The old saying goes well: "The business of hacking is done by somebody, and the business of losing money is not done by anybody." From the technical point of view, domestic manufacturers can not do high-end MLCC at present. Maybe one day the low-end production capacity will be eliminated. Domestic MLCC is not charitable. It is understandable that they dare not invest in the most scarce specifications of MLCC, such as the capacity of 0402 and 0603 medium-volume products.

The period of price increase in China's electronic components industry is generally 4-6 years. Since this century, there have been peaks in 2000, 2007, 2011 and around 2015, respectively. Since 2016, the upstream of the electronic industry chain has been experiencing a spread of price increases. The main reasons are the rising prices of bulk products and raw materials and the imbalance between supply and demand caused by the withdrawal of some backward production capacity. For the electronics industry, the most concerned thing in the past 1 or 2 years is the price increase and shortage of components. In addition to the price increase of panel, memory and wafer, the most serious shortage is the so-called "resistance and capacitance" of passive components.

Lifting the price rise, MLCC two-month price difference more than ten times

Passive components are the most basic electronic materials in the electronic manufacturing industry. The annual usage of passive components has been billions. They are inexpensive, large quantities of materials and most of them are general-purpose. They belong to the niche market with low price fluctuations and high customer concentration. However, in recent years, the prices of solid-state capacitors and aluminium electrolytic capacitors have increased. For example, MLCC, the most demanded surface mounted universal ceramic capacitor, has doubled or even more than ten times since the end of 2016. In October-November 2017 alone, Samsung MLCC materials were bought from the spot market at 15 times the price. The difference between two months'price was as high as $2 million. This undoubtedly adds a huge purchase cost to ODM manufacturers. Samsung Motor has said that more than 40 domestic customers come to ask for goods, especially some ODM / OEM manufacturers even offer twice the price, but still can not guarantee the supply. MLCC has increased its price faster than all kinds of financial products, and the rate of price hike is comparable to that of Bitcoin.

Pay attention to the surface mounted universal ceramic capacitor in the table. This is MLCC. According to the shipment evaluation by the end of 2017 given by Fuchang Electronics, the component agent, MLCC will continue to be seriously out of stock in the future.

Generally speaking, the first half of the year is the off-season of the market. Agents and traders dare not hoard large quantities of goods, and prices will gradually go down. But the fact is that the delivery time of passive components is still delayed and prices are still scarce. Many practitioners believe that the shortage in 2018 will continue and that capacity will not ease until 2019.

Sino-US trade war or Chaoshan speculation? Why did MLCC soar?

According to customs data, China imported 5.62 billion US dollars of MLCC products in 2017, an increase of 7.6%. From January to February 2018, MLCC imports reached $1 billion, up 35.5% from $738 million in the same period last year. It is said that last year all the major factories in Taiwan, such as Renbao and Quanta, went to Japan to sweep goods and get memory. At present, Japanese manufacturers basically monopolize the high-end MLCC market. The top five manufacturers, such as Murata and TDK, account for nearly 90% of the market share. Murata's MLCC production capacity accounts for three components. Both Murata and TDK earned more than 10 billion dollars in passive components in 2016. In the past two years, Samsung Motor has also made a big market share in the field of LCC, accounting for nearly 20%.

However, it is worth mentioning that in 2017, Murata announced that it would withdraw from the conventional MLCC market and shift its production direction to the ultra-small and high-performance areas, thus shrinking the supply side of the MLCC market, which was already in short supply. TDK withdrew from the middle and low-end MLCC market in the second half of 2016, resulting in a capacity gap of 700 million orders. After that, Kyocera of Japan issued a stop-production notice. For 104 and 105 specifications of 0402 and 0603, Kyocera was recognized as the most scarce specifications in the market. Kyocera's withdrawal from the specifications will aggravate the shortage of commonly used MLCC materials. Some distributors claim that Kyocera's withdrawal criteria are the ones with the largest increase, the most scarce market and the largest consumption. Kyocera's shutdown is "like another TDK fading out of the general MLCC".

The latest news is that Taiwan Guoju has increased its price again after April 1, raising the LCC of 0201-1206 specifications, with an average increase of 40-50%. In 2017, Guoju has increased its price four times, and Guoju is not the main supplier in the field of MLCC. There are Hexintang, Qilixin, Meijie, Meilei and so on. Local suppliers in China, including Chaozhou Sanhuan, Fenghua Technologies, Huaxinke and Dafang, have increased their prices in varying degrees. However, the problem is that the capacity of domestic MLCC is not enough to undertake the capacity vacancies of Japanese and Korean manufacturers. It can be said that domestic enterprises have developed too slowly in the field of passive components.

