The LED manufacturing boom has been driven by the strong demand for LED lighting products over the past 5 years. This has resulted in the rapid expansion of the Chinese manufacturing companies that build LED lighting components and lamps. However, it seems that market forces have now changed and this period of rapid expansion has come to an end. Changing market conditions, along with the impact of US import tariffs, are having a serious effect on the Chinese LED lighting manufacturers. Weakening demand throughout 2018 for LED lighting components both domestically and internationally have had a major impact. Sanan Optoelectronics Co, the largest LED manufacturer in China, has seen its market valuation decline by 50% over the past year to a record low. The boom times of the past 4-5 years that LED manufacturers had been enjoying, are over, at least for the immediate future. Industry financial experts are expecting that, over the next two years at least, the LED industry will be facing the impact of excess production capacity in the face of stagnant demand for LED lighting products.
Over the past 5 years, LED lighting has come to be the dominant technology in the general lighting marketplace. LED lighting now accounts for 70% of the domestic lighting market in China, and more than 40% of the market internationally. During this time period, the LED lighting manufacturers in China greatly expanded their production capabilities, building new factories and bringing additional production lines into operation. In 2018, the demand for LED lighting in China’s domestic automotive and consumer electronics industries cooled significantly. The import trade tariffs threatened by the Trump administration in the United States on many of the LED lighting products coming in from China also contributed to softening demand in 2018. These market forces combined have resulted in the Chinese LED manufacturers now having the capacity to produce much more LED lighting than they can currently sell. The manufacturers are unable to quickly recoup the investments they have just made in building out that additional production capacity. Many are currently sitting on much more product inventory than they anticipated as sales slowed. Industry experts anticipate that these same conditions will continue for the next two years and could be worsened by punitive tariffs in the United States.