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Tantalum - has the dust settled or is there more to come

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Tantalum been under the spotlight, in the international metals arena, for the last couple of years look at the past and present industry scenario of Tantalum procurement by discussing the effect of ...

Tantalum been under the spotlight, in the international metals arena, for the last couple of years look at the past and present industry scenario of Tantalum procurement by discussing the effect of demand drivers and availability of substitutes on Tantalum prices.

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    Tantalum - has the dust settled or is there more to come Tantalum - has the dust settled or is there more to come Document Transcript

    • www.beroe-inc.comTantalum – has the dust settled or is there more to come?WHITEPAPER | JULY | 2012Copyright © Beroe Inc, 2012. All Rights ReservedAuthors: J Pradeep
    • Copyright © Beroe Inc, 2012. All Rights Reserved 2Copyright © Beroe Inc, 2012. All Rights Reserved 2A Look into the PastTantalum has been under the spotlight, in the international metalsarena, for the last couple of years. Like many others, the story oftantalum begins with the global financial crisis of 2008, during which,major tantalum producers across the world, such as Global AdvancedMetals (GAM), suspended production at their plants in Australia,followed by closure of two more major mines. Weak demand andcost reduction measures in supply chains of the electronics industry(the major end-user of tantalum) was, apparently, the trigger. Theelectronics industry began to source processed tantalum fromproducers who purchased cheap tantalum mines in regions likeCentral Africa, and mostly from the DRC (Democratic Republic ofCongo).Introduction of the Dodd-Frank Act by the US; required companiesto ensure due diligence in removing any conflict minerals, sourcedfrom the war torn zones of the Democratic Republic ofCongo, from their supply chains. D u eto the global scale of manyelectronics companies,most of them scrambled toensure that their supplychain was conflict mineralfree. Consequently, theglobal prices of tantalumstarted witnessing dramaticincreases, with its pricehitting USD 150 per pound,during 2011.High prices and the search for alternative sources made suppliersoutside Congo reopen their mines, and take advantage of the soaringprices. Companies like Global Advanced Metals reopened its minein Australia, and began producing tantalum. Soon, the other majormines that were closed also announced its reopening. Consequently,the supply of tantalum increased in the global market. Two otherfactors that contributed to increase in the global supply of tantalumwere:1. Capacitor producers usually have two years’ inventories in store,to help them sustain their leverage during negotiations withprocessing companies.2. Additional supply from other regions such as Brazil, Australia,etc.The additional supply in the marketsupported claims that tantalum maynot be under any immediate supplyrisk, which caused prices to losesteam and drop again. It is to benoted that the dropping prices haveagain forced companies like GlobalAdvanced Metals to shut its mine inWodinga, Australia.David Henderson, President of Rittenhouse International Resources,opined that the global market for tantalum could be in a surplus ofaround 650,000 pounds in 2012, at the ITTC (International Tin &Tantalum Conference).The Electronics Industry & TantalumSource: USGSCurrently, the electronics industry is the single largest demand driverfor tantalum. The demand from the electronics industry is expectedto further increase in the coming years, given the increasing focuson miniaturization. Capacitors made of tantalum are considered theenablers for miniaturization. Sources within the electronics industrypoint out that though there are substitutes for tantalum, all currentlyavailable ones, such as ceramic capacitors, are typically larger orhave considerably lesser performance than tantalum capacitors.So, from an electronics industry standpoint it is important to ensurehassle free (i.e., conflict free) supply oftantalum in the coming years.65%20%12%3%Tantalum End Use by Industry (2011)Electronics (TantalumCapacitors)MachineryTransportationOthersKey HighlightsGlobalmarketfortantalumcould be in a surplus ofaround 650,000 poundsin 2012Key HighlightsThe electronics industryis the single largest demanddriver for tantalum currentlyaccounting for around 65%of total demandKey HighlightsGlobal prices of tantalumstarted witnessing a dramaticincrease, due to the twin factorsofmineclosuresinotherregionsofthe world and the US legislation,with prices hitting USD 150 perpound during 2011.
    • Copyright © Beroe Inc, 2012. All Rights Reserved 3Copyright © Beroe Inc, 2012. All Rights Reserved 3What Lies AheadThe demand for tantalum could again repeat its cycle and increasein the coming years, as the current low prices could discourage newproject development and perhaps even cause more shutdowns byproducers in countries like Australia, due to low margins and tightenvironmental regulations. Meanwhile, the demand for tantalum fromthe electronics industry is only expected to go one way, Up!This expectation is justified, given the rapid pace of development ofnew, smaller technologies, in all range of electronic products fromiPhones to laptops. The inventories of capacitor producers could runout in one or two years’ time, which would further add to the demandand cause another rise in tantalum prices.Further, the domestic conflict in the Democratic Republic of Congois not even close to coming to an end. As of June 2012, fightingbetween the government and the rebels stillcontinued. In this scenario, ifthe inventories of consumersrun out and production,from other regions of theworld, slows; it could verywell lead to a repetition ofthe industry cycle, of highdemand and low supply, anddrive up prices yet again.Alternative Theories on Price DropThere is another school of thoughtsurrounding the recent price declinewitnessed in tantalum. It is tobe noted that tantalum is nota traded metal and, currently,there is no official spot pricefixing mechanism present inthe industry. The benchmarkprices are usually contract pricesand they tend to differ from onesupplier to another. With the USlegislation against tantalum mined from theconflict zone in DRC, a few industry experts are of the view thatthe recent drop in prices is only for the tantalum, which most likelycomes from the conflict zone in DRC, and that conflict free material ismost probably completely bought out through contract obligations.Therefore, this actually means that the demand for conflict freematerial is still stable and not faltering as some people in the industrybelieve. The so-called ‘price softening’ is only for the material whichcould probably be from the conflict zone.From a Procurement PerspectiveBoth the above mentioned reasons for the price drop hold strongindications that, in the coming years, tantalum prices could witnessa revival which would again pose a challenge from a procurementpoint of view.In the current scenario, consumers looking to procure tantalum shouldhave two things in mind:Ensuring Its Conflict FreeConsumers should maximize their efforts to understand if thematerial they are buying is actually conflict free, or if it’s justtrans-shipped material with its origins in the DRCAvoid Purchasing Large QuantitiesCurrentlyEnd-users should refrain from purchasing large quantitiescurrently (as prices of tantalum could continue in their downtrendagainst industry expectations) and wait for some time to see howthe price trend of tantalum plays out and then take appropriateprocurement decisions.Key HighlightsIf the inventories of consumersrun out and production from otherregions of the world slows, it couldvery well lead to a repetition of theindustry cycle of high demandand low supply and drive upprices yet again.KeyHighlightsThe demand for conflictfree tantalum is still stableand not faltering as somepeople in the industrybelieve.
    • Copyright © Beroe Inc, 2012. All Rights Reserved 4Copyright © Beroe Inc, 2012. All Rights Reserved 4Disclaimer: Strictly no photocopying or redistribution is allowed without prior written consent from Beroe Inc.The information containedin this publication was derived from carefully selected sources. Any opinions expressed reflect the current judgment of the author and aresubject to change without notice. Beroe Inc accepts no responsibility for any liability arising from use of this document or its contents.For more information, please contact info@beroe-inc.com.Author:J Pradeep | Senior Research Analyst