EIPC Technical Snapshot: Supply Chain and Material Price Pressures
Correction: An earlier headline for this article misstated the name of the organization that presented this webinar. The name of the organization is EIPC, not IPC.
EIPC’s seventh Technical Snapshot webinar on April 14 was timely and appropriate. In the context of current supply chain issues and material price pressures facing the PCB industry, particularly in Europe, the EIPC team brought together an outstanding group of experts—each a leading authority in his field—to analyse and comment upon the areas of concern and to respond to questions raised by a capacity audience.
EIPC president Alun Morgan moderated the session and set the scene with an introductory presentation that examined structural change in the European PCB industry supply base.
His graph of trends in total expenditure on manufactured goods since 1970 indicated that, even in 2019, European and U.S. demand continued to substantially exceed that of China, whereas Chinese manufacturing output had overtaken the U.S. and Europe in the early 2010s. There was now a huge gap between European consumption and European manufacturing output; consequently, the supply chain had become longer and longer.
Looking specifically at world PCB production, it had grown in value from $33.1 billion to $60.8 billion between 2000 and 2019, but the trends in the geographic distribution of manufacturing showed reductions of around two-thirds in North America, Europe, and Japan; and an eight-fold increase in Asia. European PCB industry revenues had fallen from nearly 5 billion euros in 2000 to 1.5 billion in 2020, and the number of manufacturers was currently less than 200.
The numbers of European glass weavers and copper foil suppliers had shown an even more dramatic decline between 2000, when there were four manufacturers of glass fabric and four of copper foil, to a solitary foil manufacturer in 2020 and no-one weaving glass for PCBs. There had been a similar pattern in North America.
Morgan’s list of supply chain risks included travel distance, poor logistics management, too many partners, too much administration, poor understanding of supplier networks, poor communication, tariffs, and political interference. In his opinion, one of the most serious problems was a lack of real demand data and meaningful forecasts, and he implored PCB manufacturers to share their data with suppliers:
- To give them the best opportunity to plan production capacity
- To build resilience into their supply chains
- To ensure that their customers’ needs were communicated effectively and fulfilled at the right time
He acknowledged that manufacturers of substrate materials had to address the fundamental issue of managing complex globalized supply chains.
Having identified poor logistics management as a major supply chain risk, Morgan stressed the crucial importance of recognising logistics as a key part of a commoditised business. It was significant that last year’s EIPC Winter Conference in Rotterdam had included a visit to one of the largest and most advanced container terminals in Europe, Hutchison Ports ECT Delta at the Maasvlakte, handling almost 20 million 20-foot equivalent container units every year, an exceptional example of automated logistics. And it was container logistics expert Dr. Bart Kuipers, senior researcher of port economics, from the Erasmus Centre for Urban Port and Transport Economics at Erasmus University Rotterdam, who gave the second presentation: An overview of the disruption, resilience, and future view of global container shipment resulting from the COVID-19 pandemic.
Kuipers began with the topical example of the unprecedented disruption of the global supply chain caused when the giant container ship EverGiven blocked the Suez Canal—“Very bad timing at a very bad location!” The resulting bottleneck was still causing significant delays to ports, shipping, cargo, and containers.
His real-time illustrations showed the enormous current levels of activity at the ports of Rotterdam and Antwerp where some very big problems were emerging, resulting in serious lengthening of supply chains, not the least due to a shortage of empty containers and a remarkable under-performance of the global container system. Global schedule reliability had been as low as 35% in January 2020. The average length of delays was approaching seven days and this under-performing system had become very expensive—the cost of shipping a 40-foot container from Shanghai to Rotterdam had quadrupled during the last year. This had serious consequences for retailers sourcing lower-price commodities in China, although the carriers were doing very well and making huge profits!
Kuipers discussed the reasons behind the current situation:
- A demand boom: Consumers were buying products instead of services; working at home had increased the demand for computers and fitness equipment.
- A “bullwhip effect” in logistics: This was a consequence of customers failing to share real demand data and meaningful forecast information with their suppliers, causing demand distortion as already highlighted by Morgan.
