Packaged LED prices rising again
In early January we noted that China-based Sanan Opto (600703.CH) informed customers that it would be raising prices on some of its low power LED chips as of January 10, which had followed price increases from other LED vendors late last year. MLS (002745.CH), China’s largest LED packaging producers has indicated that it will also be raising prices on some items by 15% and it is expected that a number of other Chinese LED packagers will follow that trend as Chinese lighting producer Opple Lighting (603515.CH) has done with almost all of their LED lamp and luminaire products.
Prices for chip raw materials, particularly industrial metals, have been on the rise as the new US government administration is expected to increase spending on infrastructure along with the weakening Chinese currency, pushing LED producers and packagers to increase their prices to keep pace. In contrast, year-end discounting had caused LED bulb prices to drop substantially at the end of 2016 (3% and 2.4% for 40W and 60W bulbs respectively), tightening margins for many producers that were already under margin pressure.
While the price increases, which we expect were slightly ahead of cost increases could give some producers a short-term breather, we would expect 2017 to be another year of consolidation in the LED space, particularly in China, where the number of producers had mushroomed a few years back when the Chinese government was offering very generous subsidies for LED tool purchases to almost anyone who could put up a letter of credit. That ended in late 2015, and Taiwan banks began tightening credit for LED manufacturers last May as profitability against Chinese LED pricing was reaching panic levels and banks were (rightly) concerning about loans to smaller LED production firms. Now it seems to be a race to see how much of a price increase the market will bear, although with costs also rising, it would seem that margins will see only a small amount, if any relief going forward, squeezing more small players out of the market.
Prices for chip raw materials, particularly industrial metals, have been on the rise as the new US government administration is expected to increase spending on infrastructure along with the weakening Chinese currency, pushing LED producers and packagers to increase their prices to keep pace. In contrast, year-end discounting had caused LED bulb prices to drop substantially at the end of 2016 (3% and 2.4% for 40W and 60W bulbs respectively), tightening margins for many producers that were already under margin pressure.
While the price increases, which we expect were slightly ahead of cost increases could give some producers a short-term breather, we would expect 2017 to be another year of consolidation in the LED space, particularly in China, where the number of producers had mushroomed a few years back when the Chinese government was offering very generous subsidies for LED tool purchases to almost anyone who could put up a letter of credit. That ended in late 2015, and Taiwan banks began tightening credit for LED manufacturers last May as profitability against Chinese LED pricing was reaching panic levels and banks were (rightly) concerning about loans to smaller LED production firms. Now it seems to be a race to see how much of a price increase the market will bear, although with costs also rising, it would seem that margins will see only a small amount, if any relief going forward, squeezing more small players out of the market.
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