Corning's decision to increase its display glass substrate prices by 20% beginning in the third quarter may encourage panel makers to negotiate favorable prices with their customers on the backdrop of rising substrate costs.
According to Corning's announcement, the substrate price increases will apply to all regions, compositions, and glass generation sizes. It said the price adjustment is intended to offset rising costs in energy, raw materials, and other non-JPY-denominated operational expenses.
Meanwhile, the company expects demand for display glass to grow in the second half of 2023, thanks to the ongoing display industry recovery and typical seasonal demand patterns.
Corning implemented its latest price hikes for its substrate prices in March and June 2021, respectively, with the increases ranging from 5–10% each time. At that time, there was a severe shortage of LCD panels due to a pandemic-driven boom for IT and display products, and the supply of glass substrates was also tight as related production at some suppliers was undermined by incidents like power outages. Most panel makers seized the price rally of upstream materials and tight panel supplies to raise their quotes persistently and garner huge profits. Taiwan's top two panel makers, AU Optronics (AUO) and Innolux, logged a net profit of over NT$10 billion (US$330 million) each quarter in 2021 amid the price rallies.
However, Corning's price increases this time are different from the previous one, and the display industry's overall conditions have also changed, according to sources at Taiwan's LCD panel supply chains.
They said Corning's announcement of a 20% price hike for all regions, glass components, and generation sizes underlines the company's determination to set a new price strategy.
The sources said they believe that Corning's approach is related to the ongoing capacity reductions at panel makers. The capacity utilization rate of the panel industry has been reducing since the third quarter of 2022, and this trend has continued until now. The average utilization stood at 60–70% in the second half of 2022, and it only returned to over 70% in the second quarter of 2023.
While the stringent capacity controls at panel makers have helped stop panel prices from falling further caused by sagging demand, the production cuts have directly affected sales at upstream glass substrate suppliers. The sources indicated that some Japanese glass substrate companies have suffered losses and will continue to face challenges.
AGC reportedly has decided to halt the production of glass substrates at its Takasago plant in Japan due to decreased revenue. The main reason is that the pandemic-induced panel demand has subdued, affecting sales at TV vendors and consequently weakening demand for glass substrates at panel suppliers.
Affected by a decline in sales volume and falling substrate prices, Corning's display technology business group saw its revenue decline 3% sequentially and 20% on-year to US$763 million in the first quarter of 2023. Likewise, first-quarter net profit decreased 6% sequentially and 32% annually to US$160 million.
According to internal sources at Corning, the company believes that although it has partially offset the increased costs through improved productivity, it can no longer fully absorb rising production costs. It also considers that the current price level of glass substrates has posed challenges to capacity upgrades and innovation investments. Therefore, it has decided to increase its substrate prices by as much as 20%.
Corning's price hikes may allow panel makers to negotiate better prices for their panels with end-market device vendors, indicated the sources.
However, end-market device vendors may not be easy to yield to the panel makers' request because the glass substrate cost proportion in panel production is not high, only about 5–10%. Industry sources said that the most crucial factors still lie in demand momentum in the second half and product differentiation.
Article translated by Steve Shen
