Oversupply, trade war to hit LED market

Oversupply, trade war to hit LED market

Market news |
By Rich Pell

The market is slowing down as the oversupply situation contributes to LED price declines, together with the impacts of escalating trade war on demand in the end market.

The massive production capacity expansion of Chinese LED manufacturers has outpaced the demand growth, triggering oversupply in the market, observes LEDinside. The Chinese LED manufacturers originally intended to raise their revenue and profits through production capacity expansion, but the falling ASPs have made the market situation more difficult for them.

In the first half of this year, the market witnessed price falls of 20% to 30% for some LED chips, but the analysts at LEDinside do not expect further sharp drop of prices in the short term, for the current price levels have almost approached the costs.

On the demand side, LED manufacturers’ export business to North America and other emerging markets has been considerably influenced by the trade war and currency depreciation. With the next wave of tariffs going into effect on September 24, tariffs of 10 percent will be imposed on Chinese products, including more than 30 categories of LED lighting-related products.

Accounting for around 70% of China’s LED lighting exports, the $8 billion worth of products will face even higher tariffs of 25% by January 1st, 2019.

According to LEDinside, the tariffs may affect Chinese LED packaging companies and lighting product makers, because they may see a large decrease in orders from foreign clients. This will in turn lower the demand for LED chips in the upstream of the supply chain.

Despite the impacts of the trade war, which may result in a changing landscape in the global LED industry, LEDinside believes that the lighting products will still be produced in China in the short term, with little change to the supply chains, because the supply chains of components and electroplating process have been long established in China.

Some U.S. LED lighting manufacturers have already reported price increases on their products in the U.S. market due to the imposed tariffs and cost rise. As for Taiwanese LED manufacturers who have production facilities in China, they may move the assembly back to Taiwan before exporting to North America to avoid the tax. To remain competitive in the long term, LED companies may relocate the production to their facilities out of China to minimize the impacts of trade issues.

TrendForce –

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