The Conversation (1)
Investors wondering how the tantalum market will fare in Q4 2011 should be pleased with the outlook.
By Michelle Smith–Exclusive to Tantalum Investing News
Tantalum demand has been growing and prices have been rising since 2009. The question that investors may be asking at this point is what will happen to tantalum in Q4.
Since pricing for tantalum is a different ballgame than pricing for other metals, investors do not have the luxury of accessing current and exact figures as they with those other metals. At best, what is usually made available is a fairly recent price range that has been determined by gathering information from those who are willing to provide it. Therefore, reliance on forecasted figures is even more risky than it normally would be.
Another issue with forecasting prices is that tantalum transactions are often subject to off-take agreements. These arrangements can lock in different prices for different consumers and limit volatility. Therefore, with tantalum, it is best to base an outlook on an overall assessment of the market and the factors at play.
Supply and demand
It was predicted that the tantalum market would experience a deficit this year. Reports of a strained market carried over from 2010 and the condition is believed to have gotten progressively worse. If there is not technically a tantalum deficit at this moment, it is likely to be seen in the forth quarter.
One reason that this deficit appears imminent is that there simply is not an adequate supply of raw tantalum at this point to meet the growing demand. It is predicted that demand will continue growing at about 9-10 percent annually.
A second reason is that there are likely to be numerous consumers who need supplies and this need may be largely concentrated over the next few months. Some consumers, such as those in the capacitor industry, have shown resistance to miners attempts to nudge them toward long term contracts and elevated prices. However, digging one’s heels in the ground is an easier feat when there are supplies currently available to proceed with operations. It is believed, however, that consumers’ stockpiles have now dwindled, which will leave them with little choice but to make purchases on some terms.
What could help to alleviate the pressure are new sources of supplies. But, there is virtually no suggestion of enough new production this year to majorly impact the current market environment.
Earlier this year, Cabot Corporation (NYSE:CBT) noted that they were expecting to restart production from the TANCO mine this year. If those expectations are to be met, that production will need to be forthcoming in Q4. The impact that these supplies may have on the current market strain cannot be determined since the company has not supplied production targets.
Global economic climate
Investors should stay abreast of the global economic climate and retail activity in Q4. With major financial problems looming in Europe and a struggling US economy, consumer confidence has notably been falling, which could eventually being to take a toll on electronic sales in those nations. At the same time, it is important to remember to balance consideration of developed economies with that of emerging economies, where many companies are reporting that there are eager consumers and strong retail activity.
The bottom line is tantalum supplies are currently tight in a market that has been experiencing constant growth and which is expected to continue growing. There are those who predict that prices will continue to rise and there are others who foresee prices stabilizing. In any case, there are not currently any predictions that tantalum prices will fall in the fourth quarter or that demand will subside.
Disclosure: I, Michelle Smith, hold no direct investment interest in any company mentioned in this article.