2020 IC shortage and price rising wave might last till middle of 2021

Since the second half of last year, due to rising raw material prices and tight supply, a number of manufacturers have announced price increases for some or the whole line of products, LED industry facing a “price-up-tide”.Now the year of 2021 is half gone, but there are still LED enterprises releasing price increase news.More than 20 lighting companies announced price increases in May alone, according to incomplete statistics from Gaogong LED.The “price-up-tide” that has been going on for some time and seems to still have no intention to subside, this “price rise tide” may be a protracted war.

In this case, the cooperation and mutual support between industry chain enterprises are particularly important.

The news of price increases keeps coming

 

On 12^th May, Osram released products price increasing notice to their China customers, due to their global supply chain services and raw material shortages as well as price rising, leads to cost up,they had to adjust their price : As in traditional ballast products increased maximum 20% , LED power supply and module products price increased 10%.New price will take effect on May 25, 2021.

At the end of April, NVC Lighting(Leishi) also issued the Notice on Price Adjustment of Leishi Lighting Products to dealers at all levels, saying that due to the impact of the epidemic, the global supply is tight and the market raw material prices have risen sharply,So the prices of all products will be adjusted from May. And before this, NVC lighting had adjusted price for part of the products.

MLS also revealed that the price of the company’s products has risen by 20%-30% this year recently.

According to the incomplete statistics of Gaogong LED, almost all kinds of products are rising in price such as packaging, chip, driving IC, light source, lamps and accessories in the middle and lower reaches of the LED industry chain, no matter large enterprises, or small and medium-sized enterprises are exempt.

Raw materials skyrocketed and companies had no choice but to raise prices

 

Since 2021, the news of raw material price rising keeps coming continuously .

It is understood that in the first quarter, the lighting industry used copper, plastic, aluminum, iron, glass, zinc alloy, stainless steel and IC and other raw materials, prices have risen to varying degrees, some raw materials even as high as 100%.

LED driver manufacturer Sumacro Technology told Gaodong LED that due to supply chain problems, prices will rise this year and may continue to rise in the future.”When prices go up, the capacity may not be as high.But raw materials are going up and we have no choice, everyone is increasing the price.”

There are some manufacturers choose to “increase capacity, maintain price”  strategy. Another power supply company executive revealed to Gaogong LED that they haven’t increase the price yet, however although their first half years sales is much higher than last year, but gross profit is not as good as last year. “IC price has increased more than 50% this year, and now we are under pressure not to raise prices, so the overall profit is not particularly good.”

Although sales is good, he also admitted that by only increase product capacity scale to reduce manufacturing costs, this cannot be a long term solution

“At present, we will try our best to expand the production capacity of landscape lighting and industrial control lighting, which are better profitable products.

But if the industry price increasing cannot get a relief soon, we may have no choice but increase our price as well.

It is worth mentioning that, at present, LED enterprises are suffering from the problem of profit caused by the continuous rise in the price of large raw materials, while also suffering from the complicated international market environment.The two industry sources told Gaogong LED that so far this year, overseas market orders are large and profit performance is good.However, due to repeated epidemics, complicated custom clearance procedures and vessel shortages, many overseas orders are not able to be delivered.

How should companies cope when the price rise tide continue?

 

For the price rise tide and its impact, a number of industry insiders have expressed that in the short term will continue to spread.Moreover, some people believe that the price rise tide will last till end of this year. Seems hopeless and endless .

Data shows that year-on-year growth in most sectors has turned positive by April, but manufacturing investment, including in LED lighting, has yet to recover to pre-epidemic level, partly because of rising commodity prices. On the one hand, this wave of rising prices is not the price of single raw materials, but the price of the whole range of materials, affecting many industries, wider scope of influence. On the other hand, the price rise of all kinds of raw materials is relatively large, which is more difficult to “digest” than the price rise in the past few years, and has a more far-reaching impact on the industry.

Raw material prices continue to rise, coupled with the epidemic caused by damage to the overseas market, LED enterprises shall how to deal with the price crisis?Looking for product differentiation, market segmentation and other measures to increase revenue and reduce expenditure may be one of the solutions.

Among them, Wanrun Technology said that it will continue to dig deep into the landscape lighting and cultural tourism lighting and other stock differentiated market segments;

Strengthen the strategic layout of 5G, new infrastructure, MINI LED, UV, special lighting and other emerging segments, and cultivate and create new profit growth points. Igor has also revealed that it will actively layout the intelligent application field and educational lighting, and do the core power suppliers in the application field to achieve business growth.

Regarding the situation of the second quarter, some people in the industry holding more optimistic forecast, but thinks industry is in urgent need of finding new nichie  growth points to help the transformation and upgrading of traditional manufacturing. “According to domestic and foreign industrial policies and market demand, smart lighting, UVC LED, health lighting, automotive LED, plant lighting and other market segments may be the blue ocean and trend for a period of time.”

It is worth mentioning that the price increase brought by price rise tide is likely to overwhelm the last straw for many small and medium-sized enterprises. The industry reshuffle will further intensify. In this case, suppliers will cooperate with enterprises which industry strength and competitiveness, and the purchasing end of the enterprise will give priority to suppliers with cost advantages and stable supply. At present, the cooperation and mutual assistance between supply chain manufacturers is particularly important.

“The price of materials has gone up very much because of the price rise tide,” said an industry senior. But for manufacturers and suppliers with a long-term relationship, the transaction price is not too unreasonable. Because right now, it’s important to be together through the crisis.”