Tantalum has the dust settled or is there more to come by Beroe Inc

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Tantalum – has the dust settled or is there more to come?

WHITEPAPER | JULY | 2012

Authors: J Pradeep

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 Key Highlights electronics companies, Global prices of tantalum most of them scrambled to started witnessing a dramatic ensure that their supply increase, due to the twin factors chain was conflict mineral of mine closures in other regions of free. Consequently, the the world and the US legislation, global prices of tantalum with prices hitting USD 150 per started witnessing dramatic pound during 2011. 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 yearsâ&#x20AC;&#x2122; 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 Key Highlights not be under any immediate supply Global market for tantalum risk, which caused prices to lose could be in a surplus of steam and drop again. It is to be around 650,000 pounds noted that the dropping prices have in 2012 again forced companies like Global Advanced Metals to shut its mine in Wodinga, Australia. Copyright ÂŠ Beroe Inc, 2012. All Rights Reserved

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 Tantalum End Use by Industry (2011) 12%

Electronics (Tantalum Capacitors) Machinery

20%

Transportation 65% Others

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. Key Highlights The electronics industry is the single largest demand driver for tantalum currently accounting for around 65% of total demand

What Lies Ahead

From a Procurement Perspective

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!

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.

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 Key Highlights the inventories of consumers If the inventories of consumers run out and production, run out and production from other from other regions of the regions of the world slows, it could world, slows; it could very very well lead to a repetition of the well lead to a repetition of industry cycle of high demand the industry cycle, of high demand and low supply, and and low supply and drive up drive up prices yet again. 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 Key be noted that tantalum is not Highlights a traded metal and, currently, The demand for conflict there is no official spot price free tantalum is still stable fixing mechanism present in and not faltering as some the industry. The benchmark people in the industry prices are usually contract prices believe. 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.

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.

Author: J Pradeep | Senior Research Analyst

Disclaimer: Strictly no photocopying or redistribution is allowed without prior written consent from Beroe Inc. The information contained in this publication was derived from carefully selected sources. Any opinions expressed reflect the current judgment of the author and are subject to change without notice. Beroe Inc accepts no responsibility for any liability arising from use of this document or its contents.

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