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Global Impact of Rising Metals Costs
December 31, 1969 |Estimated reading time: 5 minutes
Originally published by IPC Association Connecting Electronics IndustriesBy Bruce S. Moloznik and Mitch Holtzer, Cookson Electronics; Stan Rothschild, Metallic Resources Inc.; Doug Dixon, Henkel Technologies; and Ross Berntson, Indium Corp.
The participating members of the IPC Solder Products Value Council1 are compelled to clearly articulate to the electronics industry the current situation regarding the global supply and demand of two crucial metallic elements to the electronics industry. The cost of tin and silver have reached 19-year highs, and it is important for the industry to understand the implications of this type of cost increase on the supply of solder alloys. A key to industry growth will be how we address these dramatic cost increases without driving the assembly electronics supply chain to yet another dangerously low level of profitability.
Cost Impact of Current Tin SupplyThe International Tin Research Institute2 (ITRI) published a report forecasting a potential shortfall in tin availability in 2007. ITRI projects global demand for tin will exceed production by 30,700 metric tons; with 337,000 tons produced and 377,700 consumed. The primary reason behind this shortage is a 30% reduction in tin exports from Indonesia.
Because of this shortage, the price of tin on both the London Metal Exchange3 (LME) and the Kuala Lumpur Tin Market (KLTM) has reached a 19-year high. "A dealer told StarBiz that price movement had been volatile over the past month as Indonesia tightened tin export regulations and clamped down illegal mining operations mostly in the Bangka-Belitung province, which account for almost half of the republic's refined tin exports. They are looking at daily price movements of $200$400 per ton. Early this year, the metal had jumped by $1,000 per ton on a single-day trading," reports Hanim Adnan of StarBiz.
The price of tin has always exhibited volatility, but since 2003 the price has remained in a range of $6,000$9,000 per metric ton. However, in the past six months the price of tin has increased over 40%, and the price continues to climb. The negative impact of this price volatility on the electronics assembly industry is particularly acute due to the industry's increased consumption, from the accelerating transition to high-tin lead-free alloys.
Lead-free solder paste contains more than 85% tin by weight, and is priced per kilogram. Therefore, each kilogram of solder paste contains 0.85 kilos of tin. At today's approximate $14,000/metric-ton price ($14.00/kg), the cost of tin in solder paste is $11.90/kg. LME recorded tin prices at $6,400/metric ton in January 2006 ($5.70/kg), $11,000 in December 2006 ($9.79/kg), and currently about $13,800 ($12.28/kg). This represents a cost increase for the tin in solder paste of 25% in the last four months and almost 116% since the beginning of last year. This excludes the impact of the tremendous cost increase of silver in the same period. It does not, however, include any other inflationary cost increases associated with the conversion of alloy to powder, manufacturing solder paste, packaging, or other overhead costs.
Silver Cost ImpactDifferent market forces also have caused the price of silver to climb dramatically in the past 18 months. Silver was priced in the $7.00 to $8.00/troy ounce range through most of 2005. In late 2005 and early 2006, the price of silver climbed to more than $14.00 per troy ounce. One of the factors for the increase is growth in demand of silver due to the trend toward lead-free and prominence of 34% silver-bearing alloys to the electronics assembly industry.
A kilogram of SAC 305 solder paste contains approximately 0.85 troy ounces of silver. At $14.30 per troy ounce, this represents $12.22 in silver cost per kilogram of solder paste, before including any alloying, powder production costs, etc. This is contrasted to an estimated silver cost of $6.374 per kg of SAC 305 solder paste in 2005.
The impact of this dramatic increase in the cost of silver is a significant additional pressure on solder materials suppliers. In January 2006, silver was estimated at $7.69 per kg of solder paste. At present, silver costs about $12.22 per kg of solder paste. Silver has quickly eclipsed almost all other material costs for suppliers in the last 18 months, and now represents the number two raw material cost for the industry, second only to tin.
Overall Impact on Solder Alloy IndustryIn the intense, cost-competitive assembly electronics marketplace, this new cost increase is yet another market driver that the industry will have to learn to manage. A key to growth will be how we address these dramatic cost increases without driving the assembly electronics supply chain to yet another dangerously low level of profitability. This is imperative as the marketplace continues to demand a pipeline of innovative and enabling technologies to meet the market's requirements. The PCB laminate industry in early 2000 is an example of a segment that was turned inside-out due to the intensity of a cost-driven downward business cycle.
Over this 15-month period, the impact from the cost increase of tin and silver combined in solder paste have increased by $6.58 ($12.28$5.70) for tin, and $4.53 ($12.22$7.69) for silver, for a total of $11.11 of increased cost per kg of solder paste. This represents a cost increase equivalent to 2030% of the global average sales price for solder paste sold into the assembly electronics segment.
ConclusionThe solder materials supply chain, already stretched thin financially due to the constant downward trend of average sales prices and the increased costs5 of doing business with the explosion of lead-free solders, is monitoring this issue very closely. Our industry will be significantly challenged to absorb increased costs of these magnitudes. It is the Council's recommendation that electronic assemblers stay in close communication with their soldering material suppliers regarding supply and availability during this unprecedented period of volatility in the market price of metals.
REFERENCES1. The IPC Solder Products Value Council consists of twenty-two solder materials manufacturers worldwide. The IPC SPVC estimates that its membership represents more than 80% of the world's supply of soldering materials.2. The International Tin Research Institute is an association globally representing tin-consuming industries and is based in the U.K.3. The London Metal Exchange is a global non-ferrous metals market representing the majority of the global tin supply.4. $6.375 = $7.5 per troy oz of Ag × 0.85 troy oz of Ag per kg of SAC 305 solder paste.5. See "The True Costs of Lead-free," IPC SPVC article.
Originally published by the IPC as "Global Impact of the Accelerating Cost Increase of Metals on the Assembly Electronics Industry." For more information visit www.ipc.org.