The ongoing war in Iran has disrupted supplies of essential raw materials, resulting in a significant increase in prices for printed circuit boards (PCBs) used in nearly all electronic devices, from smartphones to artificial intelligence servers. Industry sources report that this disruption represents a new blow to electronics manufacturers who are already facing significant challenges due to rising memory chip costs.
In early April, Iran targeted the Jubail petrochemical complex in Saudi Arabia, halting the production of pure polyvinyl phenol resins, a key material used in PCB manufacturing. SABIC, which accounts for approximately 70% of the global supply of this material, is unable to resume production, leading to a sharp tightening of availability worldwide.
Details of the Incident
The conflict in the Middle East has caused significant disruptions in shipments in and out of the Gulf, complicating the situation further. Prices for printed circuit boards have seen a notable increase since late last year, rising by as much as 40% in April compared to March, according to reports from analysts at Goldman Sachs. This increase comes at a time when demand for artificial intelligence servers is surging, prompting manufacturers to accelerate their efforts to secure raw material supplies.
The global PCB industry is expected to grow by 12.5% to reach $95.8 billion by 2026, according to a recent report from Prismark. South Korean electronics company Didok has begun discussions to raise prices with its customers, as wait times for chemicals like epoxy resin have stretched to 15 weeks from just 3 weeks.
Background & Context
Historically, the region has seen numerous conflicts that have impacted global supply chains, but the current conflict in Iran seems to highlight the fragility of these chains. The rising prices of essential materials such as fiberglass and copper chips, which have increased by as much as 30% this year, reflect the ongoing challenges faced by the industry. Copper accounts for about 60% of the total raw material costs in PCB manufacturing, making any increase in its prices significantly impact the final cost of products.
The conflict in the Middle East also reflects geopolitical tensions that could lead to further disruptions in global markets. Major companies like NVIDIA have begun warning that the conflict could lead to increased prices for raw materials, potentially affecting their ability to meet rising demand.
Impact & Consequences
The sharp rise in prices for printed circuit boards could lead to increased production costs for many companies, which may be reflected in the prices of final products. This situation could place additional pressure on companies that rely on these components in their manufacturing processes, potentially leading to reduced profit margins or even price hikes for consumers.
At the same time, companies providing cloud services are prepared to accept further price increases, as they expect demand to outstrip supply in the coming years. This trend may contribute to increased competition among companies to secure raw material supplies, leading to further market disruptions.
Regional Significance
The Arab region is part of this global supply chain, as many countries rely on modern technology across various sectors. Any increase in the costs of raw materials could affect the prices of electronic products in Arab markets, potentially reducing consumers' purchasing power.
Moreover, the conflict in the Middle East could lead to further political and economic tensions, prompting Arab countries to consider new strategies to ensure the sustainability of their supply chains.