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Supply-Demand Imbalance: Tantalum Capacitors Again?

The global electronics marketplace is strong and healthy these days, and most analysts have a very positive outlook for the next few years.

It is easy to understand why, when we simply look at the number of products requiring more electronics, from automotive to consumer devices. We live in a wireless world today and like to stay connected. Kids especially have bought into this new reality. Behind the scenes, the systems that keep us all in touch also require a lot of electronics. Simply put, the growth of our industry looks promising. However, concern looms.

Many of us remember the scarcity-provoked tantalum allocations of 1995 and 1999-2000. Personally, I was on the supply side the first time and the demand side the second time, so I understand the ramifications quite well. It has been 10 years since the last tantalum imbalance. The prevailing question today is: Are we there again? If so, are we ready? I do not think the industry is prepared for what could happen.

This isn’t a time to panic, but rather a wakeup call, to ensure that parts which make up less than 1 percent of the cost of the board do not prevent end products from shipping on time. As semiconductors have become more proprietary and average selling prices (ASPs) have increased, buyers and engineers have invested more time in focusing on the higher-cost items on a board.

This seems like common sense, but it only takes one part to shut down a production line. A buyer’s worst nightmare is usually either not having the parts when they need them or having too much product on the shelf. However, rarely does a buyer lose sleep or get into hot water over paying a penny or two more to gain supply assurance. Security of supply is the name of the game today, and buyers do not get the recognition they deserve for keeping the lines running in today’s challenging market.

I do not profess to be an expert on the tantalum capacitor market, but I do see smoke — and where there is smoke, something else isn’t far behind. Here are the facts as we know them:

  1. There is less tantalum ore coming from operating mines. Tantalum ore is used in many applications beyond capacitors and electronics.
  2. The US Government has led the way in banning ore originating in the Democratic Republic of Congo. This is backed and audited by the Electronic Industry Citizenship Coalition (EICC).
  3. The shortage of ore is driving up powder prices. Prices on the open market over the past two years have gone from $35/lb to $95/lb. Some estimates project it rising to $150/lb in the first quarter of 2011. In other words, the cost of what is available is becoming a larger percentage of the total cost of a finished capacitor. Component manufacturers have no choice but to pass this along.
  4. Processors of tantalum ore into powder can stay and play or choose to exit this business all together. Expect price increases.

What does all of this mean? My gut feeling is one of concern: We do not want to see product lines stopped over such a low-cost board item. In order to keep our industry heading up and to the right, here’s my advice to all electronic customers:

  • Talk to your supplier. Get the straight scoop.
  • Lock in longer-term orders
  • Expect price increases, but do not shut down your lines waiting for a magical solution to suddenly appear.

There are quite a few tantalum component manufacturers today, with {complink 12806|AVX Corp.}, {complink 6199|Vishay Intertechnology Inc.}, and {complink 12824|Kemet Corp.} being the top three. Distribution plays a role managing more than 50 percent of the business, so don’t discount their ability to help.

Let’s work together to keep our lines running smoothly. Be smart. Check out the supply structure. Also be careful not to develop a false sense of security over a seasonal slowdown between now and January. Lead times could come down temporarily, but that doesn’t take into account the potential long-term shortage of tantalum ore.

We don’t want to stunt the growth of our industry by being penny-wise and pound-foolish. I hope I am completely wrong, but why risk it over such a small percentage of the total cost of a board. Is it worth it? I think the other 99 percent of the board would say “no!”

9 comments on “Supply-Demand Imbalance: Tantalum Capacitors Again?

  1. DataCrunch
    November 4, 2010

    Hi Lindsley, interesting post and warning.  It’s amazing how fragile and vulnerable an entire sector could be, especially by one of its lowest cost components.  I do recall in 2000 that there were rumblings about tantalum shortages, but they seemed to end abruptly.  I also recall that ceramic capacitors were being touted as possible future replacements/alternatives, but at the time just weren’t up to par with tantalum.  That was 10 years ago and was wondering what your thoughts are on ceramic capacitors, specifically multilayer ceramic capacitors (MLCCs), as a viable alternative?  There must have been a lot of progress made in the last 10 years, which perhaps will help get us through the potential tantalum shortage crisis.       

  2. Lindsley Ruth
    November 5, 2010

    Dave, you raise a great point. One referencing alternatives. Keep in mind the major tantalums companies also offer ceramics and I know from experience they have one goal in mind and that is not to let customers down. High Cv MLCC products are also quite constrained these days. Regardless of market cycles, supply-demand imbalances always exist.

    Again, as referenced in the article, I don't see this as a time to panic. 1999-2000 was a time to panic. This feels more like 1995, which simply requires intelligent planning. 1999-2000 was an unprecedented market of panic where demand grossly exceeded supply requiring immediate alternatives, crosses or substantial PPV decisions.

    The current situation seems to be supply driven from data and info we have seen. We have seen tremendous imbalance this year in numerous areas beyond passives, which were unpredictable. This raises a larger question? How do we protect ourselves against volatility? To us, there is only one solution: work with a partner who has inventory, and not just inventory, but available or bonded inventory to the needs of the customer. We call it supply chain insurance and it reduces the risk.

  3. Anna Young
    November 5, 2010

    Lindsley, It is unusual in this industry to get warning notices when there is a lull in the market place. Typically, by the time people start warning of a demand-driven shortage, the supply chain is already upside down. Which begs the question, why does the industry get it so wrong all the time? I know you mentioned the fact suppliers do not want to disappoint customers but often this is a contentious relationship; supplier profit increases are exponential in times of shortages while customers quietly exult when the market is in a state of disequilibrium and supply overwhelmingly exceeds demand, resulting in a price war.

