Metals Prices Offer Bad News for High Tech

(MoneyWatch)  GigaOM had an interesting piece on how commodity prices, specifically aluminum, can be high tech bell weathers. Alcoa slashing its growth forecast and suspending a stock repurchase program suggests that overall sales of aluminum will be far off what was expected, which in part means lower sales expectations on the part of manufacturers of mobile phones, displays, notebooks, and so on.

Blaming it on demand alone isn't completely accurate as there has been a sharp drop in aluminum prices as well. But the article did get me thinking about other materials that are important to technology manufacturing. Looking at their prices seemed to indicate that high tech will be facing a double whammy: lower demand because of the economy and escalating costs.

For example, Praxair Electronics is raising prices by 15 percent on tantalum products. The material is used quite a bit in electronics, often in the form of high-end capacitors in circuits. Last time I remember tantalum being in the news was a few years back when there was a shortage of tantalum capacitors affecting electronics manufacturing on a global basis.

How about other metals? According to a cell phone recycler, there's a lot in those devices alone:

Now imagine a much smaller pile weighing just 1 metric ton of cell phones. One ton. Did you know that gold and other precious metals can be recycled from your your cell phone? Compared to the mountainous pile of 17 tons of gold ores, more gold can be recovered from this heap during cell phone recycling than what can be extracted from 17 tons of gold ores. A ton of cell phones can yield as much as 280 grams of gold, about 140 grams of platinum and palladium, and 140 kilograms of copper.

Do some conversions and you find that's about $1.25 in gold in a cell phone alone, a product where companies work hard to pare pennies in expense. You'll find plenty of these materials in any type of electronics. Gold has just hit $900 an ounce. Platinum is near a five year high largely owing to supply disruptions, but now it looks as though prices will drop because there is going to be a supply surplus, otherwise known as dropping consumption. If falling demand and increasing costs are the conditions, then dropping sales and margins are the likely outcome.

El Dorado gold mine image via Flickr user Graham and Sheila, CC 2.0.