- Disruption at terminals caused by absenteeism of port workers through COVID, and this had also resulted in a shortage of empty containers.
- The diseconomies of the very big container ships, particularly the congestion of and pressures on handling systems on arrival in port for unloading.
What were the prospects for the future? The short-term reaction of some shippers was to try and bypass the container system, avoiding congestion by shipping to smaller ports, or by using all-rail routes, whereas the reaction of the container-shipping industry was to order more big container ships. Kuiper believed that by the time these new ships were in service the effects of COVID would have been reversed, with consumers buying services instead of products. He expected over-capacity, a lowering of tariffs, and possibly an ending of alliance structures.
He defined two possible longer-term scenarios:
- “Slowbalisation” was characterised by re-shoring and near-sourcing, with a low-growth container industry driven by logistical and geopolitical factors and a decoupling of supply. The traditional container system would stay in place with the container as a mass commodity. There would be a moderate level of innovation in the container industry and the current carrier-centric business structure would remain.
- The likely alternative was “SuperGlobalisation,” in which the container system would become disrupted, with dedicated services for important niche markets. Globalisation would be reinforced by e-commerce, Internet-of-Things, and cloud computing. Autonomous shipping would have a decisive impact in the container market, containers would become individualised and intelligent, and global containerised trade would continue.
Back to PCB materials! Having commented that there was a solitary copper foil manufacturer remaining in Europe, Morgan was proud to introduce that supplier with whom he had enjoyed an excellent relationship during many years of his career in laminate manufacturing—Francois Bottazzi, sales director of Circuit Foil in Luxembourg.
The subject of Bottazzi’s presentation was the growth in electric vehicles (EV) and its impact on the supply of electrodeposited (ED) copper foil to Europe. Global sales of battery-electric vehicles (BEVs) were growing rapidly, with Europe leading the market in 2020 and China close behind. Because of COVID, the total global market for vehicles had decreased by about 14% in 2020, but the proportion of electric vehicles had continued to increase. China was by far the largest market for EVs, and 51% growth was predicted for 2021, although forecast percentage growth was substantially higher for Germany, France, and the UK.
All these EVs would need batteries, so what were the projected demands for copper foil for the production of lithium-ion batteries (LiBs)? Bottazzi’s figures were frightening—China would require 50,000 tons in 2021. The projections grow to 125,000 tons in 2023, and 200,000 tons in 2025, when one-third of new car sales will be electric. The corresponding figures for Europe were 35,000 tons in 2021, rising to 150,000 tons in 2025. The number of Giga-factories in Europe was forecast to increase by 26 between now and 2030, with a total annual production capacity of 650 Giga-watt-hours-worth of lithium-ion batteries, and consuming 260,000 tons of copper foil.
And it is not just batteries themselves—they needed charging! Between 1 kg and 7 kgs of copper is required to equip each charging station, of which there are presently 400,000 in Europe. One million will be needed by 2024, rising to 3 million by 2029.
Bottazzi showed a graph of battery-foil imports into Europe during 2019 and 2020, indicating a rise from less than 700 tons to over 1,500 tons per month between January and December 2020. During this period, the price of copper on the London Metal Exchange had risen from less than $5 per kilogram to around $9.6 per kilogram, although the current price was slightly lower because of profit-taking by speculators.
So, who is making copper foil in Europe? As Morgan had said earlier, the only remaining manufacturer of foils for the PCB industry is Circuit Foil in Luxembourg, and Francois Bottazzi put a meaningful perspective on the situation. Circuit Foil’s production is primarily focused on supporting the high-end electronics market in Europe, especially 5G and millimetre-wave applications, with an annual capacity of 10,000 tons, and plans to expand to 13,000 tons in 2022. The company has a factory in Hungary dedicated to the production of battery foil, currently 10,000 tons but with substantial expansion planned to 25,000 tons in 2023, and 75,000 tons in 2025.
