Supplyframe Commodity IQ H2 analysis

18th May 2023
Harry Fowle

The latest Commodity IQ analysis from Supplyframe indicates that inventory reductions and corrections initially expected to be largely complete by the second quarter will continue into the third quarter of 2023.

Lead times and prices across most electronics commodities will drop further toward historical norms in the second quarter. Consumer markets remain slow, but the automotive and industrial segments are relatively robust. Macroeconomic shifts will have massive repercussions for the global electronics supply chain – with a demand rebound for PCs, smartphones, and data centres required to drive new growth.

“Despite global economic challenges and uncertainties, Commodity IQ shows that commodity supply-demand rebalancing is well underway,” said Supplyframe CEO and Founder Steve Flagg. “Some electronics commodities and end markets have shown initial signs of recovery through Q1.”

Global electronic component sourcing activity rose quarter-on-quarter by 3.6%, led by fibre optic component demand, which increased by 22.1% and offered signals for potential demand rebounds, according to Commodity IQ findings.

In the second half of 2023, just 4% of all semiconductor lead time dimensions (excluding memory) will expand, while 35% will decline. However, to a lesser degree, lead times for certain devices – including power MOSFETs and some automotive-grade ICs – will remain extended. At-volume passive components under 12-week lead times for the second quarter more than doubled, the latest data from Commodity IQ reveals. The number of quoted lead times beyond 52 weeks was halved.

Just 1% of pricing dimensions will increase, and over half will be stable across all electronic components in the second half of 2023. But average selling prices for global DRAM are eroding and will continue to slide into the third quarter. Yet spot prices for DDR4 are stabilising, reinforcing the first quarter Commodity IQ forecast that DRAM recovery is set for the fourth quarter. Supplyframe Commodity IQ analytics also suggest that additional flexibility in both price and availability exists across many commodities and sub-commodities, including resins and metals.

Global and regional demand fell in April

Worldwide electronic component sourcing actions decline historically from 7% to 10% from March to April. Yet despite regional demand upticks averaging 5.5% in the first quarter, global demand dropped more than three times that rate in April. 

Component inventory digestion continues, albeit slower, declining 5% sequentially in the first quarter. The combination of still-high inventories across the supply chain and lowered manufacturing in key markets, including the United States, China, and the EU, was primarily responsible for the demand declines in April.  

Average regional demand drops month-on-month in April were 21.5% – with the Europe/Middle East/Africa (EMEA) region experiencing the most significant month-to-month contraction, followed by the Americas.

“Supplyframe forecasts a markedly more balanced electronics supply chain in the second half and expects component inventories to be largely digested into the third quarter,” said Richard Barnett, Chief Marketing Officer and Saas Sales Leader at Supplyframe. “However, industries sharply cut factory utilisation to adjust to weakened demand. Some automakers may be building electronic component safety stocks, and macroeconomic uncertainty still lingers.”

Interest rate increases across the globe, the spreading banking crisis, and a new report from the World Economic Forum predicting that the global labour market will lose 14 million jobs over the next five years could send the U.S. and other world economies into sharp downturns. 

Conversely, news from the U.S. Census Bureau revealed that new orders for non-defence durable goods outgrew previous estimates. New orders for U.S. electronics surged year-over-year through March by 8.4%, and global job numbers have been solid to date, indicating that the U.S. and other economies may be poised for a soft landing – or avoid a downturn entirely. 

“Economic conditions are at a tipping point, with the ongoing debate regarding the timing, severity, and certainty of a global recession in 2023,” said Flagg. “If conditions and sentiment improve, demand will rebound. And rebounds could possibly lead to the return of constraints for certain electronics commodities as manufacturers ramp capacity. Make sure you have the data-driven intelligence you need to understand and act on changing situations to build resilience.”

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