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Outlook for titanium, aluminum bolstered by aerospace market

Keywords: Tags  titanium market, aluminum market, International Titanium Association, Michael Metz, aerospace industry, Boeing Co., 787 Dreamliner, Bob O’Brien Titanium Metals Corp.

Demand for titanium, aluminum and other metals is expected to be strong this year and even stronger in subsequent years, based primarily on strength in the aerospace industry.

Upward momentum in the aerospace sector continues to mount as bullish assessments from the world’s largest commercial aircraft builders send strong signals of a continuing turnaround.

By 2013 and 2014, the ramp-up of Boeing Co.’s 787 "Dreamliner" and, by some estimates, overall build rates on commercial transports will have significantly surpassed the rates seen in 2010, industry players said, providing an optimistic outlook not only for titanium but also for aircraft-grade nickels, stainless steels and aluminum alloys.

Fifty-nine customers from six continents have placed orders for 870 Dreamliners valued at more than $178 billion, making it the most successful launch of a twin-aisle commercial airplane in Boeing’s history. A spokesman for the company’s Boeing Commercial Airplanes subsidiary has confirmed that to ensure that the much-delayed program meets its production targets, it plans to start up a "surge line" for the 787 in Everett, Wash., in a building—adjacent to the existing final assembly line—previously used to produce the 767 airliner. The new line, which wasn’t part of the company’s original 787 program, will help Boeing meet its delivery goals as it starts production on a new version of the Dreamliner.

Boeing recently raised the build rate on the titanium-heavy 787 from two to 2.5 per month, but supply chain sources have been saying for months that they have been producing at a higher rate than Boeing’s official build rate. Earlier reports indicated that suppliers were building parts and components at a rate of 3.5 planes per month, but the Boeing spokesman acknowledged only that "some areas of the supply chain are operating at higher rates" than Boeing’s own monthly build rate.

Boeing has set a target of building five Dreamliners per month by year-end and reaching 10 per month by late 2013 with the aid of its North Charleston, S.C., facility, where a final assembly line will start up by this summer.

The spokesman called the Everett surge line "a prudent step at this point in the program to manage our way through some rate increases (and) with the 787-9 coming online." Assembly of the so-called Dash-9, a stretched version of the existing 787-8 that’s capable of carrying about 40 additional passengers over a greater range, is expected to begin in the fourth quarter.

Responding to the aerospace activity, the titanium industry is prepared to meet any challenges that demand might place on the sector, according to International Titanium Association president Michael Metz said.

When titanium emerged from a downturn in the past, it often struggled through a period of supply-demand imbalance as it strove to supply the requirements of resurgent markets. This time, as commercial aerospace embarks on what is expected to be an era of prolonged growth at the same time that non-aerospace industrial demand also rebounds, the main question is: Can the industry handle it? "Yes," Metz said, emphasizing that titanium companies today are "well capitalized and they’ve recognized the opportunities that are out there to grow the business."

Virtually every major player in the titanium production and supply chain—from sponge plants all the way downstream into melting and mill product manufacturing—has invested in capacity expansion and modernization over the past three to five years, he said. The pieces are in place for a "significant growth period."

The jet engine market is likely to account for a larger share of overall titanium shipments for Pittsburgh-based Allegheny Technologies Inc. (ATI) this year in the absence of a blockbuster infrastructure project and as the airframe sector continues to await full acceleration.

Bob O’Brien, president and chief executive officer of Titanium Metals Corp. (Timet), said the company’s backlog at the end of 2011 was about 33 percent higher than a year earlier, and order activity has increased in 2012. Commercial aerospace customers boosted their purchasing throughout last year due to "increasing build rates for legacy and next-generation models and replacement and growth of inventory to support the estimated timelines for fleet replacement and aircraft production," he said.

Dallas-based Timet also expanded and extended long-term supply agreements with several customers, in most cases extending them through 2017 or 2020, O’Brien said. These agreements have secured Timet a "significant share" and major positions on such programs as Boeing’s 787 and 737 MAX, the Airbus SAS A380, A350 XWB and A320 NEO, and the Lockheed Martin Corp. Joint Strike Fighter, he said.

Service Steel Aerospace Corp. (SSA) is looking to boost its commitment to titanium as it targets growth, with plans to increase inventories to support growing consumption in such markets as commercial aerospace and energy. "Anyplace we can move forward in round bar, block and plate, we’re going to be interested in pursuing those customers," Terry Wilson, president and chief operating officer of the Tacoma, Wash.-based distributor, told AMM.

In March, SSA began moving into a new facility in Fife, Wash., that will triple its presence in the Pacific Northwest while providing room for future expansions.

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