Commodity IQ Demand Index Drops to 2024 Low as Prices Remain Inflated

The Commodity IQ Demand Index for all components tracked by Supplyframe fell to its lowest level for the entire year in June, reflecting the slow pace of end-market demand outside of the AI and a select few other applications.

The index fell sharply 9% from the previous month. The June decline marked the third consecutive monthly drop and the lowest since December. The reading below the baseline figure of 100 indicates that sales declined below the 2020 base year.

Component Demand is Down Across Nearly Every Category

The decline was broad-based, affecting nearly all component categories, including analog and digital semiconductors, passives, connectors, and materials. Moreover, all but one commodity experienced sequential declines in sourcing actions compared to May.

Although inventory issues are easing, component demand has partly been depressed by inflated pricing. The Commodity IQ Price Index in June was more than twice the baseline level, indicating a sharp escalation. Stockpiles are at low levels and declining, with the Commodity IQ Inventory Index across all electronic component commodities being 40% below the index baseline, driven in part by the available wafer capacity for mature technology nodes, including 28nm and 40nm. Many wafer fabs produced at these nodes are at 70% or lower capacity utilization.

Many suppliers, including makers of MCUs and analog parts, resist price reductions as they prioritize margin preservation above market share gains.

Weak demand is prevalent despite indications of an expected recovery in end-market sales. PC and smartphone shipments are set to grow in the mid-single digit percentages this year. However, much of that expansion will occur in the second half of 2024, with sales picking up due to the peak season’s arrival.

Pricing Pressures Remain, Despite Lackluster Demand

Component demand through the first half was mainly driven by rising prices for chips used in AI data center operations, particularly GPUs and memory devices. Due to booming demand for generative AI, NVIDIA’s flagship H100 GPU pricing has risen to more than $30,000 per unit. DRAM growth is expected to be moderate this year, although pricing for advanced high-bandwidth memory (HBM) is soaring as demand from AI servers continues to surge.

Lackluster demand didn’t translate into declining prices for buyers in the first half. However, as demand rises in the second half, price pressure could intensify further and spread to more commodities. Buyers should be prepared to bring in orders to mitigate the impact of future price increases.