Passives in a post-pandemic revenge economy

Dennis M Zogbi has authored over 260 market research reports on the worldwide electronic components industry

In this article, Dennis M Zogbi offers a near-term, post-pandemic market outlook as of January 2021.

The global passive electronic component industry, including capacitors, linear and non-linear resistors and discrete inductors of all types, will account for approximately USD$33 billion in global revenues for FY 2021.

The overall market outlook for February through December 2021 remains robust due to high dollar value growth opportunities in automotive, telecommunications infrastructure and 5G handsets.

Meanwhile, stable environments in computers, gaming and home theater electronics are also expected to support an overall positive market environment, with growth rates further stimulated by global economies emerging from pandemic into a ‘revenge economy’, where global economic stimulus packages and technology are continually used to achieve the sustainability goals of the entire global population.

For full-year 2021, expect market drivers for capacitors, resistors and inductors to include:

  • 5G infrastructure deployment
  • Battery electric vehicle production, automotive telematics and driver-assist technology
  • Solid-state drives for cloud storage, higher-performance computing and IoT devices
  • 2021 Olympics in Japan
  • Smartphones, desktop and notebook personal computers and game consoles to support the continuing remote working and learning trends worldwide

Recent reporting out of Asia suggests the global passive components markets experienced a slight contraction in the December quarter of 2020 that largely impacted the MLCC supply chain. MLCC sales in the prior (September 2020) quarter had been much higher than expectations, supporting 5G rollout in China. However, early reporting from Korea and China in January 2021 suggests that the market pulled back in the December 2020 quarter by low single digits. Meanwhile, other product lines, with emphasis on polymer tantalum, aluminum electrolytic and plastic film capacitors, experienced robust sales due to a revival of the automotive supply chain in this quarter.

Based upon full-year forecasts provided by Japanese vendors of passive components, we expect also that demand will grow in the March quarter and remain robust throughout the year. Early data (including vendor financial reporting, lead times and ballooning raw material prices) suggests passive component demand is in a growth part of the cycle, similar to that observed by Paumanok Publications in CY 2011.

The Passive Component Raw Material Pricing Index (which covers feedstock pricing for many of the primary raw materials consumed in the production of passive electronic components) showed a 3.6 per cent increase in January 2021 on a month-to-month basis, following similar increases in December 2020.

These price increases continue to impact almost every raw material in the passive component supply chain, an indication of strong demand. A cause for concern is the fact that the last time this threshold was reached, it preceded a steep decline in global market value of both materials and components.

Note that the raw material price index for passive components has increased by 21 per cent since September 2020, and in step with increased demand for passive components. Prices for base metals such as nickel, copper, aluminum and zinc all have increased sharply between September 1, 2020 and January 30, 2021, as have the prices for precious and rare metals such as palladium, ruthenium and silver. This increase in the cost of production for passive components is historically indicative of strong demand. The pricing for passive components has been elevated in conjunction with these increases in materials costs, in direct correlation to demand and the long-lasting impact of shortages of key parts over the past three years.

While many individual ingredients go into the production of individual passive component lines, the products shown in the materials index are part of the supply chain and are trackable via third-party data sources, which we collectively pool here to form the Pricing Index.

Historically, the price and availability of two metals, palladium and tantalum/tantalite ore, have had a major impact on component availability over the past 35-years. Ruthenium is creating concern in 2021 as the price for this precious metal consumed in resistors increased in the first month of the new calendar year.

Base metals such as nickel and copper are used as the electrode and termination materials in ceramic chip capacitors, while aluminum is used as the anode and cathode material in aluminum electrolytic capacitors. Zinc is the active ingredient in non-linear resistor products, and in metal oxide varistors used for circuit protection in almost all AC line electronics.

In the more exotic materials, including precious metals, rare metals and crude oil, we note that palladium is used in MLCC electrodes and ruthenium is used as the resistive ingredient in film metallization for resistors. This category also includes the tantalite or tantalum ores consumed in tantalum capacitors, as well as the silver consumed in MLCC terminations and SLC electrodes. Crude oil is the feedstock for plastics, consumed in AC film and DC film capacitors. Ultimately, this index covers materials consumed in more than 90 per cent of the total passive component units produced in any given year.

Capacitor lead time trends
In January 2021, the lead times for all capacitors, including MLCCs, plastic film capacitors, and tantalum and aluminum electrolytic capacitors, continued to tighten, as they had also done in December 2020. Note that the tightening of supply is appearing in tantalum, aluminum and film capacitors more than in MLCCs, where the supply concern is greatest.

There is an expectation of strong market demand for passive components for 2021 to support 5G infrastructure and battery-operated vehicle development. Each of these are either high-frequency or high-voltage, requiring a unique suite of products for base station, converter, inverter and/or charger architectures. For the month of January 2021, lead times increased slightly on a month-to-month basis for capacitors due to strong demand from electric automotive and telecom infrastructure sectors, while computing and gaming remain at above normal levels of demand to support the global stay-at-home trend.

Resistor lead times
In January 2021, the resistor markets tightened for resistors, with demand increasing for large case size thick-film chips and thin-film chips. Axial and radial leaded designs and networks showed mixed results for the month.

There was an increase in lead times for the month of January 2021 as demand for thick and thin-film chips increased on a month-to-month basis to support telecom infrastructure and automotive electronics demand. Thick-film chip resistors registered a sudden increase in demand in December 2020 on a month-to-month basis for larger chips consumed in high voltage electric vehicles, this trend continued in January 2021. Demand increased for all large case size chip resistors 1206 and above in January 2021.

Inductor lead times
Discrete inductor demand increased in January 2021 after weakening in December 2020 on a month-to-month basis. In January 2021, increases centered in the axial and radial leaded inductor designs. Overall, inductor markets remain elevated as these are key components in noise suppression. This demand is 5G base-station related, but auto telematics and auto radar circuits are also driving up demand for robust discrete inductors for challenging environments.

Currency translation
As we have noted, the exchange rates of foreign currencies that define the passive component market index have been having a major impact on vendors that report in US dollars. In January 2021, the global currencies that impact the passive component supply chain all continued to gain strength against the US dollar.

However, the shifts in valuation are not so great as to create any added negative impact on the supply chain or favor any region in terms of pricing in any meaningful way. In passives, due to recent shortages of MLCCs and related components, pricing has become secondary to availability and higher price norms are now built into the system. The won is notable now in terms of its growth against the US dollar, as is the NT$, but the yen is quite stable.

We now estimate that year-over-year demand for passive components through the March 2021 quarter will decline five per cent in dollar value, but with high-capacitance MLCCs showing slight growth of about three per cent while all other product lines slow down and register a year-on-year decline.

Regardless of this, the outlook for specific markets remains robust for CY 2021. The value of demand for passive components consumed in battery electric vehicles in CY 2021 will increase dramatically and revive old technologies that have had little technical innovation over the past 25 years.

The cycle for CY 2021 should mirror that of CY 2011. The data are similar and the anticipation of a global stimulus package is also comparable. The outlook for April 1, 2021 to March 31, 2022 should grow by 10 per cent to 20 per cent in value year-on-year due to global recovery post-pandemic; the advent of the EVx market; and the 5G rollout.

A version of this article originally appeared in TTI’s MarketEYE Resource Center.