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Titanium industry banks on aerospace, shipments stay high

Keywords: Tags  Titanium Shipments, Titanium, Boeing, Aerospace, Frank Haflich

Recession? What recession? Titanium industry players are keeping their eyes on the prize as they look to the ramp-up of the Boeing 787 and, by some estimates, overall build rates on commercial transports that by 2013 and 2014 will have surpassed by 40 percent the rates seen in 2010. Outside of aerospace, newly emerged economies such as China, India and Brazil could remain strong markets for non-aerospace industrial titanium despite economic sluggishness in the United States and Europe.

"Regardless of what’s happening on Wall Street with the stock market, and the political turmoil that we’re seeing in the headlines, we are still seeing strong demand through the end of the year with our existing orders," said Dawne S. Hickton, vice chairwoman, president and chief executive officer of Pittsburgh-based titanium producer RTI International Metals Inc., which has raised its forecast for 2011 mill product shipments to 14 million pounds from a 12-million-pound estimate early this year.

Hickton acknowledged that the possibility of further economic turbulence can’t be ignored. But she nonetheless expects continuing growth in aerospace titanium during the next several years, supported by previously announced long-term production increases as well as "pent-up demand" among customers of both of the world’s two major aircraft manufacturers, Chicago-based Boeing Co. and Europe’s Airbus SAS.

"We have a strong order book going into next year and we’re not seeing any cancellations," she said. "In fact, our major customers are continuing to focus on making sure the supply chain will be able to support the ramp-up over the long term."

RTI estimates that U.S. mill product shipments could reach 95 million to 100 million pounds this year, topping the previous record of 84.4 million pounds shipped in 2010. Excluding China, the company sees global commercial aerospace shipments increasing about 20 percent to around 73 million pounds this year and another 20 to 25 percent in 2012. Military titanium shipments are forecast to remain flat at about 24 million pounds both this year and in 2012, while industrial and other non-aerospace titanium shipments—including medical and emerging applications—are expected to grow 17 percent to 117 million pounds this year.

Despite the 2009 slump brought on by the global economic crisis, industrial titanium demand hasn’t gone away, said Kevin Cain, president of Uniti LLC, a Moon City Township, Pa.-based producer of commercially pure (CP) titanium for non-aerospace markets.

Cain, whose company is a joint venture of Pittsburgh-based Allegheny Technologies Inc. (ATI) and Russia’s VSMPO-Avisma Corp., emphasized that infrastructure, which includes desalination, power generation and metallurgical plants, offers strong prospects.

The Middle East, for example, is attempting to establish itself as a manufacturing center, which means a requirement for fresh water and power. Uniti won a job last year to provide 5.5 million to 6 million pounds of narrow CP strip for the production of tubing for a seawater desalination project in Ras Az Zawr, Saudi Arabia, and Cain sees more of this type of work ahead. "There are desalination projects being bid right now for production next year and the year after," he said.

Cain acknowledged that there is some question about the outlook for industrial titanium markets related to consumer growth, such as chemical processing plants to produce purified terephthalic acid (PTA) and polyethylene terephthalate (PET), which are among the basic building blocks of developing consumer economies. While those industries are more subject to short-term fluctuations in residential construction and automotive consumption than infrastructure projects, Uniti takes a long-term view of this sector, particularly when it comes to its potential in newly emerged economies.

Cain estimated that the global infrastructure and consumer-related industrial markets in which Uniti participates, which dropped around 45 percent in 2009 and 2010 to 26,000 to 28,000 tonnes per year, will rebound to 37,000 to 40,000 tonnes this year.

Indeed, industrial and other non-aerospace applications have become more important this year even for producers whose business is normally dominated by aerospace. Dallas-based Titanium Metals Corp.’s second-quarter shipments to industrial customers, for example, represented 26 percent of total sales compared with 18 percent during the same period last year; and Carpenter Technology Corp., a Wyomissing, Pa.-based producer of specialty metals, has seen non-aerospace business rise to 45 percent of titanium sales, spurred in large part by the growth of medical applications, from a 25-percent share.

Most of Carpenter’s titanium business is based at its Dynamet Inc. bar and wire operation in Washington, Pa., which produces aerospace fastener stock along with medical, certain automotive and general industrial products. Mark S. Kamon, Carpenter’s senior vice president, commercial, specialty alloys operations, pointed out that whatever the overall economic outlook, much of the 5- to 7-percent annual growth forecast for commercial aerospace over the coming years will occur in China, India and other robust markets outside the United States and Europe.

While the Boeing 787 is generally acknowledged as history’s largest platform for titanium fasteners, Kamon noted that even before the first Dreamliner was due to be delivered in late September around 40 planes had already been built. This means that a gradual increase, rather than of a rapid surge in demand, is more likely "as people use up parts already in inventory."