Passive component manufacturers give the reason for the price increase is a number of raw materials and labor costs continue to rise. There are a lot of people outside the industry who think that with the development of technology, the cost of components will be lower and lower, so the price increase is a bubble and should not continue. Some netizens with rich associative abilities have turned over the recent Sino-US trade war, claiming that the price of components has risen because of the sanctions imposed by the United States. Many people in the industry believe that behind the price increase of components is Huaqiangbei's "mysterious capital" behind the hoarding, buying and selling, this is Chaoshan people's back pot. It is said that in Huaqiangbei, the hoarding of capacitors and speculation of capacitors have become the passion of many traders who hope to "make a fortune overnight". The original factory has raised prices several times, the supply is tight, traders who can get goods, hoarding can sell a good price. It is said that even stores selling sausage flour make money by frying capacitors. There are even reports that the original MLCC factory also has insiders involved in the "speculation" game, which has happened in the main chip of mobile phones, storage areas, not to mention in detail here.

Nor can we say that everyone is wrong. In the final analysis, passive components are universal components, coupled with long-term shortage and shortage of production capacity, which is a very suitable product for speculation. Therefore, it is understandable to attract large amounts of hot money. However, passive components manufacturers are mainly Japanese and Korean manufacturers, so the United States is a bit unfair. Vishay, a passive component manufacturer in the United States, can supply MLCC with a market share of about 2% for resistors and 2.24% for inductors. Its capacity is not large enough to affect the industry. In addition, although Vishay's product quality is not bad, but the production is small, the price is high, delivery time is long, can not be due to emergency orders, for the large amount of standard MLCC, customers will not give priority.

On March 21, 2018, the European Commission decided that nine Japanese enterprises monopolized the price of aluminium electrolytic capacitors/litter electrolytic capacitors between 1998 and 2012, and imposed a total fine of 254 million euros. In January 2018, the Singapore Competition Commission also imposed a monopoly penalty of RMB 100 million on the price monopoly of five aluminium electrolytic capacitor enterprises between 1997 and 2013. I wonder if the Chinese government will also impose some monopoly penalties.

Which is the most real reason?

In my opinion, there are several other important reasons for the shortage that have never been mentioned.
1. The price of normal electronic components is reduced by 5%-10% annually, but the MLCC price increase cycle is every 3-5 years. Compared with active components, the technology progress of dynamic components is relatively slow. Active components always follow Moore's law, that is to say, they will double in 18 to 24 months, and their performance will double. So PC, mobile phone and other electronic products began to depreciate from the first day they were bought. However, passive components do not follow Moore's law. In principle, transistors and memory units can operate at the electronic level, while analog signals processed by passive components or board-level digital signals (such as radio frequency signals processed by antennas, input signals converted by A/D, hundreds of watt power pulses arriving at a single chip in a clock cycle) cannot be arbitrarily reduced, and passive elements need to be maintained while the density of passive components increases. The parameters of the device remain unchanged, so although it has a history of hundreds of years, it is different from active devices that can be reduced by using silicon-based technology in accordance with Moore's law, and the progress of passive components technology is much slower than that of active components. Although Japanese and Korean manufacturers will rapidly move to high-end MLCC in 2018, the gap between the middle and low-end market is still huge. Since 2005, the market share of large-scale MLCC, such as 1206/0805/0603/0402, has been declining. The market share of 0201/01005 or even smaller-size MLCC has been increasing continuously, and it is expected to exceed 40% in 2025. At present, there are less than 20 enterprises with comprehensive grasp of 01005 MLCC technology in the world. The price of products reaches 145-178 yuan per 1000 pieces, which is more than 10 times the specification of 0402/0603. Leading enterprises with technological advantages enjoy high profits.

2. Passive components are not a capital-driven industry. Unlike the chip industry, which spends tens of billions of dollars in capital expenditure, the 16-year capital expenditure of passive component leader Murata and TDK is only $1.536 billion and $1.431 billion. Therefore, technology and capital are not the driving factors behind passive components.

3. MLCC manufacturers'capacity reduction affects upstream suppliers, a vicious circle. MLCC core materials include ceramic powder materials, internal electrode materials (mainly nickel slurry) and external electrode materials (mainly copper slurry). Take the ceramic powder upstream of MLCC as an example. At present, the main suppliers are Japanese Saichi Chemistry and National Ceramic Materials. In the long-term stable growth and balance of supply and demand, once the supply side shrinks, the balance of supply and demand will be severely broken and the market tension will be aroused. In addition, raw materials for passive devices are affected by the commodity recovery cycle. Prices have generally risen since the 2016Q2 quarter, increasing the production costs of passive device manufacturers. With the increasing capacity of MLCC, the proportion of nickel electrode slurry in the cost of raw materials for MLCC is becoming higher and higher, and it has become the largest raw material. Since the second half of 2016, copper wire, tin, iron caps, component rods, paints and packaging cartons and other products have increased in varying degrees. The rising prices of raw materials have further squeezed profit margins. Leading enterprises began to raise prices and transfer costs downward, leading the first wave of large-scale price increases due to the rising cost of materials. BME (base metal electrode) which is widely used in MLCC technology has accounted for more than 90% of all MLCC. The development of BME MLCC electrode technology in China lags behind, and the internal and external electrode materials are basically dependent on imports. Especially the nickel and copper slurries used by high-end large-capacity MLCC have been monopolized by foreign countries for a long time because of their technical difficulties. At present, the main pulp manufacturers are Japan Zhaorong, Sumitomo, Zewu and so on.

