It's mid-July 2011, the construction industry is still trying to find a little traction and the lighting industry is bracing itself for historic price increases of epic proportions from fluorescent lamp manufacturers.
In the 'post recession' this seems to be the new norm; not only do we have to bail water but do it during a hail storm as well. The storm I'm referring to is the rare earth mineral crisis that has our industry between the proverbial rock and a hard place (forgive the pun!).
Virtually all of the major lamp manufacturers have issued their price increase notifications. We're seeing an average 25 percent price increase primarily on linear and compact fluorescent lamps. These increases go into effect in an August timeframe. It should be noted that this is not a typical price increase scenario; there are no opportunities for large pre-price increase inventory buys and negotiated 'price protection'. The manufacturers are scrambling to recover the 800 to 1200 percent price increases they've been absorbing in phosphors costs during these last few months. Allowing the market to 'stock up' at a lower price will only prolong their collective pain.
I won't go into the whole story behind the rare earth shortage here - you can read more and download all the information we have on our Rare Earth Metals Shortages page. Suffice to say, it's another 'made in China' problem.
We believe that we are only seeing the first wave of price increases; phosphors are used extensively in the manufacture of LED lamps, to convert the light emission from LED chips into a different wavelength spectrum. It may be just a matter of time before the scarcity of phosphors also impacts the LED lamp market. In unprecedented situations like this there is no such thing as over-communicating. The first communication we received about this crisis-in-the-making came from TCP in June. Ellis Yan, TCP's CEO has clearly made a commitment towards communicating through this crisis. The following is an excerpt from their latest communication. It can be downloaded in full on our Rare Earth Metals Shortages page:
'TCP released a letter on June 5, 2011 outlining our initial pricing response plan. We have received many inquiries and much positive feedback about the thoroughness of TCP's open dialogue regarding this difficult industry-wide situation. As TCP's CEO, I feel it is important that we take the lead to ensure that you have the most updated information - and the facts - to make solid, informed decisions for your business and for your customers.'
Myths about any Near-Term Rebound in Phosphor Costs:
The amount of information coming out about this topic has mushroomed dramatically over the past few weeks. Recent stories circulating in the press have approached this crisis from many different (and sometimes conflicting) angles. Some reports have even suggested that Rare Earth prices have leveled off or may even drop soon due to demand shifts and new sources of supply outside of China. This is simply not the case. Any new supply of Rare Earth material from other areas around the world is months if not years away. And China still maintains the lowest global source cost of these rare earth commodities, even with these dramatic price increases.
The Chinese government attempted to intervene during June to try to control any external market price speculation, which might have helped to slow the rapid rise in Rare Earth commodity prices. This effort proved unsuccessful, and commodity prices almost doubled again during the month of June. No further government involvement is anticipated, so the best hope of future price stabilization will likely rest solely on the normal market forces of supply & demand.
Over the past three weeks, most of the major fluorescent lamp manufacturers in the USA have released their own pricing announcements addressing this critical issue. Price increases are being communicated across the industry, albeit varying by degree and timing. This disparity can be attributed to differences in each manufacturer's transparency to their actual cost impact from the the Rare Earth material cost increases. Since some CFL and linear lamp brands do not directly own or control their manufacturing process like TCP does, they may have not yet incurred the full brunt of these costs. Suffice it to say that all lamp suppliers are being impacted equally by these cost increases. Due to the continued volatility within the market, we expect to see continued fluctuations in lamp supplier pricing during the near term.
Many fluorescent lamp manufacturers are also limiting long term price commitments and may also now have order quantity limitations. This is a clear indication of their uncertainty about the potential for future raw material price increases. TCP expects this practice will become commonplace, since lamp manufacturers are very uncomfortable locking in long-term price guarantees during this period of price escalation.
Are Rare Earth Commodity Costs Stabilizing Yet?
The cost of the core commodities used in the manufacture of fluorescent lamps continues to increase. This chart illustrates the most recent price changes for the four most common essential base elements used in the manufacture of fluorescent lamp phosphors. These materials have all seen record market prices each week as the full impact of the Chinese regulated increase are implemented.
For more information and supporting documentation, please visit our dedicated Rare Earth Metals Shortages page.