A New Cost Structure is Imminent for Tantalum- July 2008

by Dennis Zogbi, Publisher; Passive Component Industry Magazine

A New Cost Structure is Imminent for Tantalum New developments in the tantalum supply chain during June 2008 have created concern among the global manufacturing base for tantalum capacitors. The top global supplier of tantalum ore, Talison Minerals (Perth, Australia), suggested a substantial price increase in the contract price for tantalum ore may be necessary to continue to extract the unique metal at profitable levels from the Wodgina mine in Australia. This is according to capacitor manufacturers in Japan, USA, and Europe who havebeen by Talison. The new price for tantalum ore will take effect in January 2009 after the majority of their current contracts expire.

Capacitor Manufacturers Concerned:

Tantalum capacitor manufacturers interviewed for this article reacted to the news of an impending hike in tantalum ore prices with shock and disbelief. According to one primary tantalum capacitor manufacturer, such a price increase for the primary feedstock material used to manufacture tantalum capacitor anodes will lead to higher tantalum capacitor prices across the board. Unfortunately, the timing is bad not only from the perspective of anemic economies, but also because manufacturers of alternative technologies, primarily the high capacitance ceramic multilayered chip capacitor, now have excess capacity to produce parts due to massive investments in increased economies of scale in CY 2007.

Defending the Talison Decision:

Tantalum ore prices have remained comparably stable to other non-noble metals over the past two years. Meanwhile, the cost to extract ore has risen substantially, especially for fuel, which can be as much as 40% of the costs to mine, transport, and process tantalite materials. Moreover, the devaluation of the Australian dollar in 2007 and 2008 has made current contractual prices for tantalum ore extracted in Western Australia extremely uneconomical. Therefore, Talison is faced with having to raise prices substantially to extract the ore at a profit, or face continued losses. The alternative for Talison is to stop mining tantalum altogether and shift resources away from Wodgina to mine spodumene at the Talison Greenbushes mine, a material that is used in the production of lithium for battery applications.

Limited Tantalum Supply Chain:
Tantalum capacitor manufacturers have a limited supply chain. The number of reliable mines producing tantalum on a consistent basis has been seriously limited since 2001 because of a moratorium on mining in the Congo (due to the scathing United Nations report that showed tantalum receipts were being used to fund civil war in the Congo region). Remaining mines in Canada, Brazil, and China are small and cannot be scaled up in time to meet increased demand that would be created by the shuddering of Talison’s Wodgina mine. Additionally, the United States Defense Logistics Agency, which had historically supplied about half a million pounds of surplus tantalum ores, carbides, powders, and oxides to the commercial market, exhausted its captive supply in 2007. The combined affect of these events is creating a vacuum in the market that is currently being filled by drawing down tantalum ore, powder, and wire inventories in the marketplace—a process that cannot be sustained for any considerable length of time.

Tantalum Wire and Mid-Level CV/g Powder Supply in Question:
The two areas of the supply chain that will be most impacted by high ore prices will be tantalum wire and mid-level capacitance value per gram (CV/g) tantalum metal powders. Tantalum wire, which is used in tantalum capacitor production as the lead attach to the powder anode, will be impacted first. The world’s largest supplier of tantalum wire has noted to its customers that it is seriously considering exiting the wire market altogether.

The mid-level tantalum powders from 30,000 to 70,000 CV/g will also be impacted. These powders are already losing money, and any increase in ore prices will make these powders even more uneconomical to produce. Higher CV/g tantalum powders above 70,000 CV/g are less likely to be impacted because they already sell for a premium. Higher CV/g powders are used in ultra-small case size tantalum capacitors (P and J case) and in many of the conductive polymer- type capacitor anodes.

Reduced Supply, Higher Prices Probable:
The majority of capacitor manufacturers interviewed for this article noted the likelihood of them paying substantially more for tantalum powder and wire due to increased ore cost is not realistic. Since the economics for Talison probably will not change between June and December of 2008, it becomes more likely that the amount of ore coming from Australia will be limited as Talison adjusts to a lower volume/higher value mining model.

A greater reliance on stockpiles of ore that are already above ground will be the probable scenario. Many of these ore supplies will trade at the “spot price” for tantalum, which will undoubtedly move higher as these spot prices re-adjust in accordance with the suggested contractual price. (Historically, this has been the case.) The ultimate result of this materials trend will probably be higher prices for tantalum capacitors and (perhaps) some tantalum capacitor shortages in CY 2009, 2010, and 2011, as was the case when similar events impacted the market in 2000 and 2001.

Alternative Technologies Are Not Enough:
Capacitor manufacturers interviewed for this article also noted the potential for their customers to move to alternative technologies, such as high capacitance MLCC, niobium oxide, and SMD aluminum electrolytic capacitors. But these alternatives can only meet customer needs for a portion of the tantalum capacitor product portfolio. For example, ceramic chip capacitor manufacturers have mass production capabilities up to 100 μF, while tantalum chips are sold up to 1000 μF. SMD aluminum capacitors meet the capacitance/voltage requirements of tantalum, but are not as volumetrically efficient, which makes them an unlikely alternative for applications in portable electronics.

Niobium oxide capacitors are logical alternatives, but the number of vendors is limited, as is the product offering in terms of voltage and capacitance. Also, in certain circuits, only tantalum can be used (such as in certain wireless handset audio and video circuits where the piezoelectric effect of ceramic makes tantalum the better choice). Certainly high capacitance ceramics, SMD aluminum, and niobium-oxide capacitor technologies will benefit from a higher cost structure in tantalum, but in many instances, the customer will have no choice but to pay the expected higher prices for tantalum capacitors.

A New Era for Tantalum
As one of the top manufacturers of tantalum capacitors noted for this article, now is not the time to panic, but to manage the transition effectively. The tantalum capacitor industry will undergo changes as a result of higher raw material costs being passed on to the consumer; however, this may be a change for the better. The segment may emerge as a smaller volume business, but one that is consistently profitable for the players. As for higher tantalum ore costs, the results of this will invariably be more identified resources for tantalum ore and the rapid conversion of those resources into producing mines. New tantalum resources in Egypt, Mozambique, China, and Saudi Arabia hold great promise to fill in possible supply chain gaps created by the current turn of events. Only time will tell how this current scenario will play out, but it may just be for the better.

Readers Who Viewed This Article Also Looked Here: (1) Tantalum Capacitors: World Markets, Technologies & Opportunities: 2010-2015 ISBN # 1-893211-11-8 (© April 2010) (2) TANTALUM: Global Market Outlook: 2008-2013 ISBN # 0-929717-81-3 (2008)