MLCCs, a key component in new technologies such as smartphones and autonomous vehicles, have surged in demand since 2017. As a result of limited supply from strained manufacturers, prices are estimated to steadily increase well into 2020.
As the demand for next-gen technology increases, so too does the price tag for their components — most notably, the Multi-Layer Ceramic Capacitor (MLCC).
We’re still suffering from a worldwide shortage of MLCCs.
The electronic components industry can’t keep up with the booming demand for these capacitors, so much so that a report by ECIA cited that the average lead time for the production of MLCCs has been rising since 2015, averaging to over 18 weeks of lead time as of February 2018.
How did the MLCC market get so congested?
This increase in demand can be traced back to 2017 as MLCCs were becoming standardized components in next-gen products of handset manufacturers and automotive end markets. MLCCs are also essential components for Apple and Samsung’s latest line of smartphones, for example, and forward-thinking automotive industries are switching to high-capacitance, high-reliability, and ultra-small MLCCs as well.
The automotive sector, in particular, is consuming a considerable portion of the MLCC global capacity. In 2017, Murata, a Japanese MLCC manufacturer, attributed 25 percent of their total MLCC sales to the automotive industry alone.
And that number is projected to rise to 30 percent in 2018.
The supply-demand imbalance
According to a 2018 report done by Silecta Inc., the MLCC scarcity worsens as the disproportion between supply and demand continues to grow. There are several factors that we can attribute to this:
First of all, top-tier manufacturers are allocating more resources to the exceedingly profitable (and MLCC-intensive) automotive industry, versus traditional electronics. To illustrate the difference in demand, it’s estimated that an individual car can contain up to 3000 MLCCs compared to the average 700 MLCCs required for a standard smartphone.
Meanwhile, major manufacturers like TDK have pulled out of the MLCC market, while others like Kyocera have completely stopped production of certain sizes, like the 0402 and 0603 MLCCs. And just last year, China shut down 40 percent of its factories for environmental reasons.
In a notice to customers signed by Yageo’s Managing Director for Greater China, Edgar Chen, prices are also increasing because of “higher labor and environmental costs as well as negative foreign exchange rates.” The depreciation of the U.S. dollar is hurting the revenue of Asian manufacturers, including Japanese, South Korean, and Taiwanese companies.
Lastly, the prices for raw materials needed to produce MLCCs are also increasing. Ruthenium, an unrefined metal widely used in MLCCs, has seen a price increase of 487.5 percent since February 2017. The price of ruthenium has gone up to a whopping $195 USD per Troy ounce in February 2018.
Other MLCC components such as ceramic substrate, which makes up 30 percent of an MLCC, and corrugated paper and ink have also become substantially more expensive.
All of these are contributors to the imbalance of supply and demand, the main driver of the skyrocketing market prices of MLCCs.
The result? Price hikes till 2020
Bottom-line: manufacturers are woefully equipped to handle the influx. Due to surging demand, massive shortages, and escalating prices of raw materials, big-name electronics manufacturers such as Yageo and Ralec have stopped accepting new orders altogether and instead have resorted to increasing their profit margins.
Yageo, for example, increased their prices four times in 2017 alone, by approximately 50 percent.
The electronic components industry is steadily increasing prices for MLCCs in 2018, with even bigger increments to come — some going up by 20 to 30 percent at a time for select products. Considering the current market trends, the ongoing demand and tight supply for MLCCs will likely continue through 2018 and spill over into 2019, potentially affecting 2020 as well.
While individual manufacturers are attempting to address the market imbalance by increasing MLCC production, it’s unlikely the demand will be met well until 2020. Market statistics predict an increased year-on-year demand for MLCCs by 30%. Until the imbalance is resolved, the market can look forward to more price hikes well into 2020.
In addition to Yageo, other manufacturers announced price hikes as well, including Chilisin Electronics Corp, Walsin Technology Corp, Ralec Electronic Corp, Viking Tech Corp, and China’s Fenghua Advanced Technology Holding Co., according to a report by the Commercial Times.
“The world is innovating at such a rapid pace,” says Dev Rai, the Vice President of Global Purchasing for Sourceability. “And while that might be a good thing for tech industries, we must also consider the resources and labor required to keep up. In order to meet market demand as well as provide fair compensation for sourcing and production, significant price hikes are inevitable in the foreseeable future.”
Financial analysts have been predicting these prices hikes since 2017. But considering the current state of the market in 2018, and with 2019 inching closer and closer, these suspicions are confirmed.
Has the MLCC shortage affected your business? How has your company been able to cope with the rising costs? What could additional price hikes mean for the future of our favorite smartphones and vehicles?
Tell us your thoughts in the comments below!