BOSTON, Oct. 26 - The combination of low supplies and raging demand is pushing tin prices to record highs. After lagging for years at an average of $4,000 or so per tonne, a year ago prices pushed past $5,000 and in May peaked above $10,000 before settling at slightly above $9,000 this fall. For a time solder vendors ate the price hikes, until last July, when Cookson Electronics Assembly Materials, reportedly the world's largest buyer of tin for electronics solders, said enough, announcing that it would tack on surcharges when tin prices reached $9,500 on the London Metals Exchange.

Several leading solder suppliers Circuits Assembly spoke with shared insights on the causes for the price spikes - and how to plan for future volatility. Most fingered - surprise - China's consumption, coupled with refining bottlenecks, as the main culprits. While several factors are at play, most vendors agree with Kester vice president of marketing and business development Dave Torp, who cites "basic market supply/demand relationships." Excess supply in the late 1990s and early 2000s depressed prices, causing suppliers to close mines. (While not outright casting the world's tin suppliers as a cartel, vendors note it's a "relatively tight-knit group.") Since 2000, China, which produces at least half the world's tin, has shifted from a major exporter to a net importer, and that nation's energy crisis has dampened its smelting output. Other forces are the tech comeback and higher tin content in new solders, which are "definitely creating more of a demand," says Rick Black, president of AIM Inc.

Black warns that the ongoing metals inventory purge by the Defense National Stockpile Center (DLA) could exhaust certain tin stockpiles within two years. But, he says, "When the price goes up, so does investment in infrastructure. More metal will be pulled out of the ground." Indeed, few believe tin supplies will suffer from the transition to lead-free, because supply will increase to meet the anticipated demand. "It's a gradual move," says Henkel Electronics president Pat Trippel. "[I]t could be a different story if everyone switches to lead-free in a short period, but we don't expect that to happen."

What that doesn't mean, however, is that lead-free solders will cost the same as tin-lead ones. Says Cookson Electronics Assembly Materials president David Zerfoss: "We've put millions [of dollars] into research for lead-free capable materials and there's a price tag for that and the products themselves are inherently much more expensive." Bar solder contains a higher tin content than pastes, leaving some suppliers more exposed to tin pricing volatility. Zerfoss notes the shift from 63-37 to 90-plus% tin means the same joint will require less solder by 20% by weight to make, but the alloy composition by the weight of the bar will be 34% more. Bottom line: More consumption of tin and silver. Quips Zerfoss: "You cannot sell lead-free at the same price. Lead-free ain't free." Koki director of European support Gordon Clark says the "massive" research and development costs incurred by suppliers of lead-free solders have to be passed on "but in our current economic climate [it] is hard for them to swallow."

Buyers should follow Metals Week or London Metals Exchange futures, vendors advise, to anticipate sharp changes in prices of tin or other metals used in solder. Hard-core watchers can monitor speculative fund managers who play the tin market, as fund movements often have big impacts on market swings, explains Torp. Still, "you don't really know where [spot market pricing] will go," acknowledges Zerfoss. Kester and Koki see continued pressure on tin supply throughout 2005. Says Aim's Black: "I don't think [pricing] will go back anytime soon. There's definitely a shortage of supply right now."

For now, Cookson seems to be the only major firm to publicly warn of possible surcharges. Henkel, Trippel says, "hasn't decided exactly how we're going to handle it. Our customers are aware of the situation. It's something we all face." Henkel is renegotiating some contracts, he says. Clark sees parallels to the transportation industry's reaction to higher oil prices. "Some form of surcharge seems a viable option in order to protect margins, and would be best adopted as an industry norm and should be standardized via the IPC Solder Value Council," he says. Kester claims "constant communications" with customers on pricing and delivery. Black feels many customers are behind the curve. "There's a mindset among many purchasing agents that all incoming merchandise costs must be reduced each year. People kept thinking the price should keep coming down, and ... when prices started to increase, they felt hoodwinked."

Tin is just one of several raw materials hit by price hikes. There have been "significant increases" in prices of isopropyl alcohol, a component in many fluxes. Indium prices have risen from $50 per kilogram to $800. Solder vendors are at the mercy of their suppliers. "The only thing [solder vendors] can control is the cost of manufacturing," not the prices from the mines, Black says. "Typically wire and bar solders move with the market. Paste is different because the metal component as a percentage is a much smaller percentage of its value."

Read more ...