Tantalum (Coltan) Prices May Skyrocket

The top global supplier of tantalum ore is Talison Minerals (Perth, Australia), which controls an estimated 52% of the world’s hard rock supply of tantalum. Talison Minerals suggests that an 80% increase in contract price may be necessary to continue to extract tantalum from the Wodgina mine in Wodgina, Australia at profitable levels. This is according to capacitor manufacturers in Japan, the United States and Europe who have been contacted by Talison. The new price for tantalum ore will take effect in January 2009 after the majority of their current ore supply contracts expire. The price change will create a ripple effect in the supply chain that will lead to higher prices for capacitor anode powder and tantalum lead wire. Capacitor manufacturers, who already have limited margins, will probably raise prices to maintain a healthy supply of this important capacitor product line.

Capacitor Manufacturers and Customers React

Tantalum capacitor manufacturers 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 manufacturer tantalum capacitor anodes and lead-attach wire will lead to higher tantalum capacitor prices across the board at a time when many can least afford it. 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 capacitors, now have excess capacity to produce parts due to massive investments in increased economies of scale in CY 2007. But regardless, many customers in the wireless handset, computer, portable MP3 player, automotive and other end use market segments will have no choice but to pay more for their tantalum capacitors. This is because of the unique combination of high capacitance and small case size availability of the tantalum, especially in the specific area of 100 to 1,000 microfarads, where competitive alternatives are limited.

Rising Mining Costs Create New Economies

Tantalum ore prices “under contract” have not increased in price at the same rate as other non-noble metals over the past 24 months. And while an increase in tantalum ore prices from Australia can be ascertained by global trade statistics between 2006 and 2007, costs to extract the ore have risen substantially, especially for fuel and energy, (to mine and transport the ore and to process the ore through separation technology). Fuel costs alone account for up to 40% of tantalum mining, according to one primary source. And this, coupled with the devaluation of the Australian dollar, has made current contractual prices for tantalum ore uneconomical. Therefore, Talison is faced with having to almost double prices to extract the ore at a profit or face continued losses. The alternative is to stop mining tantalum and use the existing resources at Wodgina to mine Spodumene, (which is used in the production of Lithium). Ultimately, what this means is that tantalum metal powder suppliers to the capacitor industry are faced with rising costs at a time when their “profit before taxes” has dropped to zero (Cabot Corporation, the world’s largest tantalum powder producer in the world reported first quarter CY 2008 profits for their Supermetals business segment at $0.00). Therefore, any upward movement in ore price from Australia would have to be passed on to the capacitor manufacturers, who in turn will have to pass that cost onto the consumer. Thus, tantalum capacitor prices are sure to go up.

China Looks to Africa to Solve the Problem

In 2007, according to United Nations data, Chinese tantalum metal powder and wire producers increased their imports from Africa at the expense of their Australian resources. China noted a substantial increase in shipments of tantalum ore from Rwanda and the Democratic Republic of the Congo on a year-over-year basis. American and German manufacturers of capacitor grade metal powder and wire do not have the luxury of sourcing ore from such countries since 2001/2002 when the United Nations determined that proceeds from tantalum ore were going to fund civil war. The ethical policies of the major American and German tantalum powder and wire producers, “do not allow for such ventures” anymore, according to one of the major vendors.

The 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, due to 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 between the Mai Mai rebels and the armed forces of the Democratic Republic of the Congo and Uganda). 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 hundreds of thousands of pounds of surplus tantalum ores and concentrates to the commercial market, exhausted its captive supply in 2007. This has created a vacuum in the market at a time when costs to extract are rising at a rate that exceeds profitability.

Tantalum Wire and Mid-Level CV/g Power Supply Threatened

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. Primary capacitor manufacturer’s note that the world’s largest supplier of tantalum wire has noted to its customers that it is seriously planning on stopping wire production altogether by 2009. The mid-level tantalum powders from 30,000 to 52,000 CV/g will also be impacted, because 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 (above $500 per pound in Japan). These higher CV/g powders are used in ultra-small case size tantalum capacitors (P and J case) and in many of the conductive polymer capacitor anodes.

Reduced Supply, High Prices Probable

The majority of capacitor manufacturers interviewed for this article noted that the likelihood of them paying 80% more for tantalum powder and wire due to increased ore costs is not realistic. Since the economics for Talison most 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. According to one primary source, these inventories will last for two years until identified resources can be turned into producing mines, (but this estimate may be over confident, as it is apparent from trade statistics that ore contained in stockpiles in the United States, Germany, and Belgium have already been drawn down substantially in 2007).

Many of these tantalum ore supplies from inventories will trade at the “spot price” for tantalum, which will undoubtedly move higher as “spot prices” tend to 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, as was the case when similar events impacted the market in 2000 and 2001.

Alternative Technologies Cannot Cover the Spread

Capacitor manufacturers interviewed for this article also noted that alternative technologies to tantalum, such as high capacitance MLCC, niobium oxide and SMD aluminum electrolytic capacitors, 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 microfarads, while tantalum chips are sold up to 1,000 microfarads. SMD aluminum capacitors meet the capacitance/voltage requirements of tantalum, but are not as volumetrically efficient. Niobium oxide capacitors are a logical alternative, but the number of vendors is limited, and the product offering in terms of voltage and capacitance is also limited. Also, in certain circuits, only tantalum can be used (such as in certain wireless handset audio and video circuits where the piezo-electric effect of the 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 Time for Management, not Panic

As one of the top manufacturer’s of tantalum capacitors noted for this story, 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, Canada, Mozambique, Chile, China and Greenland hold great promise to fill in any gaps in the supply chain created by the current turn of events. But it takes substantial capital investment and a significant amount of time to convert resources into commercial mines that could fill in the vacuum created by a slowdown or shuddering of the Australian mines.

In conclusion, the short term future of tantalum appears to be headed for a higher price model। There are technical alternatives for manufacturers of electronic goods, but these alternatives do not fully cover all uses of tantalum, and in fact, any company that could have converted their slots to ceramic, aluminum or niobium alternatives would have done so already after the 2001 tantalum shortage. So, many of the current tantalum consumers will have no choice to pay higher prices for the tantalum capacitors they require for their decoupling and filtering solutions. Tantalum unit shipments may decline by a small percentage as alternative technology manufacturers identify this as an incentive to expand their existing portfolios to exploit the new vulnerability of tantalum. There is also the possibility that there will be spot shortages for certain types of tantalum capacitors due to the lack of available tantalum wire or powder, or a more rapid take down rate for ore inventories in the supply chain. How this unfolds over the coming months will depend upon the ability for key players to manage an uncertain supply chain, and through the application of experienced leadership for those who experienced similar changes in the tantalum market back in 2001.