Two key themes dominated the second quarter. First, the re-emergence of COVID in parts of China had a notable impact both on the supply of gold and demand in the sector; new lockdowns disrupted chip supply chains, leading to a major slump in output during Q2. Some of the resulting slack was taken up by other countries in the region such as South Korea, but the impact of the lockdowns was notable. Second, consumer electronics demand around the world started to fall during Q2 as inflationary pressures and geopolitical issues combined to dent demand. Some major industry commentators, such as Gartner, predict that PC and smartphone shipments will see significant declines in 2022,1 with China being a notable casualty.
Technology
28 July, 2022
Supply and demand challenges begin to bite
- Gold used in industrial applications fell by 2% y-o-y to 78t during the second quarter.
- The electronics sector – the largest single industrial user of gold – fell by 3% y-o-y to 64t during the quarter
- At 159t, H1 technology demand was marginally below the first half of last year, mainly due to the slowdown in Q2.
| Tonnes | Q2'21 | Q2'22 | YoY % change | |
|---|---|---|---|---|
| Technology | 79.8 | 78.4 |  |
-2 |
| Electronics | 66.2 | 64.4 | |
-3 |
| Other Industrial | 10.7 | 11.3 |  |
5 |
| Dentistry | 2.9 | 2.6 | |
-8 |
Source: Metals Focus, World Gold Council
Electronics
Gold used in the electronics sector fell slightly during Q2, down 3% y-o-y to 64t. Widespread disruption persisted in the automotive sector as chip shortages continued into the second quarter. Many manufacturers reported ongoing pent-up demand for new vehicles, but this was tempered by rising prices and delayed deliveries; GM, for example, was forced to push back deliveries of 95,000 vehicles into H2’22, due in part to chip shortages.
Looking ahead, faltering consumer electronics demand is likely to have a significant impact on the sector. Taiwan Semiconductor Manufacturing Co. (TSMC) – the world’s largest chip manufacturer and Apple’s most important supplier – recently reported strong sales during their most recent financial quarter, but cautioned that it “saw weakness in the consumer market” going forward.2
Demand for gold in LEDs experienced a sharp decline on the back of weakening consumer electronics demand and ongoing mini-LED penetration. Falling demand for backlight applications, such as laptops and larger flatscreen panels, was partially offset by continued strength in automotive applications, particularly in high-end lighting. Demand also remained strong for high-end LEDs (such as UV-LEDs and IR-LEDs, both of which are used in increasingly popular healthcare applications such as skin sensors and heart rate tracking functionality in watches and smartphones).
But there are continued headwinds to gold demand in this sector. The shift to mini-LED technology (which, in some cases, uses less gold) remains noteworthy, and costs of these chips are coming down, with most major device manufacturers reportedly expanding the supply chain capacity of mini-LED panels for their devices. Furthermore, the development of micro-LED technology continues to progress, although costs remain high meaning widespread adoption is unlikely in the near term. Samsung, for example, is reportedly experiencing some manufacturing difficulties with the technology.3
The memory sector again posted a small increase in demand for gold during Q2, suggesting demand growth in the sector may be plateauing. The strong growth observed throughout 2021 continued to level off in line with slowing consumer electronics demand. While NAND shipments continued to feed strong demand from hyperscale data centres, sales of high-end graphics cards continued to fall as crypto mining activities slowed significantly, and this represents a significant threat to demand alongside the potential of oversupply in the short term. Prices of these chips are falling, although they remain profitable for the manufacturers for now. However, continued price falls may see the major manufacturers, such as Samsung and Micron, adjust their production output. Finally, as we have reported previously, miniaturisation of NAND chips remains a threat, as major manufacturers develop new architectures that may need smaller quantities of connecting bonding wire.
Demand in the wireless sector declined during Q2. This is a direct consequence of faltering consumer electronics demand, which makes up 70% of the overall wireless segment. The decline was exacerbated by Q2 historically being the weakest seasonal sales quarter; a recovery may be seen during H2, particularly as new devices are scheduled for release in Q3.
Demand for gold used in 5G infrastructure has been stable and is likely to remain so: the penetration of 5G enabled smartphones is expanding rapidly, with Ericsson predicting 5G to top one billion subscriptions in 2022 and 4.4 billion by 2027.4 In addition, numerous other 5G applications are likely to support the development of the wireless sector over the coming years. Low Earth Orbit Satellites (LEOS) are becoming increasingly ubiquitous and a number of major technology companies are collaborating to develop non-terrestrial networks.5 Light detection and imaging (LIDAR) is another technology that is likely support wireless demand in the coming years.
Finally, demand for Printed Circuit Boards (PCBs) remained healthy during Q2, with solid growth outside of China. China is responsible for half of the world’s supply of PCBs, and hence the country’s localised COVID lockdowns have had a disproportionate impact on supply during the quarter. Supply is likely to be tight throughout 2022, despite additional capacity and falling consumer electronics demand. Automotive and emerging applications such as LIDAR and LEOS will continue to provide support moving forward.
At the aggregate level, two of the four major electronics fabrication hubs around the world recorded increases in gold demand during Q2: South Korea and the US at 3% and 6% respectively, while Japan remained flat and Mainland China and Hong Kong registered a significant decline of 19%.
Other industrial and dentistry
Other industrial applications recorded a small y-o-y increase of 5% to 11t during Q2, primarily as Indian demand (mainly in the form of jari, a gold thread used in clothing) continued to normalise from the COVID-hit Q2’21. However, demand elsewhere generally fell; Chinese lockdowns took hold and Italian demand for plating salts faded as high-end brands adopted an increasingly cautious approach to accessories. Finally, dental demand fell 8% y-o-y to 3t, continuing its downward trend of recent years.
