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Market Trend

Panel Makers' Capacities Adjustment Is Key to Oversupply Issue
Published Oct.07 2015, 05:45PM (GMT+8)

According to WitsView's latest statistics, Market Confidence Index (MCI) declined 302.9 points, from 4480.4 points to 4177.5 points during the period from September 9st to October 7st, 2015.The U.S. Federal Reserve's two consecutive days meeting ended and decided that the Fed would not raise the interest rate in September.On September 24th, Fed's chief Janet Yellen expressed that the recent inflation has not matched Fed's target of 2% because of some temporary special factors. Yellen predicts the Fed will raise interest rate later this year.The US unemployment rate dropped from 5.3% in July to 5.1% in August, which was the record low for the past seven years.Low unemployment rate and falling prices of international crude oil made the US consumer confidence index in September grow to 103%, which was higher than 96%, the market's prediction.Lower unemployment rate improved people's purchasing power. However, due to the stagnating salary growth, the US' consumption expenditure in August only increased 0.4%.In addition, the US has still faced the issue of shrinking labor market.The US' employment level must be higher than its natural employment level, so that problem of unutilized human resources in the labor market will be eased. Then the US inflation rate will grow faster.The US' inflation rate in August stayed flat at 0.2%, the same as July's.WitsView predicts that before the US labor market has more improvements, and the inflation moves back toward the 2% objective over the medium term, Fed will not raise interests.Alexis Tsipras won the Greek prime minister's re-election in September. This result has eliminated the uneasiness of investors. However, after Greek debt crisis, Volkswagen emission scandal has seriously hurt European financial market's confidence. US' Environmental Protection Agency (EPA) has accused that Volkswagen's diesel cars have cheated on emission tests. Volkswagen is the largest car manufacturer in Germany. In the following months, if its car sales drop, not only will the company suffer, but entire Germany economy will be impacted.Moreover, the worsening refuges problems are influencing Europe's economy's recovery. If Europe can handle it properly, issues of Europe's aging population and lacking of labor forces will be eased. Whether Europe is capable of transforming the crisis into an opportunity is carefully watched in the near future.

Because China's domestic economy growth has slowed down, output-gap has enlarged, and inflation has been expected to be moderate, People's Bank of China (PBC) changed the discount rate which had lasted 16 consecutive years, down to 1.75% from previous 1.875%. This move will help stabilize general prices and finance of China, and aid economic growth.China's PMI in September came to 49.8%, increased 0.1% compared with August. However, it has remained relatively weak compared with the same period in history.Economic growth rate has not been higher than the threshold 50 for two consecutive months, so China government started to implement policies of lowering the deposit reserve rates and lowering the interest rate on September 6th in order to improve the status quo. Japan's export to China decreased 4.6% because of China's slowing economy and decreasing demand. The weakening overseas market added more pressure to already soft domestic economy of Japan.Since Bank of Japan (BOJ) implemented massive monetary stimulus program, Japan's latest CPI has shrunk for the first time. Japan CPI dropped from 0% in July to -0.1% in August. This caused inflation to move further away from BOJ's target. Because economy growth rate has dropped and inflation has moved toward 0%, Japan's economy is worrisome. 
China's panel makers' capacities expansion is worsening global oversupply issues. Moreover, slow global economy has made consumers procurement momentum weak. Unideal sales in the market has led channels' inventory level to increase and decreased the procurement momentum of brands toward panel makers.To solve panels' oversupply issue, undoubtedly, lowering capacities utilization rate will be one of the best solutions. In the past, global panel industry was led by Taiwanese and Korean makers who aimed to make profits. Therefore, when oversupply provided no profits, competing panel makers naturally adjusted their capacities and enabled the re-balance of supply and demand.However, for current status quo, Chinese panel makers have grown largely and increased their competiveness toward Taiwanese and Korean panel makers. Once Taiwanese and Korean makers cut their production, Chinese makers seize the moment and take the market share immediately. With improving panel technology and massive amount of government capitals' support, Chinese makers have less concern for glut ratio, so they are less willing to lower capacities utilization rate.Considering market share's erosion, the attitude of Chinese makers caused Taiwanese and Korean makers less likely to adjust their capacities to influence of panel industry's glut ratio. Hence, pressure of capacities oversupply will become more severe starting from 4Q15, and will become very apparent in 2016. Recently panel makers are considering to start annual maintenance in advance to solve the oversupply issue. Nonetheless, it is only a short term solution. If any makers want to completely solve the oversupply issue, they need a more long-term and more-thorough solution. 

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