    I appreciate your warning note, nevertheless. From my more limited experience in this market, I would say few of your customers and suppliers are listening, or if they are, they are too busy planning for now rather than the potential for future imbalance you are warning about.

  4. Hardcore
    November 5, 2010

    This could actually turn into a major problem,  Tantalum capacitors form one of the major backbones of electronic designs, and fill a very valuable niche in the design of modern electronics.

    Unfortunately Ceramics do not offer the same range of benefits as tants. and in many cases  cannot be directly substituted into designs, Either due to  physical reasons or  power storage requirements, nor do ceramics come in large enough values to provide the power storage and smoothing of tant. product. (vrs supply voltage+physical size)

    And by their very nature (Ceramic), they are not as rugged as during assembly/deployment as Tants., being particularly prone to internal cracking/chipping.

    The only real direct replacement in many designs for a tantalum would be an electrolytic type capacitor, however these devices suffer from a number of significant problems:

     

    1. very fussy about temparature ranges.

    2.  usually consist of a 'wet' design, where as tants. are  generally 'solid'

    3. Do not provide the same electronic frequency response/induction and filtering as a tant.

    4. Shorter life span, due to them being 'wet' inside (they dry out)

    5. electronic tolerances of an electrolytic can be +-50 % compared 

    Overall,  any sort of interruption in the supply of  Tantalum is going to cause major issues for any industry employing them in volumes (computers/phone supplier/disk drives /IPads)

     

  5. Ashu001
    November 6, 2010

    Lindsley,

    Honestly I was unaware of how fragile the Supply-Demand situation is(or was) with this very important commodity.

    But it has been like that for all rare earths/elements which are of strategic importance for the Electronics Industry-One or Two countries control the entire Supply and if some untoward incident happens which stops the Supply(for any reason-Trade Wars/Earthquakes/Currency fluctuations/political upheaval/Aircraft Cargo Bans,etc,etc) prices spike upwards sharply.

    So the assurance of Stable Supply(and by extension Inventory) becomes more and more important with each and every passing day.

    Thanks for your great report!

    Ashish.

     

  6. Michael Heise
    November 6, 2010

    Thanks for the warning Lindsley. Indeed one of the latest products that can help customers overcome this potentially dire tantalum supply limitations is “Capacitence on Silicon” or “Integrated Passive Devices”. High Stability Silicon Capacitors and Arrays are already outperforming Tantalum Capacitors on most levels. Whether improved system stability, increased battery life, longer lifetime, dramatic room for miniaturization or the pure fact that silicon is easily available and IPD manufacturers have huge available capacity makes this a very viable alternative for many applications. The market is already moving towards this new technology and a number of key manufacturers such as IPDiA are making major investments in this field. Let the tantalum shortage come, technology advancements will always turn a need into creative new solutions.

    Michael

     

     

     

     

  7. Backorder
    November 6, 2010

    I agree. Alternative technology is always welcome as long as it fits the spec and cost, so no major change is visible in the production/procurement. As far as present alternatives to the tantalum are concerned, ceramics clearly dont have enough power storage most times. They dont match the performance of the tants. The electrolytic matches the values of the tants but then again, the lifespan and tolerances and limited operating conditions make them inferior to tantalum. I think, it is absolutely neccessary for the buyer to plan out with the distributor. I have seen situations where such components hold up the board with all the gorrilla chips in stock! It is frustrating for everyone.

  8. Paumanok Publications, Inc.
    November 8, 2010

    Tantalum is at the leading edge of a coming raw materials shortage that will drive up prices for many passive components.  I am also concerned about neodymium, which is used in the NPO type MLCC for high Q applications; nickel, used in the electrodes of X5R and Y5V MLCC; aluminum foil, used in Al203 capacitors, and metallized PET, used in DC film capacitors.  Tantalum shupply shortage will hit first, and based upon my detailed cost of goods sold analysis of capacitor dielectrics, I expect one of not two price increases for tantalum capacitors in 2011. But I fear price will become secondary to getting parts.  The tantalite situation is more complex- My forecasts for tantalite supply assumed that the DRC would fill the material vacuum left by the idling of Greenbushes and Wodgina; the exhaustion of the DLA supply; the scaling back of Tanco, and the idling of the Noventa mine; and the fact that none of the mega-projects would be on line any time soon (Egypt, S. Arabia); as the DRC had done in 2001.  The US legislation changes this, and trade data shows Coltan exports from Central Africa have dropped to almost nothing.  My saving grace was Ta205 powder inventories above ground in stocks and in WIP, but these were worked down since 2008 as leverage against price increases by the Australians; and then parts of these stocks were removed because of uncertainty of their origins.  Be advised that there is a lot of behind the scenes activity going on to try and avoid this!  Hopefully by June 2011 it will begin to straighten itself out.  But I would still recommend a domestic mining initiative, and to seriously look at some innovative new dielectrics that have organic solutions, such as carbon and mycellum for example.  PS I know you are just as passionate about capacitance, resistance and inductance as I am.

  9. Parser
    November 13, 2010

    Ceramic capacitors of various types have been vastly improved in recent years specifically in low values of ESR where tantalum capacitors were famous of in 90-ties. In last few years I am avoiding tantalum capacitors in my design due to problems in voltage rating and possible explosions. I talked with several engineers and they also design circuits without tantalums as much as possible. Hopefully this will help in supply and demand. 

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