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Titanium market turnaround

Sep 30, 2013 | 07:00 PM | AMM staff

Tags  U.S. titanium, titanium, aerospace, Allegheny Technologies Inc., Richard J. Harshman, nonaerospace titanium, titanium shipments, Boeing Co. Airbus SAS


Despite some falling prices over the summer and concerns about overcapacity and consolidation issues, players in the titanium sector believe that business is poised to improve.

The producer price index for titanium mill shapes in August was virtually even with the previous month but down 8.3 percent from August last year, according to the latest report from the U.S. Bureau of Labor Statistics.

Moreover, Allegheny Technologies Inc. chairman, president and chief executive officer Richard J. Harshman said industry overcapacity, brought on by a lagging global market for nonaerospace industrial titanium, has created short-term pressure on spot transaction business that “magnifies” disruptions due to ongoing inventory corrections.

The bad news is nothing new. U.S. titanium shipments fell to 9,210 tonnes (20.3 million pounds) in the first quarter, down 7.3 percent from 9,930 tonnes (21.89 million pounds) in the same period last year, the latest U.S. Geological Survey (USGS) data show, although shipments were 3.7 percent higher than 8,880 tonnes (19.58 million pounds) in the fourth quarter of 2012.

Unless the pace picks up later this year, shipments could suffer a second straight year-on-year decline after reaching a record 45,500 tonnes (100.31 million pounds) in 2011. Last year, shipments fell 13 percent to 39,600 tonnes (87.3 million pounds), still the second-highest annual total in history.

“This was below my expectations,” said one industry analyst, who, like many others, had expected 2012 shipments to at least match the previous year’s figure, if not exceed it.

“Very little in these figures says that things are improving,” an industry source said of the USGS report, pointing out, as did others, that the second quarter showed no improvement from the first quarter.

“I don’t see a whole lot of change out there,” a distribution executive said.

Chicago-based Boeing Co., whose commercial aircraft represent the single-largest end market for U.S. titanium shipments, indicated earlier this year that it might lift titanium buys for 2014 above its earlier contracted minimums as it continues to work off inventory. While this turnaround appears likely to most market participants, given the growing order backlogs at Boeing and European rival Airbus SAS, some of them pointed out that they had expected to see signs of a turnaround by now.

In any case, any significant improvement in plane builders’ 2014 demand should become apparent by the fourth quarter of this year at the latest, market sources said.

One possible bright spot is ingot production, which rose 4.7 percent to 17,900 tonnes in the first quarter from 17,100 tonnes in the fourth quarter of 2012. While this is sometimes seen as an indicator of future shipments, it’s not always considered reliable.

The first-quarter producer price index for titanium mill products compiled by the U.S. Labor Department declined 3.9 percent from the fourth quarter and 14 percent from the first three months of 2012, according to the USGS.

Some observers said that a sharp drop in nonaerospace industrial demand may have played a role in last year’s falloff, although that market typically accounts for a much smaller portion of U.S. demand than it does in other parts of the world. Commercial and military aerospace, which normally plays a dominant role in the U.S. market, accounted for approximately 68 percent of domestic mill product and castings shipments last year, according to the USGS.



Moreover, Boeing “reset” its outside requirements downward last year. Some distributors who expected a pickup as the year progressed had laid in inventory and instead ended up with far more material in stock at the end of 2012 than they anticipated.

Some analysts don’t expect annual shipments to improve significantly until 2014, although they conceded that the second half of this year likely will be an improvement over the first six months.

John Mothersole, senior principal analyst of Lexington, Mass.-based IHS Global Insight Inc.’s pricing and purchasing service, acknowledged that last year’s results were “a disappointment” and the first quarter of 2013 had been “weak,” but he said this year looks likely to pick up somewhat in the second half. U.S. shipments likely will reach 89.3 million pounds in 2013 and rise above the 100-million-pound mark next year, according to IHS.

IHS predicts that 2013 titanium ingot prices will decline 1 to 2 percent from 2012, with stability following first-quarter softness, but rise 6 to 7 percent in 2014. It expected mill product prices to reach equilibrium this summer and experience a “slight lift” by the end of the year following a 10-percent drop in the first quarter, and rise 8 to 10 percent in 2014.

RTI International Metals Inc. vice chairwoman, president and chief executive officer Dawne S. Hickton said it was too early to forecast the company’s 2014 raw material costs, since negotiations for next year’s titanium sponge will stretch into the fourth quarter and the results won’t be disclosed until early next year.

But executives, analysts and other market players point to some good news as well. After stalling in 2012, global demand for titanium mill products will resume growth this year and expand by 4 to 5 percent annually through 2018, while a titanium sponge surplus will continue, according to London-based Roskill Information Services Ltd.

Roskill noted in its Market Outlook to 2018 that while global demand for mill products--based on apparent consumption--reached a record 165,000 tonnes (363.76 million pounds) in 2011 after recovering rapidly from a sharp downturn in 2008, growth “stuttered” in 2012, barely budging from the previous year’s level.

Roskill told AMM it estimates that world production of mill products rose 3 percent to 152,500 tonnes (336.2 million pounds) in 2012 from 148,000 tonnes (326.28 million pounds) the previous year, with China accounting for about 38 percent of international mill product output.

Although titanium is used in a variety of applications, Roskill said that aerospace remained the largest single market for mill products at 60,000 tonnes (132.28 million pounds) in aircraft buy-weight in 2012. It said growth in aerospace has been aided by the increasing use of carbon-fiber composites, which are “compatible with titanium but not with aluminum,” in the latest generation of airliners, such as Boeing’s 787 and Airbus’ A380 and A350, which helps assure titanium’s future role.

Russia’s VSMPO-Avisma Corp. is the world’s largest aerospace mill product source, supplying more than 20,000 tonnes (44.09 million pounds) last year, Roskill said.

Meanwhile, global titanium sponge capacity, which totaled 124,000 tonnes in 2009, jumped by an average 25.5 percent annually to reach 241,000 tonnes in 2012, resulting in what Roskill estimates is a 20,000-tonne surplus. But it noted that much of the surplus is in China and is primarily industrial-grade material.

The current and forecast supply of aerospace sponge--produced chiefly in Japan, Kazakhstan, Russia and the United States--is “more than adequate to meet demand,” since there’s “some unused capacity overhanging the market,” Roskill said.

The company noted that U.S. imports account for more than half the global trade in sponge, and U.S. titanium producers “rely heavily” on supplies from Japan and Kazakhstan, although the latter’s role is declining as it increasingly processes its own sponge.

Roskill noted that titanium sold for industrial applications is more “price sensitive” than aerospace, since industrial specifications aren’t as “rigorous” as in aerospace and there’s more competition in the industrial market from other metals. This price sensitivity is “more apparent” in North America and Europe than in China--which now accounts for half of industrial demand--where titanium is often chosen over less-costly materials, Roskill said.




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