Components sector faces rising copper costs

Suppliers in Taiwan project increasing copper costs will impact electronic component production and result in higher quotes.

The metal is now more expensive by nearly 6 percent in the aftermath of the earthquake that hit Chile early this year. The country is the largest source worldwide.

Copper accounts for 10 to 20 percent of the total manufacturing cost of PCBs, cables and assemblies, connectors and thermal modules.

Local makers believe the PCB sector will be hit the hardest, especially if the trend continues, because of its high requirement for the material.

For manufacturers in general, every 10 percent rise in copper outlay translates to a revenue reduction that can exceed 30 percent, according to Yuanta Financial Holdings, a Taiwanbased stock analysis organization. An adjustment in component costs will therefore likely follow. Prior to this, the domestic components industry has been experiencing narrow profit margins as most suppliers generate only a small revenue from OEM and subcontracted orders.

In addition to rising material expenditure, makers face an impending shortage. Genius KYE, a major local manufacturer of connectors, said copper supply has already been tight even before the Chile quake. This is due to climbing demand from the computer cables and connectors segment.

At the New York Mercantile Exchange, meanwhile, quotes for May deliveries have increased by about $0.01 or 0.4 percent, closing at more than $3 per pound. Contract costs for the metal actually peaked at $3.39 per pound but dropped gradually to the current level after Chile’s state-owned company Codelco announced its Andina and El Teniente copper mining operations remain intact. Both locations were temporarily shut down after the February tremor.