Why are LED Display Prices Going Up? The Demand, The Shortage and The Rising Copper Price
The world was in a mess when we were hit by the pandemic last year. The economic damage from the pandemic was terrifying. Cities went into lockdown and most economic activities had to be halted. Most businesses were suffering, but we did not lose hope. We have been waiting patiently and things have turned out better since the start of the global vaccination programme months ago.
During the fourth quarter last year, the LED display industry saw a rise in demand for LED display products. You may think a rise in demand is always good for business. Think again.
It is true that LED display industry players are glad to see a decent market recovery. However, demand is rising at a faster rate than expected. Supply could not catch up. In the end, the industry players are facing a dilemma – to increase or to maintain the product prices.
But why? We are still in the early stage of recovery. The pandemic is still happening. Although a steady price increase is normal when the economy is good, but we are still nowhere near the growth we experienced prior the pandemic. The reason is nothing else but supply and demand.
The Law of Demand and Supply
If you have studied economics at school, the law of supply and demand is always the first rule. Prices are just numbers. These numbers go down when there is a surplus of goods. On the other hand, prices go up when there is a shortage of goods.
For example, in 2018 and 2019, the LED display prices were declining. This was due to a sudden increase in the number of LED display manufacturers in China. Production capacity increased sharply, but there was not enough demand in the market.
In the latter half of 2020, the LED display price was raised for the first time since the pandemic. This was due to a sudden surge in market demand. As we enter the latter half of 2021, increasing cost pressure is now an unavoidable challenge for all LED display industry players. For the past few months, the rate of increase in demand outpaces the rate of increase in supply.
What is actually happening? There are still COVID-19 cases and deaths in most countries. But why is consumer demand on the rise? Let’s talk about the demand.
An increasing demand proves that consumers or customers are having a high level of willingness and ability in purchasing the LED display products. Normally, an increase in demand happens during the growth stage of the economy. In order to discuss about the demand for LED display products, we need to look at the two largest consumer markets in the world – China and the United States.
While the United States were still greatly suffering from the pandemic outbreak in the latter half of 2020, China has managed to control the outbreak effectively. As a result, China’s economy has started to recover. In fact, China is the first nation to recover from the pandemic.
China’s economy is growing on the right track. Most economic activities are operating as usual. People have jobs and the unemployment rate in China has been under control. When things are back to normal, people are more willing to spend and to consume.
The consumer market in China is growing. Thus, business owners and advertisers are looking for investing opportunities to get more customers and sales. One of the opportunities is to invest in LED displays since they are effective tools in reaching customers with engaging brand messages.
LED display manufacturers and companies were receiving more purchase orders in 2020. The revenge rebound in consumption revealed new business opportunities.
However, at the same time, the United States were still fighting the pandemic. In order to mitigate the risk, people started to spend a long time staying at home. The economy was still affected badly, but the demands for both electronic products and display products were on the rise.
When people started to stay at home, they need laptops and computers to work. They also need gaming consoles and TVs for entertainment purposes. The pandemic has forced consumers to change their behaviours, and this has caused a disruption to the supply chain of the electronic products.
While consumer-grade LED display and electronic device industries have different target audiences, these industries share the same raw materials and components with the commercial-grade LED display industry. It means there are competitions in securing the supplies.
And worse comes to worst, due to the unlimited quantitative easing of the United States and some European countries, demand is at its highest level since the outbreak. And yet, the supply is still struggling to follow behind.
The Shortage of Semiconductor Chip
The two main components used in manufacturing an LED display product are semiconductor chip (integrated circuit) and printed circuit board. However, these components are not exclusively found in LED displays. In fact, the chip is the key component of most electronic devices such as monitors, LED displays, smartphones, cars, electrical appliances and medical devices.
When the pandemic created demand for electronic devices during the lockdown, and when the market started to recover months ago, global chip shortages occurred. And it is still occurring today.
Although chip manufacturers have increased their production capacity greatly, it is still far from enough. The global chip shortage has led to bottlenecks in various businesses. The LED display industry is one of the industries that remains worst hit. This is because light emitting diode or LED is the key component of the LED display product, and the heart of an LED is the semiconductor chip.
According to a statistical report from China, it is expected that the price of the semiconductor chip can increase up to 20%. This will directly cause the LED display companies and resellers to raise the prices of their end products and services.
However, according to a few major LED display players in China, increased business cost is not their major concern. The major issue here is the shortage of key components even though companies and customers are willing to pay more. If you place your order today, you might only be able to get the components months later.
Image by Bloomberg. [Image source https://bloomberg.com]
The Rising Copper Price
Another key component of an LED display product is the printed circuit board (PCB). PCB is the backbone of most electronic devices. Hence, if there is a shortage, there will be fierce competitions among various industries in securing the supply.
PCB is made from substrate materials with copper foil. One of the raw materials used is the copper. And if you are still not aware, the prices of various commodities such as copper, steel and palm oil are skyrocketing in 2021. The reason behind the soaring commodity prices is the global economic recovery. China consumes roughly half of the world’s copper and the demand is high.
On the other hand, there is another reason why the copper prices have rebounded strongly. Going green policy has led to an increase in usage of copper in green technologies such as the electric vehicle. It means that China is no longer the only strong consumer of copper. Copper is the “new oil” now and everyone has a craving for it.
[Chuqicamata is a copper mine located in the north of Chile. It has the largest excavated volume in the world.]
The largest copper producer in the world is Chile. Unfortunately, a strike was called in April 2021 and it hampered the export of the copper.
The green push has caused a huge demand for copper. Copper price has already climbed to its highest. But the price does not stop there. It will keep climbing due to the strike in Chile. It also added worries to the supply.
Besides, copper is not the only raw material needed in the manufacturing process of an LED display. The prices of plastic, steel and RGB packing devices continue to rise too. Many industry players also predicted that the price increase of raw materials will continue until 2022.
Here, we are back to the first rule of economics. The price increases when the demand is higher than the supply. This is the law of demand and supply.
Looking Forward To The Future
The shortages and the price increases of the LED display’s raw materials are beyond the control of the LED display manufacturers and the resellers. However, there is still a challenge that they need to deal with – to increase or to maintain the prices of their products and services. And if they want to go for a price increase, how many percent should the increase be?
Some players have no choice but to offset the rising production cost by raising the prices. Some players are looking into differentiation strategies to add value to their products and services. A small portion of the players chooses to stay competitive in the market by taking a wait-and-see attitude.
The pandemic has disrupted businesses in many unforeseen ways. 2021 is a challenging year for the LED display industry, but it is also a year of opportunities as the global economy is recovering. Although customers consider LED display price as an important factor in their purchase decisions, they are actually looking beyond that. Those who can provide products and services that create the highest customer value will always win the heart of the customers.