Conflict Minerals Rules Drive Interest in Secondary Tantalum Market

Conflict Minerals Rules Drive Interest in Secondary Tantalum MarketThe market for secondary tantalum is receiving another boost from the conflict minerals issue. When the US Securities and Exchange Commission (SEC) was developing legislation to help ensure ethical sourcing, the tantalum industry came under pressure to act ethically and prices for scrap and recycled materials rose. Conflict minerals rules have now been finalized, and because the legislation is more lenient on scrap and recycled metal, prices for these secondary materials are rising again.

The finalization of the conflict minerals rules brought a sense of relief to the tantalum industry. It is no longer necessary to speculate about the details. The costs and requirements seem less demanding than many expected, and some feel that the playing field has been leveled between those who were proactive and those who weren’t.

Those affected by the rules are still trying to sort out what the legislation means and how they are to comply with it. In dealing with scrap or recycled tantalum, these considerations are less onerous because the law is more lax.

SEC on scrap and recycled metal

The SEC agreed with those who argued that armed conflict groups benefit from newly-mined metal, though it deems those miners beyond the scope of the law. Although scrap and recycled material may have once been associated with conflict, by the time it is in the secondary supply chain those armed groups have already extracted their benefits and receive no further gains, according to the agency’s logic.

Some argued that without an alternative reporting approach for secondary supplies, the market for this material would be doomed as manufacturers would have no incentive to use it. The SEC agreed with this point as well.

The Organisation for Economic Co-operation and Development’s definitions of scrap and recycled metal were therefore adopted for the final ruling. These definitions include scrap processed metal created during manufacturing, a category of concern for some market participants.

The alternative reporting approach developed for these secondary supplies requires those subject to the law to conduct an inquiry similar to the Reasonable Country of Origin Inquiry used for primary supplies. If a party is led to a reasonable belief — the SEC stresses that certainty is not required — that metal is scrap or recycled, this determination is reported and a brief description of the inquiry and results must be given. This party can then use the “DRC conflict free” identifier.

With primary supply, parties subject to the law are required to conduct an inquiry that leads to a reasonable conclusion as to whether metal was sourced in the DRC or any of the surrounding countries. If the party knows the metal was sourced in the DRC or cannot reasonably conclude that the metal was not sourced there, the process continues, requiring due diligence; ultimately there could be a need for a detailed conflict minerals report with an independent audit.

Scrap and recycled tantalum increasingly attractive

It is little wonder, then, that some would look to secondary supply as a way to reduce the regulatory burden.

An executive at one scrap specialist reported that market participants are seeking concrete information about the conflict minerals rule as it applies to scrap and recycled tantalum.

“We have been asked by numerous traders and consumers about [secondary] materials,” he said. “We do not know if it is actual demand or just news reaction.”

He added that prices for scrap and recycled material are up as consumers are concerned about supply and traders are seeing an opportunity.

Meanwhile, prices for tantalum from the primary supply chain have reportedly stalled and market participants are taking stubborn positions toward the higher end of the current price range.

When the conflict minerals rule was pending it created a hierarchy whereby artisanal miners in the DRC were largely put out of work and metal from the region was nearly blacklisted. Metal that could clearly be deemed conflict free then carried a premium; tantalum from outside the region is currently still highly valued by many.

However, now there appears to be a new development in the hierarchy. Those in the primary supply chain appear to be facing a disadvantage compared to those in the secondary supply chain, who can essentially charge a convenience premium while investing fewer resources in complying with the new regulations.

“Recycling of scrap material has had a boost since these are effectively outside of the scope for traceability, so expect to see reprocessors and recyclers gain,” said Bill Millman, AVX tantalum divisional director of quality and technology, in an interview with Tantalum Investing News.

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