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?
WHITEPAPER | JULY | 2012
Copyright © Beroe Inc, 2012. All Rights Reserved
Authors: J Pradeep

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A Look into the Past
Tantalum has been under the spotlight, in the international metals
arena, for the last couple of years. Like many others, the story of
tantalum begins with the global financial crisis of 2008, during which,
major tantalum producers across the world, such as Global Advanced
Metals (GAM), suspended production at their plants in Australia,
followed by closure of two more major mines. Weak demand and
cost reduction measures in supply chains of the electronics industry
(the major end-user of tantalum) was, apparently, the trigger. The
electronics industry began to source processed tantalum from
producers who purchased cheap tantalum mines in regions like
Central Africa, and mostly from the DRC (Democratic Republic of
Congo).
Introduction of the Dodd-Frank Act by the US; required companies
to ensure due diligence in removing any conflict minerals, sourced
from the war torn zones of the Democratic Republic of
Congo, from their supply chains. D u e
to the global scale of many
electronics companies,
most of them scrambled to
ensure that their supply
chain was conflict mineral
free. Consequently, the
global prices of tantalum
started witnessing dramatic
increases, with its price
hitting USD 150 per pound,
during 2011.
High prices and the search for alternative sources made suppliers
outside Congo reopen their mines, and take advantage of the soaring
prices. Companies like Global Advanced Metals reopened its mine
in Australia, and began producing tantalum. Soon, the other major
mines that were closed also announced its reopening. Consequently,
the supply of tantalum increased in the global market. Two other
factors that contributed to increase in the global supply of tantalum
were:
1. Capacitor producers usually have two years’ inventories in store,
to help them sustain their leverage during negotiations with
processing companies.
2. Additional supply from other regions such as Brazil, Australia,
etc.
The additional supply in the market
supported claims that tantalum may
not be under any immediate supply
risk, which caused prices to lose
steam and drop again. It is to be
noted that the dropping prices have
again forced companies like Global
Advanced Metals to shut its mine in
Wodinga, Australia.
David Henderson, President of Rittenhouse International Resources,
opined that the global market for tantalum could be in a surplus of
around 650,000 pounds in 2012, at the ITTC (International Tin
Tantalum Conference).
The Electronics Industry Tantalum
Source: USGS
Currently, the electronics industry is the single largest demand driver
for tantalum. The demand from the electronics industry is expected
to further increase in the coming years, given the increasing focus
on miniaturization. Capacitors made of tantalum are considered the
enablers for miniaturization. Sources within the electronics industry
point out that though there are substitutes for tantalum, all currently
available ones, such as ceramic capacitors, are typically larger or
have considerably lesser performance than tantalum capacitors.
So, from an electronics industry standpoint it is important to ensure
hassle free (i.e., conflict free) supply of
tantalum in the coming years.
65%
20%
12%
3%
Tantalum End Use by Industry (2011)
Electronics (Tantalum
Capacitors)
Machinery
Transportation
Others
Key Highlights
Globalmarketfortantalum
could be in a surplus of
around 650,000 pounds
in 2012
Key Highlights
The electronics industry
is the single largest demand
driver for tantalum currently
accounting for around 65%
of total demand
Key Highlights
Global prices of tantalum
started witnessing a dramatic
increase, due to the twin factors
ofmineclosuresinotherregionsof
the world and the US legislation,
with prices hitting USD 150 per
pound during 2011.

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What Lies Ahead
The demand for tantalum could again repeat its cycle and increase
in the coming years, as the current low prices could discourage new
project development and perhaps even cause more shutdowns by
producers in countries like Australia, due to low margins and tight
environmental regulations. Meanwhile, the demand for tantalum from
the electronics industry is only expected to go one way, Up!
This expectation is justified, given the rapid pace of development of
new, smaller technologies, in all range of electronic products from
iPhones to laptops. The inventories of capacitor producers could run
out in one or two years’ time, which would further add to the demand
and cause another rise in tantalum prices.
Further, the domestic conflict in the Democratic Republic of Congo
is not even close to coming to an end. As of June 2012, fighting
between the government and the rebels still
continued. In this scenario, if
the inventories of consumers
run out and production,
from other regions of the
world, slows; it could very
well lead to a repetition of
the industry cycle, of high
demand and low supply, and
drive up prices yet again.
Alternative Theories on Price Drop
There is another school of thought
surrounding the recent price decline
witnessed in tantalum. It is to
be noted that tantalum is not
a traded metal and, currently,
there is no official spot price
fixing mechanism present in
the industry. The benchmark
prices are usually contract prices
and they tend to differ from one
supplier to another. With the US
legislation against tantalum mined from the
conflict zone in DRC, a few industry experts are of the view that
the recent drop in prices is only for the tantalum, which most likely
comes from the conflict zone in DRC, and that conflict free material is
most probably completely bought out through contract obligations.
Therefore, this actually means that the demand for conflict free
material is still stable and not faltering as some people in the industry
believe. The so-called ‘price softening’ is only for the material which
could probably be from the conflict zone.
From a Procurement Perspective
Both the above mentioned reasons for the price drop hold strong
indications that, in the coming years, tantalum prices could witness
a revival which would again pose a challenge from a procurement
point of view.
In the current scenario, consumers looking to procure tantalum should
have two things in mind:
Ensuring Its Conflict Free
Consumers should maximize their efforts to understand if the
material they are buying is actually conflict free, or if it’s just
trans-shipped material with its origins in the DRC
Avoid Purchasing Large Quantities
Currently
End-users should refrain from purchasing large quantities
currently (as prices of tantalum could continue in their downtrend
against industry expectations) and wait for some time to see how
the price trend of tantalum plays out and then take appropriate
procurement decisions.
Key Highlights
If the inventories of consumers
run out and production from other
regions of the world slows, it could
very well lead to a repetition of the
industry cycle of high demand
and low supply and drive up
prices yet again.
Key
Highlights
The demand for conflict
free tantalum is still stable
and not faltering as some
people in the industry
believe.

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For more information, please contact info@beroe-inc.com.
Author:
J Pradeep | Senior Research Analyst