The U.S. Defense Logistics Agency (DLA), which has stockpiled tantalum minerals for decades, will exhaust the last 140,000 pounds of material the organization possesses to fulfill the wishes of the U.S. Congress. DLA will also dispose of all stockpiled materials that are not as relevant to national defense as they were when it was decided the materials needed to be stockpiled. Thus, the DLA embarked on an aggressive sales campaign to liquidate government warehouses containing tantalum minerals. This disposal of materials through auction on the open market by the DLA became the second largest supply of hard rock ore into the open market for the past five years (second only to the Greenbushes and Wodgina mines of Sons of Gwalia). Between September 30, 2004 and October 30, 2006 the DLA has liquidated about 670,000 pounds of tantalum minerals. This liquidation left only 140,000 pounds for the final auction, which should occur in the first quarter of 2007, possibly as early as January.

DLA shipments to the open market have averaged about 350,000 pounds of tantalum minerals during the past six years, making them an important contributor to the tantalum supply chain.

Who has Purchased the Metal in the Past?

Purchasers of tantalum minerals from the DLA have included HC Starck, DM Chemi-Met, ABS Alloys, Umicore, Ulba Metallurgical and Mitsui Mining, which represent companies who engineer these tantalum minerals into a capacitor powder — a wear part or a cutting tool. The bidders for these tantalum minerals from the DLA are traditionally consistent year after year, and thus the exhaustion of the DLA supply has left some companies scrambling for a new source of the ore when supply has been growing tight.

Why This is an Important Development:

The loss of the DLA supply of tantalum ore will leave an estimated 150,000-pound deficit in the market in 2007 and a 350,000-pound deficit in 2008. The timing of this event is unfortunate because of existing supply constraints. The largest vendor of hard rock tantalum ore for example, Sons of Gwalia in Australia has cut production of the ore by 25% overall in the fourth quarter (i.e. Greenbushes mine production has been halved), so that the company can complete its administration (chapter 11) proceedings in Australia. At the same instance, production volumes for tantalum ore in Brazil at both Metallurg/CIF and Paranapanema have declined in 2006 because of interest in mining more profitable metals. In Africa, the primary source in the Democratic Republic of the Congo (DRC) is still off limits in 2006 because of United Nations pressure- however; we have heard reports in 2006 of investors trying to get access to stockpiled DRC ore, which is a sign of a perceived shortage of the metal.

How Will it Affect the Capacitor Industry?

Tantalum minerals are processed into capacitor grade tantalum powder and wire, which is considered a very difficult chemical process. The finished powder is used as the tantalum capacitor anode, and the wire is used as the lead wire from the anode. Sixty percent (60%) of the tantalum ore in the world is consumed in capacitor anodes.

In 2006 and 2007 the global capacity to produce tantalum capacitors in units should increase by about 15%. The growth in capacity is the direct result of increased demand for tantalum chip capacitors consumed in wireless handsets, game consoles, dual core microprocessors, digital cameras, MP3 players, automotive subassemblies, defense, mining, and medical electronics.

Tantalum capacitors offer the design engineer the highest possible capacitance in the smallest physical size from 47 to 1000 microfarad. This makes them ideal for use in compact digital electronics that require massive decoupling, such as dual core microprocessors in laptop computers and the next generation game consoles from Japan.

The overall affect in the short term will most logically be that the price of tantalum ore will increase. The DLA has noted that they have been advised by the industry that they should expect a premium for the remaining 140,000 pounds of tantalum minerals in their stockpiles (The largest stocks are kept at the Warren, Binghamton and New Haven DLA warehouses). The last sale of tantalum minerals in February 2006 went for $40 per pound (without freight charges).

Conclusions:

In conclusion, it is highly probable the gap left by the DLA exhaustion, coupled with the slowdown in mining operations in Australia and Brazil, will result in the price of tantalum ore increasing in the short term. However, the perceived vacuum left by the DLA could be satisfied when Greenbushes was brought back to full production. Thus, the ultimate conclusion is that ore prices will stabilize once the administration process is complete at Sons of Gwalia, and the Greenbushes mine is brought back to full production.

For further information see “Tantalum Supply Chain Constraints Forecasted in 2007”