By Jonathan Cassell, Lead Analyst of Supplyframe Commodity IQ
Global electronic commodity stockpiles fell to a record low level in February, raising concerns about potential supply shortages in case of an unexpected increase in demand.
The Supplyframe Commodity IQ Inventory Index for all electronic commodities declined by 7% sequentially in February to 43.7, marking the lowest score in the six-year history of the index. The index has fallen for three consecutive months and is now down 37% from the 12-month high of 69.5 from August 2024.
The low inventory levels are widespread, with 46% of components tracked by Commodity IQ at 12-month nadirs, and 23% at their lowest readings of all time. Components from the passive, discrete, and active categories – including integrated circuits (ICs) – were all affected.
Commodities falling to all-time lows on the inventory index in February included fiber optics, filters, inductors, resistors and radio frequency/microwave ICs.
Components at their 12-month lows included capacitors, connectors, diodes, sensors and analog signal circuits. Several other categories were close to their 12-month lows on the inventory index in February, including standard logic, converters, drivers and interfaces, analog power devices and telecommunication circuits.
Following a major runup in inventory levels in recent years, suppliers of semiconductors and other electronic components have been striving to reduce stockpiles to regain control of pricing. However, reduced capacity among major vendors of multisourced components has helped spur low inventory levels. In recent quarters, indications have appeared that inventories have also fallen in other segments of the supply chain, including at customers.
The low inventory levels coincide with rising demand for electronics. The Commodity IQ Demand Index has been on a two-month growth streak, with the score rising by 5% in January and then by 9% in February on a sequential basis. The increases boosted the index score to 85 in February, marking the highest reading in seven months.
The combination of rising demand and low stockpiles puts the electronics supply chain in a precarious position. While the demand outlook is unclear, any unexpected rise in orders could quickly translate into supply shortfalls, triggering increased pricing and lengthening lead times for an array of components.
Buyers should keep a close eye on inventory and demand trends and build safety stocks to hedge against potential shortages in commodities that exhibit depleted stockpiles.