At the end of October, prices became relatively soft as usual in the spot market. Last week, Promos just raised their financial forecast due to the strategic market transition, investing more their fab capacity to contract market for PC OEMs which accounts for more than 63% of their DRAM sales revenue. Moreover, according to industry news during the past few days, some DRAM makers are also planning to ship more DRAM products to contract market.

It's very reasonable for DRAM makers to adjust their market allocations, as they find out what the better profitable possibilities between contract and spot market is. Since the beginning of 3Q04, the momentum of spot market was stronger than that of contract market (Chart 1), the highest price premium being at $0.31 in the middle of July. Meanwhile, the considerable margin led that DRAM makers revised their contract and spot market ratio, as DRAMeXchange compiled (Chart 2), from June to July, the worldwide DDR spot ratio increased 1.3% form 23.8% to 25.10%.

However, the turning point of contract price crossover spot price emerged in the beginning of August. Until now, contract price has almost been beyond spot price for almost 3 months (Chart 1). In addition, in line with contract ratio increased 2.9% from July to September, DRAM makers took the perfect chance and kept focusing on the contract market.

Spot price has been in the downturn for a while, but we haven't seen any demand strong enough to push the price up. Because of weaker spot price trend, contract price in the first half of November will have high possibility of keeping stable or just increasing slightly! If there is nothing particular to make the spot market bearish, those DRAM makers will take the advantage of better contract price to gain more profits. Therefore, we forecast that contract and spot ratio in October will be higher than that in September.

Chart 1

Chart 2

*Jamie Lo, Marketing Intelligence Team, DRAMeXchange

DRAM spot prices - 2004/10/26~2004/11/2