Favorable conditions for panel makers; another wave of price increase in February

by WitsView on Feb.06 2010

As Chinese New Year (CNY) holiday takes place slightly later this year, downstream customers have adequate time to restock their inventory in preparation for the strong domestic demand in China, which is stimulated by its government subsidies. On the other hand, after CNY holiday ends, there is only one week till the beginning of March, and every year during CNY holiday, labor loss occurs in the country; therefore, in 1HFeb, before the holiday begins, set makers will maximize their production capacity to offset the issue of insufficient production capacity led by such labor loss. As a result, with panel production capacity limited by the tight supply of several components such as glass, ICs, polarizer, and PET film, panel supply cannot be increased substantially, and overall market supply remains tight in early February. This bodes well for panel makers as panel transactions that take place before CNY holiday are relatively more favorable for the sellers (panel makers). According to WitsView’s price survey for 1HFeb, monitor panel prices will likely rise by $5 in February, and several sizes may exceed $5; panel makers may also raise prices of 32W and below small-sized TV panels by $3~5. As for notebooks, on the one hand, their market supply and demand remained fairly stable; on the other, influenced by the continued increase in monitor panel prices, panel makers’ notebook divisions are under pressure to increase their prices. After the moderate rebound at the end of January, there might be another wave of $2~3 increase in notebook panel prices in February. (See figure 1)

Monitor Panel Price Update

Before the CNY holiday, monitor panel supply is still constrained due to several factors: buoyant demand for TVs, tight supply of several components, and inventory replenishment of monitor panels from downstream customers, which has become more brisk due to fewer working days in February and labor loss in China’s fabs during CNY holiday. After panel prices rose by $3~5 in January, panel makers may be more aggressive in increasing prices in early February. Average price increase may reach 5%; of which, price increase of 22W, 23W, and 23.6W will exceed $5 at a rate higher than that in January, due to limited number of suppliers. (See figure 2)

TV Panel Price Update

With only one week before CNY holiday, downstream set makers strive to complete production for restocking demand before the holiday begins. Furthermore, with monitor panel price rebound driving up demand for inventory replenishment, prices of small-sized LCD TV panel also continued to rise. Of which, price of 32W may rise $2~3, 37W and above will likely remain flat; it is difficult to raise the price of 26W as it is limited between 32W and 23.6W. However, with CNY around the corner, and restocking drawing to a close, set makers’ subsequent demand for TV panels will be determined by actual market sales performance. Witsview projects that such demand will gradually weaken after the holiday. (See figure 3)

Notebook Panel Price Update

After two consecutive months of price increase in monitor and TV panels, notebook panel prices also saw a rebound. On the other hand, spurred by Intel’s next generation CPU, Calpella, and the launch of Window 7 OS, the market is highly optimistic about demand for notebook upgrades in 2010. Current market inventory level is still within a healthy range, prices of the mainstream sizes, 10.xW and 15.6W, may rise $2~3, while others are also likely to rise by $1~2. (See figure 4)

Conclusion

According to panel makers’ 4Q09 financial results, profitability failed to meet market expectations due to the impact from panel price decline and penalties for violating the anti-trust law. However, with strong panel demand from downstream customers, as well as continued rise in panel prices, the overall panel industry should be able to post positive earnings in 1Q10. However, we hold a more cautiously optimistic view toward market trends after CNY holiday, because market is currently in a vicious cycle :

downstream customers’ continued inventory over-stocking may lead to excessively high inventory build-up, while unjustified panel price increases has led to mounting cost pressure on downstream customers and declining market competitiveness.

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Favorable conditions for panel makers; another wave of price increase in February

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