Price trend after middle of Q3 is going to be determined by time and range of adjustment of production capacity utilization rate

TAIWAN: The global market has suffered from debt crisis in Europe, slow economic recovery in Northern America, earthquake in Japan, and inflation issues all over the world leading to apparent lack of consumer confidence.

Except for the outstanding market growth of Tablet PCs, market demands for LCD TV, LC monitor, and Notebook PC all appear to be weak. The pressures from quarterly and semi-annual reports by the end of June for most companies plus the lowly end demand in July have led to fairly conservative attitudes toward inventory control and stocking preparation procurement among downstream customers.

According to the forecast by research institution WitsView under TRENDFORCE, there is a QoQ growth of roughly 6~8 percent for the panel shipment in Q3 indicating conservative stocking attitudes among customers before hot season such that the increased inventory level of Q2 will be digested during the third quarter.

If the market over-supply cannot be balanced in Q3 by panel makers through reduction of production capacity utilization rate, the not-so-hot hot season in Q3 will kill the hope for panel price rebounding and any chance of turnaround from loss to profit.

By reviewing past experience of industrial development, we can see over-stockings caused by market misjudgment in the first half of both 2008 and 2010, causing stacking inventory issues to suppress the price trend in the second half of both years. The first half of 2011 has a different background of industrial development from those in 2008 and 2010. There has not been irrational stocking among customers due to earthquake in Japan.

However, inventory issues resurface due to debt crisis in Europe, regional instability and inflation issues, and panel oversupply has led to the lack of strong price support. The key factor for market turnaround in the second half of the year is going to be the time and range of production capacity adjustments among panel makers.

The time frame from July to September is going to be critical for observing the variation of production line utilization rate. Otherwise the inventory issue will only lead to a not-so-hot hot season (even with existing demand), and it is going to be extremely difficult for panel makers to see profit turnarounds.