Is LED Chip Pricing going up in China?

We attended the conference held by the Guangdong Solid State Lighting Industry Innovation Center (GSC) in China on May 24th.  During the conference, we met with China’s leading LED manufacturers and gave a speech on LED lighting market trends along with business strategy in North America.  The feedback was very positive.

May 28th, 2014
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We attended the conference held by the Guangdong Solid State Lighting Industry Innovation Center (GSC) in China on May 24th. During the conference, we met with China’s leading LED manufacturers and gave a speech on LED lighting market trends along with business strategy in North America. The feedback was very positive.

One of the important topics everyone discussed was the increase in LED chip pricing. Chinese local news reported that some specs of LED chips have risen in price in May due to a shortage. It is likely that all LEDs will experience a similar price increase if the gap between demand and supply widens. Lighting product manufacturers are also worried about the pricing uptrend because it will slow down the LED lighting penetration rate.

From our discussion during the conference, we concluded that the supply is tight due mainly to the demand of LED lighting in China. However, it is unlikely that the LED pricing will increase this year. The biggest LED chip supplier in China, Sanan Opto, has raised its price for its low-tier customers because Sanan wants to optimize clientele. Tier one customers are unlikely to raise price. Sanan will provide smaller chips with higher efficacy in order to lower the cost. Although the supply is tight, it is unlikely to have significant shortage because Chinese LED chip makers can expand their capacity shortly. These LED chip makers have shut down their tools for the past 2 years due mainly to the market downtrend. Chinese LED chip players have purchased hundreds of MOCVDs for the past 4 years due to subsidies. Now, they are ready to turn on the tools if the demand continues to increase. Of course, they are very cautious about this, given the previous experience of oversupply. To sum up, it is unlikely that all LED pricing will increase this year.

Another hot topic was the Chinese Government subsidy policy in 2014. When we mentioned the LED light bulb rebate in the US market, all LED lighting product makers expect that China’s government could have the similar subsidy plan on LED light bulbs. However, the government officers who attended this conference said it is unlikely to have this kind of rebate in China in 2014. So far, there will only be some LED street light projects from local governments this year. As a result, it is unlikely that the Central Government will subsidize LED lighting in terms of a direct rebate in 2014.

In addition, the Central government published its initial 13th 5-year plan in April. One of the important targets is to cut CO2 emissions by 25% in 5 years. In order to achieve this goal, Eco air conditioners and LED lighting are definitely becoming the key items in the 13th 5-year plan. According to the government officers, the next step is to develop a smart lighting system combined with home appliances and TVs. For example, they expect LED lights to control the luminous intensity automatically in order to save energy. We anticipate the Chinese government will make policies in favor of the Control ICs industry in the near future.

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