Meanwhile, titanium consumers continue to reduce the metal’s buy-to-fly ratio of raw materials to finished parts. Don Kinard, deputy and technical lead for the F-35 Joint Strike Fighter (JSF) production system at Lockheed Martin Corp. in Fort Worth, Texas, noted that the JSF’s engine bay doors will be fabricated in Britain by BAE Systems Plc with the combination of two advanced near-net-shape processes—diffusion bonding and superplastic forming. He described the first combined application of both processes on a U.S. fighter as "a technology that’s come of age for the F-35."

Rod Hogan, director of supply chain procurement for Lockheed Martin in Fort Worth, noted that titanium delivery lead times "are starting to move out" to 26 weeks from about 16 to 20 weeks at the beginning of the year. As commercial aerospace ramps up, pricing will go out along with lead times.

But Hogan isn’t worried. "We’re protected under long-term (titanium supply) agreements, so we don’t have a big concern from a pricing standpoint," he said. Moreover, demand appeared to rise on a "much steeper curve" in the 2005 and 2006 upturn than it has this year.

While U.S. titanium shipments have moved up substantially this year, prices for most forms of the metal have increased less than deliveries. Kamon pointed out that despite the market’s resurgent growth, a key scrap grade—bulk weldables—has "remained very stable" for roughly a year after rising from the depths of the 2009 price slump. He believes this reflects the addition of new global sponge capacity, which is helping to keep raw material commodity prices "relatively stable at a time you would expect them to be growing very rapidly." This stability indicates the titanium industry is now "effectively capitalized," he said.

Meanwhile, Boeing is well on the way to curing its titanium "inventory hangover," drawing down the aerospace industry’s most talked-about titanium inventory faster than it had expected a year or two ago. "We still have some time to get into balance, but not what it was before," said John Byrne, vice president of aircraft materials and structures in supplier management for the aerospace giant’s Boeing Commercial Airplanes (BCA) subsidiary in Everett, Wash.

Boeing was originally due to deliver the first 787 Dreamliner—history’s largest per-copy consumer of titanium—in 2008. But while this milestone was postponed for more than three years, BCA has continued to take titanium from its main mill suppliers under its long-term supply agreements despite requirements at the time that were below the amount of metal coming in. How much titanium BCA was holding has been a topic of constant speculation in the industry, and although Boeing has never disclosed a figure Byrne noted that it’s no secret it had a "bit of an inventory hangover."

One of the few outside companies willing to estimate the overall titanium supply chain overhang during the past two years appears to agree that excess stocks are declining. RTI International Metals, which in 2009 indicated that the overhang had reached 60 million pounds, more recently pegged that figure at 10 million to 20 million pounds and would come into balance by the first quarter of 2012.

Byrne acknowledged that BCA’s inventory surplus during the past two years had been seen from outside as a liability, but by this summer he wasn’t looking at it that way, given an order backlog of more than 800 Dreamliners and plans to bring the plane’s build rate up to 10 per month by 2013 from two currently.

"Now it’s really turned into an asset for us," he said, adding that as BCA goes through a process of rebalancing its requirements it is in a good position "to work our way through this upcycle." He described the process as something like restarting a train, but where parts of the train are moving at different speeds.

Even as the company’s inventory burns down, Boeing is gaining experience designing and manufacturing 787 components, "optimizing the buy-to-fly" ratio of titanium on the plane with more opportunities to make parts to near net shape vs. hogging them of out of blocks, which is characteristic of a plane’s early stages of development.

Byrne last year told members of the International Titanium Association that the titanium buy weight on the 787—as much as 340,000 pounds on the plane’s first shipset—had been brought down by the 30th plane to come off the assembly line to about 180,000 pounds in the airframe from an earlier-anticipated 220,000 pounds, eliminating the need for some 15 million pounds of titanium. Byrne more recently estimated that a further 10,000 pounds of buy weight has been taken out of the plane.

Additionally, while BCA had been holding titanium that amounted to three to four times its working inventory around this time last year, Byrne said this excess has since been improved by 50 percent. However, he still expects BCA will take the minimum contract amounts from its mill suppliers under long-term supply agreements through 2013, with 2014 a "transition year" when its buys could either be increased or held at the minimums.

Meanwhile, even as Boeing brings its inventory into line, the company also is looking toward future production of the next model of the Dreamliner, the 787-9, and is already at work "optimizing the buy-to-fly" ratio on the new version.

"We’re going through the same kind of learning curve on the dash-9," he said, noting that Boeing has already decided to increase the use of forgings on the new model, which will be larger and will essentially add two new sections to the fuselage. Large forging dies have already been purchased, with initial forging operations due to begin sometime early next year.

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