Buyers who are purchasing magnetic components can expect stable lead times and pricing throughout the remainder of the year. At least that is the consensus of inductor and transformer suppliers that I've chatted with over the past few weeks.
Although a few inductor suppliers noted rising demand over the past quarter, which has resulted in a few hiccups in deliveries, they don't expect any supply issues in the fourth quarter. In fact, some suppliers continue to invest in production capacity to meet increasing demand. Unfortunately for buyers, lead times vary significantly, ranging from five weeks to 16 weeks. Deliveries for linear (power) transformers range between seven to 12 weeks.
If demand continues to increase for inductors, buyers should expect a bounce in pricing, but it likely won't be very significant. In general, inductor pricing doesn't experience wild price swings like we see with some other component types.
Pricing for linear transformers also is expected to remain stable. This wasn't the case several years ago when prices for copper and steel were through the roof and component suppliers had a difficult time establishing contract prices with their customers because of fluctuating prices.
As always, magnetic component buyers need to keep one eye on materials costs, and the other eye on labor costs in China. This often becomes a juggling act for component suppliers as they try to keep costs under control while dealing with customers who request annual, and sometimes, quarterly, cost reductions.
One interesting nugget I learned from one inductor supplier, which provides tin/lead terminations for military customers, is the potential for tight supply of lead (Pb). The inductor supplier said it's keeping close tabs on Pb materials supply. According to a March 2013 report from Lead Investing News, some analysts expect China's economy recovery to "tighten up the lead market" with global lead demand projected to increase about 7.5 percent to 5 million tons in 2013.
In 2012, the global supply of refined lead metal exceeded demand by 64 metric kilotonne (kt), according to the International Lead and Zinc Study Group (ILZSG). Inventories reported by the London Metal Exchange (LME), Shanghai Future Exchange (SHFE), producers and consumers increased by 23 kt totaling 628 kt by the end of 2012, according to ILZSG's preliminary report.
Manufacturing in China is another challenge for component suppliers. Adding to the China labor rate woes is a shortage of labor in the economic zones closer to Hong Kong, which has resulted in some movement inland. Despite the cheaper and larger workforce in inland China, component suppliers are faced with a lack of skilled workers and high transportation costs.
At least one transformer supplier has moved more jobs from China to the Dominican Republic in a move to offset some of the rising labor and transportation costs, as well as to take advantage of duty-free shipping under the Dominican Republic-Central America-United States Free Trade Agreement (CAFTA-DR).
Inductor manufacturers predict good revenue growth in 2013, ranging from ten to 30 percent. The big consumers include avionics, oil and gas industry, and consumer electronics. Other market drivers include automotive and the LED lighting sectors.
Transformer manufacturers aren't as optimistic but still expect revenue growth of roughly five percent this year. Home sales will likely play a big role in growth for power transformers as many are used in HVAC applications. Other possible growth drivers include the lighting industry, garage door openers, vending machines, and air purifier systems.
Inductor and transformer manufacturers believe the magnetic components industry is well positioned to meet the growing demand in the market. This translates into good news for buyers, which likely means stable lead times and pricing ahead.