Twistin’ the night away – Polarizers still scarce
Polarizers are not one of the more exciting parts of displays. They don’t have the panache of complex OLED material molecules, the special properties of liquid crystal, or the intensity of LED backlights, but they are the backbone of LCD displays and they are in short supply. In short, LCD displays don’t work without them, which makes the continuing shortage of polarizer capacity an issue that can influence the LCD business, and to a lesser degree, the OLED business.
Before we go further, it is necessary to understand what polarizers do in order to understand their necessity. The polarizer itself is made of a film, usually PVA (polyvinyl alcohol) that has been treated with Iodine or other dyes, stretched, coated with a protective material, and sometimes with a backing material. What makes a polarizer unique is that it only allows light to pass through it if the light is oriented in a particular direction, and light normally has no direction, or should we say, all directions. So the polarizer takes the light going in and orients its direction.
The light produced by a backlight passes through a primary polarizer that orients the light in one direction. The liquid crystal, twists the light 180⁰, which allows it to pass through the secondary polarizer, which is oriented 180⁰ from the primary, and the user sees a white dot. However, if a voltage is applied to the liquid crystal, it untwists and the light is oriented 180⁰ out of phase with the secondary polarizer and cannot pass through, creating a black dot. Simply put, this is the basis for LCD displays.
Before we go further, it is necessary to understand what polarizers do in order to understand their necessity. The polarizer itself is made of a film, usually PVA (polyvinyl alcohol) that has been treated with Iodine or other dyes, stretched, coated with a protective material, and sometimes with a backing material. What makes a polarizer unique is that it only allows light to pass through it if the light is oriented in a particular direction, and light normally has no direction, or should we say, all directions. So the polarizer takes the light going in and orients its direction.
The light produced by a backlight passes through a primary polarizer that orients the light in one direction. The liquid crystal, twists the light 180⁰, which allows it to pass through the secondary polarizer, which is oriented 180⁰ from the primary, and the user sees a white dot. However, if a voltage is applied to the liquid crystal, it untwists and the light is oriented 180⁰ out of phase with the secondary polarizer and cannot pass through, creating a black dot. Simply put, this is the basis for LCD displays.
LCD polarizing effect - Source: www.cg.ic.ac.uk
On a side note, OLED displays, which have no backlight or liquid crystal, still use polarizers, but to prevent light from entering the display and being reflected by the mirrored surface under the OLED stack, which would reduce the contrast of the display. By using a circular polarizer, those reflections can be reduced.
All in polarizers are important to the display industry and an absolutely necessary part of the supply chain, but there are not a lot of polarizer manufacturers and raw materials are expensive and tend to be controlled by a small group of Japanese suppliers. This has made the polarizer market one that has grown relatively slowly, keeping pace with capacity expansion in the display space. That began to change as China took the display business seriously and began building out capacity, particularly Gen 8 and Gen 10+ capacity over the last 2 -3 years, while polarizer producers expanded modestly. With the opening of even more Chinese capacity last year and this, shortages have gone from 1% - 2% two years ago to 5% to 10% depending on the type, even with expansion projects from both major and minor producers.
This has allowed polarizer companies to increase prices more than once over the last year, and while there is new capacity coming on line later this year, it will be hard to keep pace with capacity expansion, especially at larger generation sizes. Polarizer producers are hesitant about adding another round of capacity commitments given the fear that the Chinese LCD capacity expansion will peak quite soon. Nitto Denko (6988.JP), among the top three polarizer producers, has licensed their technology to others (at least two Chinese producers) rather than expand, and BenQ Materials (8215.TT) has focused on increasing production efficiency, in lieu of new capacity. Samsung SDI (006400.KS) added capacity back in late 2016 in China, and Sumitomo Chemical (4005.JP) added early last year, while LG Chem’s (051910.KS) expansion should come on line this year. Cheng Mei Materials (4960.TT) (formerly Chi Mei Material Technology) while one of the smaller producers decided last year to add enough capacity to increase its share almost 2x (late this year or early next), but prices for polarizers continue to rise as suppliers such as FujiFilm (4901.JP) and Konica (4902.JP) hike raw material prices currently.
