News of potential production cuts at Korean memory suppliers and anxiety about Japanese export restrictions has led to an 8% rally in the PC DRAM spot price since 10 July. We are sceptical about the nascent strength in the DRAM spot price spreading to contract ASPs anytime soon but for NAND where global output has been affected by the power outage at Toshiba and the supply cuts at other suppliers we see a possibility of mild ASP upturn for some products in 2H.
PC DRAM spot price rallied 8% since 10 July
On 10 July the PC DRAM spot price (DDR4 8Gb) had its first rebound in 10 months and has since rallied 8% rising for the past three consecutive days. The spot price has fallen 69% from the peak and 60% in the past 12 months. As the PC DRAM spot market is only about 1% of the total DRAM market and is not liquid we don’t want to overemphasize its significance and could well be a short-term move but nevertheless is noteworthy.
Japanese export restrictions
Concerns about the impact of Japanese export restrictions on DRAM production at Korean suppliers and module makers’ anxiety about the supply continuity are driving the sentiment in the spot market, although the underlying imbalance between demand and supply remains unchanged.
But rally in spot price unlikely to spread to contract prices in the near term.
No need for alarm
Our detailed work on the impact of Japanese export restrictions on memory production at Korean suppliers reveals that there is no need to be alarmed in the near term as long as the trade spate between the two nations does not become a long-term issue. On the other hand, given high inventory at suppliers (about six weeks) and fragile demand recovery Korean suppliers were already considering some supply cuts in 2H and restrictions from Japan could give them a good excuse to do so. This is positive for the sentiment and might help bring supplier inventory under control by the end of 4Q19.
Keep an eye on this space
We don’t expect the strength in the DRAM spot market to spread to contract markets anytime soon but the extent and duration of production cuts in 2H and the demand rebound could meaningfully impact the inventory level and hence the pricing. We need to keep a close eye on these developments.