10/21/2014 //
During the week of October 12, 2014, I attended the 55th General Assembly of the Tantalum–Niobium International Study Center held in bustling Times Square Manhattan. This year’s assembly was special for me as I was made a delegate and my firm became a “member company.”
What I enjoy most about the General Assembly meeting is the access to the complete tantalum supply chain; from miners to materials processors; component manufacturers to design engineers; lobbyists, financiers and government officials; and the ability to tap into each level of the supply chain to gather primary intelligence.
The general takeaway from the discussions I had at this event was one of general concern over the (1) global fears of contracting Ebola and the potential steps that might be taken to eradicate the virus; (2) the sudden and unexpected downturn in the German, UK and French economies; the (3) churn rate in the global high-tech economy, and (4) the recent forecasts for growth given by the collective Japanese vendors of passive components for FY 2015.
This year’s General Assembly meeting was a bit different than those in the past and there was a negative tone emanating from the crowd; brought partly by the fear of the devastating and seemingly unstoppable Ebola virus, but also because the European delegates were warning all those who would listen that the key markets in Europe were taking a turn for the worst; and the component vendors were warning that the churn rate in the high-tech economy was having an anemic affect on global business.
The African miners, who specialize in mining hard rock tantalite in far away and exotic places such as the Democratic Republic of the Congo, Sierra Leone and Rwanda were wearing their hearts on their sleeves and their concerns in their actions by refraining from shaking hands, with at least one poignant comment about how the traditional Western business practice of greeting each other was far from sanitary and that we should all adopt the Asian practice of bowing instead. When pressed, the miners from central Africa acquiesced and noted how the majority of them had fled their respective countries for European enclaves months ago. Many smaller mining operations and prospecting activities had been idled, simply over the fear of potentially contracting the Ebola virus.
One mining firm noted to me that local security on the ground for the Westerners was provided by elements of the local police departments and it was the police departments who were also first responders when families reported that a loved one was sick with the Ebola. In the end, the message I received from the African attendants at the General Assembly meeting was that the Ebola virus was devastating the local economies in Africa, and preventing the continued mining of hard rock ore (had this happened at a high point of demand for tantalite there may have been a global shortage of key raw materials).
The general consensus among the African miners interviewed at the General Assembly meeting was that it was highly logical that the expansion of the Ebola virus will be checked in the next few months as the cold weather keeps people from congregating; and therefore mitigates the spread of the disease. Let us hope that this is more than mere hyperbole.
Another pressing issue affecting the global economic landscape as we enter into the second quarter of the 2015 fiscal year (Ending March 31, 2015) is the fragile European economy. Primary sources interviewed at the General Assembly event with their headquarters in the German market noted that industrial production in the September quarter slowed down considerably. And the December 2014 quarter was expected to be flat on a quarter-to-quarter as well. And while primary sources also noted that they did not expect Germany to enter into a recession, they were dialing back their estimates for Germany and Europe as a whole for FY 2015 (Germany is Europe’s largest economy).
Primary sources from the United Kingdom also report a general slowdown in their local economy and have also dialed back their estimates for growth in FY 2016, and while the UK economic growth is now better than that of Germany for the 2015 FY, the country is concerned about the Eurozone economy in general; the conflict in Ukraine and the uncertainty of the upcoming political election in the country.
In France the economy is also proving to be extremely challenging. Growth has slowed considerably in the September 2014 quarter and this is reflected in and influenced by the high unemployment rate in the country. The high tax-rate for individuals, restrictive labor laws and the aggressive stance toward taxation of businesses have undermined the potential of meaningful economic growth in the both the 2015 and 2016 fiscal year.
As noted, the continued transition to the high component content Smartphone, and dramatic increases in demand for tablet computers; coupled with excellent increases in electronic component content in automobiles and increased automobile sales worldwide have been the positive highlights for the global electronic component markets in FY 2014 and FY 2015. In specialty markets, the medical electronics markets and downhole pump oil and gas electronics markets continued to perform well, while defense markets slowed down, with the only exception being positive growth in sub-assemblies for certain fighter jets. Commercial aircraft markets also remained somewhat positive in both fiscal years.
The big strain on the electronic component markets comes in the transition in the computer markets, as customers buy tablets at the sake of notebook computers and desktop computers, causing overall component consumption in the segment to decline. Additionally the global television set market remains disappointing, as does the market for consumer audio and video imaging equipment which is being negatively impacted by Smartphones, which can accomplish the same goals as consumer electronics devices such as digital still and digital video cameras, game consoles, GPS devices, and MP3 players, which become redundant in wake of the Smartphone and not necessary anymore for the consumer.
Summary of Positive Market Indicators
The positive influences on the market are as follows:
Summary of Negative Market Indicators
The negative influences on the market are as follows:
The Japanese vendors interviewed at the General Assembly meeting in Manhattan in October also pointed toward the year-over-year forecasts made by the publically traded passive component companies in Japan, which project an average annual rate of growth of 7.3% in yen value on a year-over-year basis between FY 2014 and FY 2015. When converted into U.S. dollars, due to the strength of the dollar to the yen, this value growth drops down to only 3.1% growth rate for passive component sales on a year-over-year basis for Japanese vendors. And since the Japanese vendors control such a majority portion of the global passive component markets, their forecasts are a good estimate of the actuality of growth for the market as a whole on a year-over-year basis for FY 2015. In Japan the high growth components continue to be the high capacitance ceramic chip capacitors and (surprisingly) and to a smaller extent, the aluminum electrolytic capacitors; offset by stagnant markets in tantalum capacitors and plastic film capacitors. Plastic film capacitors and large can electrolytic capacitors are largely dependent upon government direct investment in infrastructure, which is certainly in question going into FY 2016 given the weakness in the European economy.
Summary and Conclusions: FY 2015 and 2016 Outlook
Dennis M. Zogbi is the author of more than 260 market research reports on the worldwide electronic components industry. Specializing in capacitors, resistors, inductors and circuit protection component markets, technologies and opportunities; electronic materials including tantalum, ceramics, aluminum, plastics; palladium, ruthenium, nickel, copper, barium, titanium, activated carbon, and conductive polymers. Zogbi produces off-the-shelf market research reports through his wholly owned company, Paumanok Publications, Inc, as well as single client consulting, on-site presentations, due diligence for mergers and acquisitions, and he is the majority owner of Passive Component Industry Magazine LLC.