By Michelle Smith — Exclusive to Tantalum Investing News
Metal Events’ International Tin & Tantalum Conference (ITTC) held in November set the pace for the 2012 tantalum market expectation of falling prices and weak demand. Last year, tantalum prices rose to about $150 a pound with announcements that closed mines were coming back online. This year, prices have tumbled as low as $90, and the world’s largest tantalum mine has once again announced its closure.
So far in 2012 tantalum prices have seen significant reductions compared to 2011, with prices ranging between $100 and $120.
At the ITTC, there were warnings that the tantalum market is cooling.
Tantalum electronic industry demand
In five words, Bill Millman, Tantalum Divisional Director of Quality and Technology at AVX Corporation, outlined one of the issues hampering tantalum’s popularity: “It’s a very expensive product.”
The electronics industry, one of the largest markets for tantalum, uses the metal to make capacitors, and is seeing weak demand due to high prices. As a result, even though tantalum has attractive properties, such as allowing miniaturization, there are alternative materials that can be used to make capacitors.
Millman does not expect that “growth in tantalum capacitors will grow in line with electronics.”
Daniel Perisco, Vice President of Strategic Marketing and Business Development at Kemet (NYSE:KEM), confirmed that high costs have taken a toll on the market. “Over $100, the capacitor market cannot absorb that cost and grow long term,” he explained.
Perisco added that he doesn’t foresee the market continuing to support the high price points seen last year.
When tantalum prices soared
High tantalum prices were supported by supply constraints and increasing demand. Not only had three mines closed during the global crisis, but concerns over conflict minerals were tying up tantalum supply. Tantalum consumers were also depleting their stockpiles, adding to surging demand.
Conflict minerals and the impact on demand
The goal of preventing tantalum from funding armed conflict inadvertently played a role in strengthening the market.
Industry players grew increasingly concerned about being associated with a metal that is stained by inhumanity. This anxiety led to widescale rejection of tantalum that was not clearly sourced outside of the designated conflict zone, with particular focus on the Democratic Republic of Congo (DRC).
This was positive for demand and sales of tantalum supplied from other areas. Consumers wanted to ensure that they had access to an adequate supply of conflict-free metal. It was also positive for high prices because rejecting tantalum from the conflicted region shut out metal that was once made available for $40 to $45 per pound.
Tantalum market cooling down
During the global crisis, producers wanted to cash in on mounting prices. As a result, more metal than needed was supplied, and now the market has started cooling down.
The softening in the tantalum market has already contributed to the decision to shutter one of the three mines that announced reopening. Global Advanced Metals‘ Wodgina in Australia will remain closed until market conditions are more appropriate.
At the ITTC, David Henderson, President of Rittenhouse International Resources, forecasted a 650,000 lb surplus this year.
Some will beg to differ about the state of tantalum supply. However, Perisco insists that the softening in the tantalum market is real and that there is now a surplus.
Persico says there is plenty of tantalum in the marketplace and in the ground. “There is a lot of high-cost material in the supply chain that will take a while to work off because the demand is not there,” he stated.
Given the market’s concern with conflict-free supply, Tungsten Investing News asked Perisco whether the available supply is ethically-sourced metal.
Perisco says that there is no question that an excess of conflict-free tantalum is on the market today.
Furthermore, there are projects in the works aiming to bring DRC materials back into the market. One of them is being undertaken by Kemet, which has established a closed pipeline system to produce conflict-free tantalum sourced from that region. When tantalum begins flowing from the DRC again, it is expected to put downward pressure on metal prices.
Falling prices are not generally interpreted as positive from an investment standpoint, but high tantalum prices only line the pockets of some in the supply chain, and that occurs for a limited time.
Perisco says high prices are not sustainable for the industry as a whole.
To be clear, the issues surrounding the use of tantalum to support armed conflict in the DRC are real. But TIN wanted to know whether supply concerns and/or the issue of conflict minerals had been used for a pricing advantage.
Perisco said he absolutely believes there are those who created a heightened level of hysteria that made a portion of the recent cost increases unnecessary.
“There are still those in the supply chain who want to scare people so that they can charge more,” he stated, adding “these individuals have no regard for the long-term viability of the market.”
Perisco explained that this type of behavior is not in the interest of any stakeholders. These tactics damage the tantalum market by making the metal a less attractive long-term option.
“People will move away to other materials and they won’t come back unless there is an overwhelming reason.” Perisco stated, “we are concerned some people have already left, but it’s hard to say in an oversupply situation.”
Securities Disclosure: I, Michelle Smith, hold no direct investment interest in any company mentioned in this article.