Morgan introduced the final speaker, from another manufacturer of copper foil... and glass yarn... and glass cloth... and epoxy resin... and copper clad laminates... and PCBs: Nan Ya Plastics Corporation, a division of Formosa Plastics Group. Andreas Folge is responsible for 5G OEM marketing of copper-clad laminates in Europe for Nan Ya’s Electronic Materials Division. He set out to answer the question, “To which extent 5G will have an impact on the actual worldwide copper-clad-laminate supply situation?” from the perspective of a major producer with a vertically integrated structure.
Folge began with a brief overview of the Nan Ya Electronic Materials Division and its scale of operation. It has a 20% share of the global market for glass fabric, a 19% share of the global market for copper foil, a 17% share of the global market for epoxy resin, and a 13% share of the global market for FR-4 copper-clad laminate (CCL). Complete vertical integration ensures consistency of product performance.
He commented that the present worldwide market situation was unprecedented in his past 20 years of experience. All of Nan Ya’s raw material and CCL manufacturing plants in China and Taiwan have been fully loaded for months; order intake is still strong and already covered almost their entire second-quarter production; and the raw material and CCL inventories of major industry players worldwide are at the lowest level within the entire supply chain. Further increases in production lead times are expected worldwide, especially for non-standard materials, and capacity loadings will remain high for the coming months, with all manufacturers focusing on maximising output and producing high-margin products for key market segments. The low inventory levels will continue, and worldwide logistic supply chain troubles will have a further negative impact, mainly outside Asia. The overall effect will be that the seller's market will continue.
Having established the realities of the world-wide supply situation for copper-clad laminate, Folge reviewed the current and forecast levels of activity in world communications. His statistics indicated that there were more than 4.5 billion active internet users worldwide, using mainly mobile devices. In addition, more than 1 billion people have some sort of computer connected to the internet. The combination of mobile and fixed traffic is now measured in exabytes (EB), with one exabyte equal to one billion gigabytes. In 2019, the figure was about 180 EB per month, and this is forecast to grow at 20% CAGR to 560 EB per month by 2025. It was clear that the world needs wired and wireless infrastructure and devices for high speed, high volume, ultra reliable, low latency, secure data communication and storage.
5G is seen as the enabler and is expanding rapidly around the globe, although Folge stressed that presently the world is only at the beginning of the 5G business cycle. The strongest growth segments were already in networking, cloud computing, data centres, gaming, and smart consumer electronics. Wired and wireless infrastructure equipment have become a key driver for market transformation, increasingly focused on special multilayer boards and high-end packaging substrates, driven by high-speed, high-frequency and high-thermal demands.
5G will force innovation, having significant impact on existing interconnection concepts and necessitating a fundamental transformation in PCB requirements involving miniaturisation, loss reduction, integration, and thermal management. Standard FR-4 laminates will no longer be appropriate; 5G will require application-specific laminates using high-end raw materials: advanced resin systems, improved glass formulations and weave characteristics, foils with reduced surface roughness, modified crystalline structure, and enhanced barrier layer composition. The manufacture of such materials is more difficult and more specialist, and they will inevitably be more expensive.
As he had previously stated, Folge expects the seller's market to remain, with an ongoing tight supply situation worldwide although Nan Ya is making substantial investment in additional production capacity for foil, glass fabric and laminate in China and Taiwan. The outlook was that 5G-related infrastructure and device demand would continue to increase, with the 3C (consumer, communication and computer) market segment remaining very strong, and automotive and industrial following. Folge believes that once the 5G infrastructure is built and the data centre investment cycle is complete there will be a shift back to smart and portable consumer products.
EIPC’s well-balanced selection of complementary presentations inspired a dynamic question and answer session, which Alun Morgan expertly moderated. The presenters were joined in high-level discussion by Mark Goodwin, chief operating officer at Ventec International Group, an expert in logistics, and advocate of the benefits of working with a vendor that owned the supply chain and could offer flexible solutions adaptable to changing customer demands. There was a very candid exchange of ideas and experiences, and complete agreement with Morgan’s appeal for the sharing of forecast information along the supply chain, especially in Western Europe and North America, where lower volumes, high mix and quick turn were the demand drivers.
A final salutary remark from Morgan: “If you don’t use the European supply chain, you won’t have it anymore!”