The titanium market might not be headed for a quick
turnaround, but large aerospace buyers are already set up to
avoid the shortages and growing lead times that invariably
accompany a surge in demand.
At the Aerospace Systems Sector of Los Angeles-based
Northrop Grumman Corp., this has meant firming up its supply
lines. Don Blue, the company's manager of airborne systems
procurement, said that recently negotiated long-term supply
agreements enabled the company's El Segundo, Calif., operation
to lock in its price and assure "the availability of
John Miller, raw materials buyer at the Aerospace Systems
Sector, said the current downturn left the market "glutted"
with popular titanium alloys, which was a "good time" to
establish extended supply agreements. The operation has signed
five-year agreements with titanium mills before the next
up-cycle begins, which Miller thinks might occur toward late
2011 through 2013.
There are currently a number of large aerospace programs on
the "back burner" in terms of consumption, he said, pointing to
various regional jet aircraft as well as the Lockheed Martin
F-35 Joint Strike Fighter (JSF). Although not yet at full
output, these programs nevertheless will be moving into early
production phases as early as mid-2011, starting to chew up
increasing amounts of metal. And there's also the impact of the
new Boeing 787 Dreamliner, history's largest per-plane consumer
of titanium. The time to team up with long-term supply sources
is before all this occurs, he added.
"If people aren't aligning themselves today in this market,
they will definitely be impacted by pricing and lead times" as
demand starts to move up, possibly as early as mid-2011, Miller
The approximately 170,000 pounds of flat-rolled titanium
that the Northrop Grumman unit consumes each year, in large
part through its subcontractors, is used principally for the 40
percent of F-18 Navy fighter planes that it is building for
Boeing Co. This doesn't include additional purchases of
forgings, castings or plate. Miller noted that his operation
also has signed long-term agreements with aluminum
Lockheed Martin Aeronautics Co., the prime contractor on the
JSF, also isn't looking for an imminent upturn in the titanium
market, but the company is prepared for one.
"Our analysis says it's going to continue to be soft from a
historical standpoint through 2010," said Rod Hogan, senior
manager of procurement for the Fort Worth, Texas-based division
of Lockheed Martin Corp., who thinks the market is likely to
turn up in late 2011 and 2012.
Over the years Lockheed Martin has learned "it's very
prudent to have a long-term contractto have some kind of
relationship with a supplier who's willing to stick by you in
good times and bad times," he said, adding that good times for
the mills, when prices are rising and lead times are usually
extending, "are not necessarily what's good" for an airframe
builder. That's when a long-term supply agreement pays off.
The main titanium supplier for the JSF is RTI International
Metals Inc., and Hogan noted that Lockheed Martin's long-term
agreements with the Pittsburgh-based producer support the
plane's production through 2020. RTI has estimated that its
involvement in the program during that period will total more
than $2 billion in revenue on more than 80 million pounds of
Is Lockheed Martin concerned it will be caught
titanium-short once the market picks up? Not really, Hogan
said, noting that both pricing and lead times are established
in its long-term agreements, with prices mostly indexed to a
formula provided by industry consultant IHS Global Insight Inc.
that incorporates "plus or minus" annual limits.
The JSF, which contains between 30,000 and 45,000 pounds of
titanium buy weight per aircraft, depending on the version (the
carrier version has the most), is currently in low-rate initial
production phase, which is something of a misnomer since it
involves more than 500 planes. Nearly 3,200 planes are expected
to be built, of which more than 700 are for the program's
While there's plenty of domestic titanium capacity for
today's market, the industry now appears to be going slower on
some previously planned front-end capacity expansion. RTI
International which was initially due to bring a $300-million
greenfield sponge operation in Hamilton, Miss., on stream by
2010, put the 20-million-pound-per-year project on hold due to
the aerospace slowdown and may instead remain reliant on
outside sponge sources.
Additionally, Pittsburgh-based Allegheny Technologies Inc.
temporarily idled its 20-million-pound-per-year Albany, Ore.,
sponge plant at the end of July while it also postponed startup
of its 24-million-pound-per-year greenfield operation in
Rowley, Utah, a delay of about a year from its initial
Miller said there's likely to be some "issues to face" in
2013 to 2015, when the marketplace turns tight again. He
expects scrap prices to rise but "not as high" as during the
market's last peak.
Miller also pointed out that, even without expansion, the
titanium industry today is considerably more efficient than it
was five or 10 years ago. Frank Haflich