Overt Optimism
According to recent comments from a number of analysts (primarily Chinese) the LCD industry is on the road to recovery based on a lessening of panel price reductions and the potential for panel price increases next year, with some even citing that panel price reductions in the 2nd half of October were less than those in the first half of the month. While there are reasons to take both the positive and negative sides of this argument, citing a 15 day change in panel prices is a waste of time and effort as there are so many factors that can affect sort-term panel prices that such data is of little use. The need for an optimistic view of an industry that China has and continues to dominate from a production and investment standpoint is a great motivating factor that can easily color one’s view and allow for such short-term data to appear game-changing, but there are other factors that are less obvious that also come into play when trying to understand the prospects for the display space over the next two years.
If one is citing a short-term panel price rate of change as a major factor, than one might also look at the absolute panel price changes that have already occurred. After 14 months of consecutive LCD TV panel price increases (June ’20 to July ’21) prices fell precipitously in August (-10.1%) , followed by an even larger drop in September (-19.1%), the largest single month decline in our data, with October falling 11.1%, hardly something that could be considered a ‘recovery’. While expectations for November are for a decline in the 6% to 7% range, again that is almost double the average monthly decline over the period between 1/2017 and 6/2021. If one assumed that the rate of decline for the last three months were to continue at the same rate, by March of 2022 TV panel prices would be at the same depressed level as they were in late 2019 before the COVID-19 pandemic began. While one could make such an assumption based on current trend lines, even the most pessimistic view would likely be less onerous, as it would assume that most panel producers would be operating at or below cash costs for their large panel production.
We have assumed that the rapid drop in TV panel prices seen during the last three months would abate somewhat as TV set inventory was worked down, but we see the potential for ‘a more stable pricing environment’ by December a bit of a stretch. Looking at the demand side, TV panel order reductions were the were the breaking point for TV panel prices, and the continuing rise in panel prices over the last year eventually had to slow demand, along with a lessening of COVID-19 restrictions and government subsidies that were responsible for the strong demand seen in 2H 2020 and 1H 2021. Panel producers have cut back utilization rates for large panel production to a degree which is likely the reason that declines of over 10% m/m are no longer necessary, but TV set producers are still working with high cost inventory, leaving little room to stimulate TV unit demand during the holidays.
The good news in the mid-term is that as TV panel prices decline, TV set brands have more room to offer discounts, but we see this as more of a 2Q ’22 event than a short-term move, and see little reason for a systemic increase in TV demand next year. While Samsung is expected to shutter its existing LCD large panel capacity at the end of this year, which was originally expected in 2020, capacity increases at Chinese fabs will offset much of that, leaving large panel LCD capacity biased toward oversupply and demand relatively flat. Other than on a seasonal basis, this would not set the tone for large panel price increases next year, and while monthly declines will be reduced, even smaller declines will move panel producers toward break-even in their large panel business. This ups the competitive pressure for IT panel production, where most panel producers have migrated. We would be watching IT panel demand and panel prices more closely than TV panel prices, as the risk to sales and margins if IT panel prices decline is higher than that of TV panels and considerably more than it was a year ago.
If one is citing a short-term panel price rate of change as a major factor, than one might also look at the absolute panel price changes that have already occurred. After 14 months of consecutive LCD TV panel price increases (June ’20 to July ’21) prices fell precipitously in August (-10.1%) , followed by an even larger drop in September (-19.1%), the largest single month decline in our data, with October falling 11.1%, hardly something that could be considered a ‘recovery’. While expectations for November are for a decline in the 6% to 7% range, again that is almost double the average monthly decline over the period between 1/2017 and 6/2021. If one assumed that the rate of decline for the last three months were to continue at the same rate, by March of 2022 TV panel prices would be at the same depressed level as they were in late 2019 before the COVID-19 pandemic began. While one could make such an assumption based on current trend lines, even the most pessimistic view would likely be less onerous, as it would assume that most panel producers would be operating at or below cash costs for their large panel production.
We have assumed that the rapid drop in TV panel prices seen during the last three months would abate somewhat as TV set inventory was worked down, but we see the potential for ‘a more stable pricing environment’ by December a bit of a stretch. Looking at the demand side, TV panel order reductions were the were the breaking point for TV panel prices, and the continuing rise in panel prices over the last year eventually had to slow demand, along with a lessening of COVID-19 restrictions and government subsidies that were responsible for the strong demand seen in 2H 2020 and 1H 2021. Panel producers have cut back utilization rates for large panel production to a degree which is likely the reason that declines of over 10% m/m are no longer necessary, but TV set producers are still working with high cost inventory, leaving little room to stimulate TV unit demand during the holidays.
The good news in the mid-term is that as TV panel prices decline, TV set brands have more room to offer discounts, but we see this as more of a 2Q ’22 event than a short-term move, and see little reason for a systemic increase in TV demand next year. While Samsung is expected to shutter its existing LCD large panel capacity at the end of this year, which was originally expected in 2020, capacity increases at Chinese fabs will offset much of that, leaving large panel LCD capacity biased toward oversupply and demand relatively flat. Other than on a seasonal basis, this would not set the tone for large panel price increases next year, and while monthly declines will be reduced, even smaller declines will move panel producers toward break-even in their large panel business. This ups the competitive pressure for IT panel production, where most panel producers have migrated. We would be watching IT panel demand and panel prices more closely than TV panel prices, as the risk to sales and margins if IT panel prices decline is higher than that of TV panels and considerably more than it was a year ago.
Aggregate TV Panel Pricing & ROC - 2019 - 2021 YTD (with projection) - Source: SCMR LLC, IHS, Company Data
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