Over the past three to four years, due to the outbreak of COVID-19, tariffs, wars, natural disasters, and increased market demand have put pressure on the supply chain of materials used to produce connectors and cables, lead to large fluctuations in material costs.
In the past ten years (2012-2022), the average cost of sales of the connector industry was 70% of sales. Consists of raw materials, direct labor and overhead.
There are four highly volatile materials in the connector industry, which account for 75% of the materials used to make connectors. These are gold, copper/brass, steel and thermoplastic. Of course, copper/brass and thermoplastics are used the most. There are many other materials used in connectors such as Nickel, Silver etc.
Raw material costs have increased by an incredible 49.5% through 2021. When weighted by usage, the four materials grew by 52.3%. The table below lists the price increases for each item.
Proportion Of Usage
These price increases are due to a surge in pent-up global demand for electronics following COVID-related disruptions and rising oil costs. It is worth noting that the connector industry will still grow by 24.3% in 2021. In 2022, we are still experiencing price increases, but the price increases have slowed down considerably. Raw material price increases have slowed, as the table above shows. However, labor and energy costs increase substantially throughout 2022.
Gold prices rose sharply in 2020, remained relatively stable in 2021, and showed signs of rising in 2022. Copper prices have risen sharply in 2021 due to high demand for electronics and increased housing starts in the US and China (a lot of copper is used in home construction). Complicating the copper price issue are falling mining volumes and rising extraction costs. All of these factors have combined to drive a sharp rise in copper prices. However, we expect copper prices to remain flat, with a slight increase in the balance to 2022. This is largely due to a slowdown in the Chinese economy, which typically buys about 50% of newly mined copper.
Based on past experience, raw material costs have generally paralleled price increases for general goods and services, which have shown more significant increases due to the time lag between raw material procurement and finished product availability. The 2020 recession triggered by the pandemic was deep but short-lived, leading to a major shift in consumer spending. As the economy reopens, pent-up consumer demand is causing widespread supply chain and production disruptions, leading to the price pressures we are now experiencing. It is expected that with inflation high, the price of common goods will continue to rise significantly compared with the price of raw materials used to make connectors.