While we do not expect shortages to affect panel producer’s ability to meet demand, the cost of panel modules will have to absorb higher polarizer costs this year and possibly in 2020. Given the fact that some panel producers are operating near cash costs, this makes profitability more difficult in an environment where panel prices are declining and is part of the reason why panel producers are trying to increase certain panel prices despite slack demand. This is a necessary evil to panel producer, to keep panel production profitable, but rising TV panel prices will also negatively impact TV set sales, which are dependent on discounts and lower prices on a per in2 basis.
We do expect this to change in 2020 as Gen 8 capacity expansion flattens, Gen 10+ expansion passes its peak and new polarizer capacity is fully operational, which will slow any rise in polarizer pricing and reduce pressure on panel producer costs, Whether this will result in lower panel prices remains in the hands of panel producers, but it should, at least, give some respite to declining panel producer margins in 2020 if other factors remain equal.
All in polarizers are important to the display industry and an absolutely necessary part of the supply chain, but there are not a lot of polarizer manufacturers and raw materials are expensive and tend to be controlled by a small group of Japanese suppliers. This has made the polarizer market one that has grown relatively slowly, keeping pace with capacity expansion in the display space. That began to change as China took the display business seriously and began building out capacity, particularly Gen 8 and Gen 10+ capacity over the last 2 -3 years, while polarizer producers expanded modestly. With the opening of even more Chinese capacity last year and this, shortages have gone from 1% - 2% two years ago to 5% to 10% depending on the type, even with expansion projects from both major and minor producers.
This has allowed polarizer companies to increase prices more than once over the last year, and while there is new capacity coming on line later this year, it will be hard to keep pace with capacity expansion, especially at larger generation sizes. Polarizer producers are hesitant about adding another round of capacity commitments given the fear that the Chinese LCD capacity expansion will peak quite soon. Nitto Denko (6988.JP), among the top three polarizer producers, has licensed their technology to others (at least two Chinese producers) rather than expand, and BenQ Materials (8215.TT) has focused on increasing production efficiency, in lieu of new capacity. Samsung SDI (006400.KS) added capacity back in late 2016 in China, and Sumitomo Chemical (4005.JP) added early last year, while LG Chem’s (051910.KS) expansion should come on line this year. Cheng Mei Materials (4960.TT) (formerly Chi Mei Material Technology) while one of the smaller producers decided last year to add enough capacity to increase its share almost 2x (late this year or early next), but prices for polarizers continue to rise as suppliers such as FujiFilm (4901.JP) and Konica (4902.JP) hike raw material prices currently.
While we do not expect shortages to affect panel producer’s ability to meet demand, the cost of panel modules will have to absorb higher polarizer costs this year and possibly in 2020. Given the fact that some panel producers are operating near cash costs, this makes profitability more difficult in an environment where panel prices are declining and is part of the reason why panel producers are trying to increase certain panel prices despite slack demand. This is a necessary evil to panel producer, to keep panel production profitable, but rising TV panel prices will also negatively impact TV set sales, which are dependent on discounts and lower prices on a per in2 basis.
We do expect this to change in 2020 as Gen 8 capacity expansion flattens, Gen 10+ expansion passes its peak and new polarizer capacity is fully operational, which will slow any rise in polarizer pricing and reduce pressure on panel producer costs, Whether this will result in lower panel prices remains in the hands of panel producers, but it should, at least, give some respite to declining panel producer margins in 2020 if other factors remain equal.
Gen 8 LCD Fab Capacity in China - 2016 - 2022 - Source: SCMR LLC, Displaysearch, Company Data
Gen 10+ LCD Capacity - ROC - Source: SCMR LLC, Displaysearch, IHS
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