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Titanium gets a lift from evolving aviation market

Keywords: Tags  Titanium prices, aerospace industry, Michael Matz, VSMPO-Avisma, 787 Dreamliner, A350, Airbus, Boeing wind turbines

The rising price of oil and the aviation industry’s need for lighter, more-fuel-efficient aircraft are brightening the outlook for the global titanium industry.

At any given time, between 40 and 60 percent of the titanium metal shipped globally is used in aerospace and aviation, according to Michael Metz, president of the North American arm of the world’s largest titanium metal producer, Russia’s VSMPO-Avisma Corp.

And as the titanium industry heads into the final quarter of 2012, the aviation market looks especially promising because the world’s airplane builders are introducing new aircraft that have the potential to transform civil aviation. Boeing Co. has rolled out its new 787 Dreamliner and already has more than 800 orders for the fuel-efficient twin-aisle aircraft. Airbus SAS, the major European aircraft manufacturer, is introducing its wide-body A350 family of aircraft in the second half of 2014. Both the 787 and the A350 rely heavily on carbon fiber in their airframe construction.

“There’s a lot more titanium used in carbon-fiber aircraft,” said Metz, who is president of the International Titanium Association. “They’re much more titanium-intensive.”

A typical Dreamliner uses an estimated 180,000 to 225,000 pounds of titanium, which has titanium producers anticipating increased orders into 2013 and 2014. “In our world,” Metz said, “the airplane market right now is pretty good.”

The 787 and A350, which can carry as many as 250 to 300 passengers, depending on configuration, will serve as replacements for the Boeing 767 and the Airbus A330 when they begin dominating airline fleets later this decade.

Much of the spike in new aircraft development has been spurred by oil prices that since 2010 have consistently stayed above $100 per barrel. “Less than 10 years ago, oil was $25 a barrel, and all of the fleet in use today was designed more than 10 years ago,” Metz said. “The airlines just can’t compete (using) older-technology aircraft.”

Metz said that aircraft manufacturers have been using more titanium in the production of newer models of older aircraft ever since the price of fuel started rising. A current Boeing 737, the workhorse of many airlines such as Dallas-based Southwest Airlines Co., is much more fuel-efficient than a classic 737 thanks to the increased use of titanium. High-strength, low-weight titanium parts also will be important in the new Airbus A320neo, due out in 2015.

Boeing currently is producing three-and-a-half 787s per month, but the Chicago-based aircraft manufacturer has told analysts it expects to increase production to 10 per month by next year. For Metz and others in the titanium metal business, that’s a significant increase in demand.

While the aviation industry is a promising growth market for titanium metal, it is hardly the only source of demand. Corrosion-resistant applications—chemical processing plants, water desalinization units, and nuclear and fossil-fuel electric generating stations—are the next biggest market for titanium metal. But the corrosion-resistant market has a more problematic outlook as 2012 enters its last quarter, Metz said. “The corrosion-resistant market is more dependent upon the chemical process industry, and that is not experiencing any kind of robust growth.”

Metz said that the industrial market for titanium metal took a pretty big hit in the 2008-09 recession. “We are making less houses, less cars, less of a lot of things than we did four or five years ago,” he said. “There is probably some titanium in that manufacturing plant that made those consumer goods.”

The electric power generation industry is a major consumer of corrosion-resistant titanium, but while the world’s power consumption grows each year, not all of that power comes from nuclear or fossil-fuel generating units that require titanium metal. Metz noted that the United States and many European countries are encouraging the use of so-called “green” energy, such as solar power and wind turbines, and few alternative-energy technologies are major consumers of titanium.

An even bigger threat to titanium is the slowdown in the market for baseload coal-fired steam electric generating plants that produce more than 750 megawatts of power per unit. China’s recent slowdown has impacted the market for coal-fired generation in one of the world’s biggest economies, and worries about the role of coal in global warming have hurt the market for baseload coal units in the United States and other developed countries, where increasing regulatory burdens have hampered utilities’ efforts to add such units. For example, Charlotte, N.C.-based Duke Energy Corp.’s baseload coal gasification unit near Edwardsport, Ind., is more than $1 billion over construction estimates and is still not online, in part due to added regulatory burdens.

Domestic utilities have been attempting to add generation with combined-cycle gas turbine units that typically are rated in the 100-megawatt range and leave a considerably smaller carbon footprint than coal. The discovery of major new shale gas deposits in the United States is creating the potential for gas-fired generation to replace coal-fired generation.

But Metz pointed out that most of the replacement gas energy plants are much smaller and will take decades to supplant coal. “There is some skepticism about shale gas in our industry,” he said. “Are we going to move from 10 percent of the market today to the 70 percent of the generation market that coal has? That’s not likely anytime soon.”

Another major utility consumer of titanium metal is the nuclear power industry. But the failure of the nuclear plant at Fukushima during the March 2011 earthquake and tsunami has thrown the future of nuclear power into question.

Given the problems afflicting the baseload fossil-fuel electric power generation market and the chemical processing market, current activity “is definitely lower than in recent years,” Metz said, “especially when it’s compared to the build rates for the aviation marketplace.” And the corrosion-resistant and aviation markets together represent approximately 80 percent of the customer base for titanium worldwide.

But there are alternatives. Some 20 years ago, a recession in the aerospace industry convinced titanium producers to actively pursue other markets, including the health-care and even sporting industries. Producers quickly began research to position titanium in what it called “second-tier” markets.

The use of titanium in a wide variety of medical applications—hip and knee replacements, dental implants, artificial hearts, trauma systems and the like—is a good example. Medical-grade titanium alloys began replacing stainless steel and aluminum for surgical procedures and implants in the 1990s; today, as many as half of all orthopedic implants are made of titanium.

And with an estimated 8 million to 10 million joint replacement surgeries performed in the United States over the past decade, those numbers can add up. One major orthopedic medical device manufacturer, which reported recently that anywhere from 0.5 to 2 pounds of titanium are used in a typical implant, consumes approximately 800,000 pounds of titanium each year—roughly what Boeing consumes in a week for 787 production.

“Medical application is a nice, growing part of the market, and there is good stuff happening,” Metz said, but noted that it accounts for 5 to 10 percent of the market “at best”—a far cry from the aviation industry’s 40 to 60 percent.

Lightweight with a high strength-to-weight ratio and the ability to absorb shock and dampen blows, titanium also is used to make bicycles and sports equipment such as baseball bats, hockey sticks and golf clubs.

“Titanium is generally used where economics give you a performance advantage,” Metz said. “In airplanes, it’s the strength-to-weight ratio. In industrial applications, it’s life cycle costing. When you swing a titanium golf club, the ball goes further. You are paying for performance at the end of the day.”

From a macro perspective, Metz is ending his term as ITA president feeling optimistic about the industry’s future, particularly based on the strength of the resurgent aircraft construction industry. “All of the major players in the business are showing profits,” he said. “The industry, in general, is healthy. There is a lot of capital investment on the strength of potential growth. And there is room to expand production in existing facilities.”

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