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Titanium surcharge fall stirs lead time fears

Keywords: Tags  titanium, Allvac, surcharges, titanium surcharges, Allegheny Technologies. Frank Haflich

LOS ANGELES — A key raw material surcharge in titanium has further declined for the fourth quarter, and some buyers are growing nervous about the implications of falling lead times.

Monroe, N.C.-based Allvac Inc., a unit of Pittsburgh-based Allegheny Technologies Inc., has reduced the raw material surcharge on benchmark aerospace alloy titanium 6 aluminum/4 vanadium bar and flat products to $6.67 per pound, down 2.6 percent from $6.85 per pound. Its fourth-quarter billet surcharge is $6.07, down 2.7 percent.

The same surcharges and reductions were implemented on titanium 6/4 Eli, or extra-low interstitial.

"Quite frankly, I’m surprised it isn’t down even more," one distributor said—a remark that was echoed by other titanium buyers. While the fourth-quarter surcharge drop on titanium 6/4 is less than the 7.6-percent posted for the third quarter, and Allvac’s surcharge has fallen 12 percent since the end of 2011, the distributor estimated his own orders have dropped 20 to 30 percent over the course of the year.

Allvac doesn’t disclose the specific elements of its surcharge, although they are assumed to include scrap, sponge, master alloys and energy. Scrap, which has also been falling this year, is believed to be the largest component.

Moreover, distributors appear just as worried about short mill delivery times on some commodity products as they are about the shrinking surcharge, which forces them to reduce the value of their inventories. They noted that quoted lead times are now about as short as they can get—six to eight weeks at certain mills in the case of spot orders of titanium 6/4 bar. In comparison, lead times were an estimated 12 to 14 weeks in late 2011 and early 2012.

With lead times so short, some service centers worry that their customers might go "straight to the mill" rather than going through the normal distributor supply chain. They also stress that the reduction reflects a growing overall pessimism about the next few months. "We’re not putting a lot of metal in inventory," one mill source said of the industry as a whole. "I don’t see that changing anytime soon."

Meanwhile, surcharges on other major alloys and products have also shown declines. The charge for titanium 6 aluminum/2 tin/4 zirconium/2 molybdenum, popular for aircraft engines, fell 3.2 percent on both bar and flat products, to $7.62 per pound.

The biggest fall was on commercially pure Grade 2 titanium, used primarily for industrial nonaerospace applications, which was off 10.3 percent to $5.06 per pound on bar and flat products and down 10.5 percent to $4.60 per pound on billet.

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