Tantalum Powder Tantalizes Electronics Market

13 August 2001 00:00  [Source: ICB Americas]

Although a niche product in the overall specialty chemical market, tantalum powder has helped boost recent financial results of the two major players--Bayer AG and Cabot Corp.

Cabot's sales for the third quarter ended June 30 were up 6.5 percent from the year-ago period, but when broken out, a different picture emerges. The company's chemical business sales dropped 6 percent to $336 million, while revenues for performance materials (Cabot's tantalum business) increased 77 percent to $99 million. This was driven primarily by 11 percent higher average volumes and 62 percent higher average prices.

Meanwhile, the company's segment operating profits, which dropped an overall 15 percent to $56 million, were given a healthy shot in the arm by the tantalum business, which increased operating profit 210 percent to $31 million. Profits in Cabot's chemical business dropped 37.5 percent from the third quarter 2000 to $30 million. Special items and specialty fluids further reduced overall segment profits by another $5 million.

"Whereas the performance of our chemical businesses has been disappointing," says Kennett F. Burnes, Cabot chairman and CEO, "we are extremely pleased with the performance of our tantalum business, which...again, far exceeded even our own expectations with much higher volumes than expected...and [by meeting] the stringent demands of our customers."

Cabot does not expect the business to perform at this past quarter's level during the next two quarters, but the company's current forecast would exceed fiscal 2000's operating profit by as much as 100 percent or about $20 million.

"Although the electronics industry is facing a difficult operating environment, Cabot performance materials has continued to experience strong demand for tantalum powder, wire and intermediate products," say Mr. Burnes. "We are extremely pleased at the ability of our team to be able to successfully execute its plans and meet the higher demands of the contracts put in place earlier this year."

In May, Cabot announced that it would double the capacity at its Boyertown, Pa., facility for tantalum and niobium metallurgical products to meet growing demand.

Meanwhile, tantalum is also a part of Bayer's recent gains. During the first quarter, Bayer's chemicals division improved sales and operating profit 23 percent to á1.2 billion ($1.053 billion) and á157 million ($137.8 million), respectively, thanks to demand for the tantalum metal powder produced by subsidiary H.C. Starck Inc. of Newton, Mass. Starck's business increased by 73 percent due to strong demand for tantalum metal powder. H.C. Starck reportedly produces about 50 percent of the world's tantalum powder. Cabot is considered the second largest producer.

"Tantalum capacitors account for only 6 percent of the total capacitors consumed in the electronics industry," says Mary Asuagbor, metals and minerals group international research specialist for Houston-based Industrial Information Resources Inc. "However, market share will increase as electronic component manufacturers continue to substitute tantalum for traditional metals such as aluminum, nickel and other base metals."

Demand for tantalum is projected to grow by an average of 10 percent a year for the next few years, says the London-based Roskill Information Services, but tantalum capacitors are projected to have annual growth of 14 percent for the next five to 10 years, according to the Brussels-based Tantalum-Niobium International Study Center (TNISC).

Improvements in production have resulted in more efficient use of tantalum powders. TNISC points out that while the production of tantalum capacitors increased more than 200 percent from 1988 to 1996, the amount of tantalum powder required for their production rose only 40 percent during that time. According to H.C. Starck, from 1996 to 1998, the total increase in demand for tantalum powder shipments was only 20 percent, with a 30 percent increase in demand in both 1999 and 2000. The increase in demand is attributed to the boom in electronic sales during that period.

Between 60 and 70 percent of global tantalum consumption is used for the manufacturing of tantalum capacitors by the microelectronics industry, says a spokesman for Starck, with another 5 to 10 percent used to produce wire for the manufacture of these capacitors. A smaller percentage is used as an alloying metal for piping and vessels in the chemical processing industry, mainly due to its high melting point and resistance to corrosion. Tantalum capacitors are found in a variety of electronic devices, such as automobile electronics, cell phones, computers and camcorders.

The worldwide tantalum supply is valued at about $6 billion a year, estimates TNISC. In 2000, about 6.6 million pounds of tantalum was used around the world, with the US accounting for the lion's share, or about 40 percent of global demand.

Japan's demand for tantalum powder is expected to total 352 metric tons this year, almost 10 percent of global demand, including 73 metric tons of imports. This is down about 17 percent from an all-time high of 426 metric tons (including 69 metric tons of imports) last year, reports the Japan Society of Newer Metals.

Tantalum ore is mined and smelted into tantalum metal ingots. Cabot says that it has the capability to make the largest tantalum ingots in the world, "as large as 16 inches in diameter." The ingots are then processed into capacitor-grade powder.

Australia accounts for roughly 70 percent of tantalum ore production, says Roskill. The Perth, Australia-based Sons of Gwalia Ltd. holds more than 50 percent of defined global tantalum reserves, and is the leading producer globally.

Sons of Gwalia will be increasing production by 66 percent to 5 million pounds by 2006. "The expansion was in direct response to customer concerns over the availability and pricing of tantalum materials," says Peter Lalor, executive chairman of the company. The company projects that any slowdown in demand that might result from the current economic downturn will only be temporary.

The remaining 30 percent of tantalum ore production, says Roskill, comes from Brazil's Companhia Industrial Fluminense, Canada's Tantalum Mining Company, and China's Ningxia Orient Tantalum Industry Company Ltd., with smaller mines located in Bolivia, Russia and Africa.

The price of tantalum is highly sensitive to shifts in demand, according to analysts with the US Geological Survey. In 2000, demand for tantalum capacitors skyrocketed with the electronics markets, causing a severe shortage. Tantalum ore prices increased, with some refined powder prices climbing from less than $50 per pound to over $400. With demand softening worldwide, prices have fallen to around $100 a pound.

The success of tantalum has a dark side as well. Both sides in the Democratic Republic of the Congo's civil war have been accused of using child and slave labor to mine the ore to finance their activities. Meanwhile, endangered gorillas which live in the region have reportedly been killed at an alarming rate to feed the forced laborers. These actions have prompted several groups to ask manufacturers to boycott Congolese tantalum.

"There is raw material from plenty of other sources, and the industry does not depend on [tantalum] from the Congo," a TNISC representative says. The UN Security Council has assigned a panel of experts to pursue field investigations in the region.

Meanwhile, the electronics market is still in a slowdown. The semiconductor industry overall is not expected to surpass 2000 sales levels until 2004, according to the San Jose, Calif.-based Semiconductor Equipment & Materials International (SEMI). In 2000, semiconductor equipment and materials sales were $47.7 billion, but this year sales are projected to decline 35 percent to $31 billion. SEMI is projecting that 2002 will be essentially flat, with about 22 percent growth in 2003.

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