Though prices of some raw materials used in electronic components are edging up, there is no indication of a return to the steep price hikes and shortages that led some suppliers to engage in long-term agreements three years ago.
Industry observers said that supplies of two key materials used in capacitors"tantalum and palladium"are abundant, and attribute a recent uptick in palladium prices to trader speculation rather than a significant demand increase. In the case of tantalum, prices not only continue to fall, but the lingering effects of the inventory meltdown haunt passives suppliers sitting on unused tantalum powder.
Even as the industry bounces back, suppliers are likely to remain cautious, analysts said.
"Everybody is risk averse," said Eric Pratt, an analyst at iSuppli Corp., El Segundo, Calif. "They will speculate the market will grow at a modest pace and won't let themselves get locked up into long-term agreements."
Passives vendors are still reeling from take-or-pay agreements they signed in headier times to guarantee stable tantalum powder supplies. Several weeks ago, AVX Corp., Myrtle Beach, S.C., said it will take an $80 million to $90 million charge in its fiscal quarter ending Sept. 30 to reflect a write-down of tantalum powder that the company paid steep contract prices for three years ago.
At the time, tantalum powder prices soared to more than $200 a pound, according to data compiled by the U.S. Geological Survey. Since then, however, prices have been dipping, averaging $27.50 a pound as of mid-September, according to the agency.
AVX, which did not return calls for comment by press time, entered the agreement with Cabot Corp., Boston, and is now suing the materials supplier alleging breach of contract and unfair trade practices. Though the outcome is uncertain, AVX may have little choice but to continue to do business with Cabot, which analysts said provides approximately half of the industry's tantalum powder.
Rival suppliers Kemet Corp. and Vishay Intertechnology Inc. also engaged in tantalum supply contract disputes with Cabot but settled last year, agreeing to take reduced shipments at higher than market-average prices in return for extending the length of their agreements.
Kemet, still flush with costly tantalum powder inventory, vows it won't allow a repeat of the situation. "We'll have a more diversified supply chain," said a spokesman for the Greenville, S.C., capacitor maker. In addition to Cabot, the spokesman said Kemet will seek to do more business with H.C. Starck, the other major tantalum powder provider.
Kemet has also tried to wean itself off tantalum by developing aluminum capacitors, whose high capacitance and low equivalent series resistance make them a suitable tantalum alternative in many power supply and microprocessor applications.
Palladium tags rise
Another material whose supply and pricing has been volatile in the past is palladium, which is used in the electrodes of multilayer ceramic capacitors. Palladium's price has risen from $165 per Troy ounce in April to $216 this month, according to Johnson Matthey plc, a London-based chemicals and materials supplier.
But palladium prices are still below year-ago levels of $330 per Troy ounce and far below the $1,056 reached in January 2001, when political and economic instability in Russia"the world's largest source of palladium"caused a continuous round of price hikes.
A Johnson Matthey spokesman said that the current palladium price hikes are attributable to speculative buying rather than a demand surge, but insists the pattern won't drive prices up for a prolonged period because supply is abundant.
"There is no shortage of palladium," the spokesman said. "And the attitude of the Russians is now one of promoting market stability."
iSuppli's Pratt agreed. "Mostly it's speculators driving up the price. There may be short-term lead extensions on raw materials, but materials suppliers will be in a position to respond quickly," he said.
Capacitor makers have also been attempting to avoid palladium volatility by phasing out use of the material. "We have switched to base metal," said the Kemet spokesman. "We are less exposed to rising palladium prices than a few years ago."