand production and amortize costs through technological advantages, scale effects, etc. The market forecast for the second half of this year is relatively optimistic.

Lin Jinchuan, chairman of Xuyu Optoelectronics, also said that the recent price increases of LED raw materials and chips have indeed put some pressure on business operations. Since Xuyu's LED packaging products all use pure gold wire, the rise in gold prices will have an impact on Xuyu's production costs. However, Xuyu will not increase prices in the short term and will have to wait and see the market in the future.

From this point of view, the price adjustments of some LED chip and packaging manufacturers will have a greater impact on the midstream packaging industry chain. Industry insiders said that the downstream finished product market is unlikely to collectively increase prices due to upstream price increases, while whether midstream packaging companies increase prices depends on the company's control over the market. At present, it is difficult to say whether the price increase of LED chips will trigger a domino effect in the downstream industry. Many companies are taking a wait-and-see attitude. However, if LED packaging manufacturers collectively increase prices, other manufacturers will follow suit, and the pressure will eventually be passed on to finished product manufacturers.

Because the market sentiment is not as good as expected, many downstream manufacturers do not dare to increase prices rashly. If they are not careful, they will become victims of the reshuffle period. Therefore, companies are currently cautious.

Will LED price increases have a good or bad impact on the LED market?

Although price increases have put cost pressure on some LED manufacturers, the industry generally has a positive and optimistic attitude towards LED price increases.

Liu Chuanbiao pointed out that from the recent semi-annual reports released by listed companies, it can be seen that the overall performance of the LED display industry this year is good. Nationstar Optoelectronics also achieved double growth in revenue and profit in the first half of the year. There were sufficient orders for LED display devices in the first half of the year, and small-pitch products have been in short supply. Market performance is expected to continue to improve in the second half of the year. Liu Chuanbiao believes that the concentrated price increase in the chip market should be a sign that the market is returning to rationality. At the same time, factors such as tight chip supply in the first half of the year also led to an overall price increase. This is a good trend for the market.

Lin Jintuan believes that the price increase of upstream chips is because the price was too low before, and now it is just to make up for the increase and return to a reasonable price. But this wave of price increases does not mean that the industry's prosperity has improved. In fact, the market this year may be worse than last year. LED companies must sort out their cash flow, improve manufacturing standards, seize high-quality customers, and at the same time tighten up "bad debt" customers to ensure the healthy operation of their own capital chain and expand steadily to 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 keeps falling, it will only fall into a vicious cycle. The collective price increase by suppliers means that the industry has raised the entry threshold and is developing in a positive direction. In the future, LED companies must compete on quality instead of abusing price wars. As long as they can survive the market chaos in the past two years, companies will usher in a healthy competitive environment, and the market prospects are still very promising.

Tang Guoqing, general manager of Samsung LED China, even praised the price increase of LED chips. Mr. Tang believes that in a competitive market environment, the LED industry cannot go far in the long run just by relying on price reduction competition. Only when LED products return to their original value and the LED industry returns to a rational competitive environment can the market have hope and the motivation for long-term development.