4. The last thing is the real demand. Current supply side demand mainly comes from wireless charging, LED lighting, automotive electronics, power management, and future demand is the Internet of Things, AI and the upcoming commercial 5G. Historically, passive components were in the stage of increasing demand in 1988 and 2000, mainly because of the emergence of PC and mobile phone products. Since 2017, this wave of demand is mainly due to the improvement of automobiles and high-end mobile phones, such as the use of 420 passive components for the iPohone 7, 600-620 for the iPhone 8 and X, and 80-200% for the single MLCC. With Huawei, OPPO, vivo, Xiaomi and other domestic mobile phone brands beginning to focus on high-end models, the use of middle-end and high-end MLCC is more than that of low-end models. The demand for passive components has increased fivefold with the increase of electronization in new energy vehicles. It is believed that by 2020, 5G commercial will bring a new wave of demand growth.

Passive components are in short supply. What do agents think?

The shortage and price increase of MLCC not only affect manufacturers, but also make it difficult for many small and medium-sized agents to get goods. There are MLCC factories in place, most of the supply is actually sent to EMS and OEM manufacturers, generally speaking, the mainstream agents do not hoard goods, only a few spot merchants and traders have spot goods. Xianghai, Murata's agent, has been discussing the 2018 quota with Murata since November 2017 instead of OPPO, vivo and Jinli. After consultation, Murata plans to give about 80% quota to the aforementioned customers. It is understood that the current size of Xianghai electronic inventory can generally meet the needs of customers for 1-1.5 months, OPPO, vivo and other major customer supply inventory can only be maintained until January 2018.

As the largest professional agent of passive components, discrete components, connectors and electromechanical components in the world, TTI warehouse, which adopts the strategy of "high inventory, low turnover", has a large number of spot throughout the year, and is also the agent with the largest resistance and capacitance of all types in the global inventory. Anthony Chan, president of TTI Asia Pacific, said he was not worried about the shortage, not only because there was a lot of inventory, but also because there were enough suppliers of TTI and there were enough alternatives.

"Actually, as an agent, we can probably estimate the shortage period, basically every 3-5 years there is a round, either capacitor or MLCC or resistance. We will prepare in advance to advise customers which may be out of stock. TTI knows what may be out of stock because it is sensitive. TTI also has a closed-loop inventory reservation plan, which can share customer demand forecasting and automatically send replenishment information to suppliers. And generate stock reserve to meet customer's unexpected peak demand. On the other hand, we believe that the world's largest small-batch spot seller, Mouser, belongs to TTI, so TTI will purchase samples from Mouser and provide them to customers, which can greatly shorten the customer's delivery process.

In 2017, the shortage of low-capacity markets caught these Japanese and Korean giants by surprise, and of course, they could not go back and reclaim production capacity in these abandoned markets. Therefore, the strategy of Japanese-Korean system has shifted to Taiwanese and continental manufacturers. Since Japanese and Korean manufacturers are currently reducing production capacity, why don't agents increase purchasing by domestic manufacturers? That's because the standard MLCC capacity released by Japanese manufacturers is not well connected. From the market point of view, the market share of MLCC manufacturers in mainland China is less than 8%. Even if the capacity is expanded by 30%, it will only increase by 2.4%. However, the market demand gap is 25%-30%. It is not helpful to alleviate the gap.

However, as a distributor focusing on passive components and connectors, he also mentioned that passive components make inventory management more difficult, so the supply chain is often the most vulnerable passive components. "Active and passive are really different. Passive components account for 85% of the material number in the scheme, but only 7% of the value." According to ANTHONY CHAN, the passive component, which is worth 7%, is also very important. 100 pieces of material on a motherboard can not be produced without one. So now most factories will let the strongest purchasing to be responsible for passive device purchasing, because the passive material number is too many, and the shortage is also very serious.  Take the new energy vehicle as an example, there are more than 8000 capacitors and resistors, which will stop production if one is missing.

"We also see that the production requirements of Made-in-China 2025 are getting higher and higher, and the quality of products produced in China is getting higher and higher. People used to think that Made in China was a synonym for cheap. Now Huawei's mobile phone quality is no worse than that of the iphone. ANTHONY CHAN believes that after the transformation of Chinese manufacturing to high-end, the components inside will inevitably become more and more high-end, so he looks forward to the future development of passive components in the Chinese market. "We would also like to see the rise of native devices in China."

Technically, domestic manufacturers can't do high-end MLCC at present. Low-end MLCC seems to be rising in price at present, but compared with the cost of expansion, the profit is not high. Although Fenghua Technologies, Guoju, Samsung Electric Machinery and Solar Induced Power all announced that they would increase production capacity, most of them are investing in high-end production capacity. Maybe one day the low-end production capacity will be eliminated, domestic MLCC is not charitable, dare not invest in MLCC most lack of specifications such as 0402, 0603 capacity products.

Or an old saying goes well: "The business of hacking is done by somebody, and the business of losing money is not done by anybody."