A glut of DRAM on the market and sluggish demand due to a holiday in China caused the price of the most widely used computer memory chip to fall 25 percent in a matter of weeks, DRAMeXchange Technology reported Tuesday.

The contract price of 512MB, DDR2 (double data rate, second generation) DRAM chips that run at 667MHz dropped 25 percent from two weeks ago to $1.31 each, a new low for this year according to DRAMeXchange, which runs an online trading site for the chips. The previous low was $1.75.

Contract DRAM prices for DDR2-667 chips have fallen 79.4 percent so far this year.

Users benefit from lower DRAM prices in two ways. PC vendors often increase the amount of DRAM per computer when prices are low, or offer additional DRAM as an incentive to buy, and the price of DRAM modules found in stores normally comes down within a few weeks or a month after price declines on global markets.

Contract prices are typically renegotiated every two weeks between DRAM makers and PC vendors such as Hewlett-Packard and Dell. Around four-fifths of all DRAM is sold by contract, while the rest is sold on a spot market similar to commodities trading in oil and gold.

DRAMeXchange blamed China's National Day holidays, which gave a week's vacation last week, for part of the drop. China accounts for the bulk of DRAM spot trading because most of the world's PCs are assembled there. The holiday caused the spot market to nearly cease trading, impacting contract prices, the company said.

DDR2-667 prices are also declining because memory chipmakers built too many new production lines this year in anticipation of strong demand for Microsoft's Windows Vista, which requires more DRAM per PC, and because stronger DRAM prices over the past few years signalled that the market had stabilized, analysts say.

With contract prices continuing to spiral downward, DRAM traders probably won't start buying again anytime soon, DRAMeXchange said.

Analysts had speculated that DRAM makers, including Samsung Electronics, Micron Technology, and Qimonda, might stop selling DRAM at the previous low because the chips were nearing the cost of production. But the new contract price released Tuesday shows companies have not been withholding chips from the market.