In a season when their sales should be rising sharply, suppliers of large-sized liquid-crystal (LCD) panels instead are encountering weak demand growth in the third quarter, exacerbating the glut already plaguing the market.

Measured in terms of square meters, supply of large-sized LCDs is expected to exceed demand by 15.9 percent during the period from July through September, according to the latest report entitled “Oversupply to Continue Due to Weak Economy” from information and analytics provider IHS. This is up nearly 3 percentage points from the previous forecast of a 13.2 percent oversupply, as presented in the figure below.

While the glut will decline compared to the second quarter—as is normal during the pre-holiday season—the surplus remains at elevated levels.

“This is the time of the year when LCD panel makers usually are ramping up production to meet holiday demand for televisions, notebook PCs, tablets and other consumer-oriented electronics,” said Ricky Park, senior manager for large-area displays at IHS. “However, the display industry is confronting the prospect of weak sales growth and a lack of visibility into future demand trends. With a combination of flagging economic conditions and the end of a popular television incentive plan in China, large-sized LCD panel supply is expected to overshoot demand by a higher margin than previously predicted.”

IHS defines large-sized LCDs as panels that have a diagonal dimension of 7 inches or greater used in devices such as televisions, notebook PCs and monitors.

Demand dearth

Global large-sized LCD panel demand in terms of square meters is expected to rise by a tepid 6 percent in the third quarter compared to the second. In most years, growth is typically larger because of seasonal factors. Expansion in 2012, for instance, was in double-digit territory at more than 10 percent.

Meanwhile, production capacity utilization among large-sized LCD makers is on the rise, increasing to 84 percent in the third quarter, up from 79 percent in the second.

The combination of the weaker-than-normal increase in demand and the significant expansion in utilization will combine to inflate the excess supply to higher levels.

China’s challenge

For their part, Chinese television makers are experiencing swelling inventories because of weaker-than-expected sales. The companies are likely to reduce their sales targets for 2013 and are trimming panel orders for the second half of the year.

Although China continues to enjoy the strongest economic growth among the major world economies, signs of weakness abound as export growth has declined sharply, due to a stagnant global economic recovery, a stronger yuan, and the Chinese government’s efforts to stem currency speculation. Given the deterioration of its export industry and the sluggish global economy, China can no longer depend on exports to fuel its overall economic growth.

Furthermore, the Chinese government has terminated its subsidy program for energy-saving TVs that had been driving sales earlier this year. This will further reduce panel demand.