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Titanium sponge suppliers’ outlook dims

Keywords: Tags  titanium, sponge, International Titanium Association, Toho Titanium, Iluka Resources, Frank Haflich

LOS ANGELES — Titanium producers preparing to meet with their Japanese sponge suppliers to discuss next year’s requirements face a raw material environment that is significantly different than the one confronted in October 2011, observers said.

"Last year, we were all worried about buying forward," according to one buyer who was planning to attend the upcoming annual conference of the International Titanium Association in Atlanta. "Today, we’re trying to figure out how much (buying) we can safely postpone."

At this time in 2011, the cost of feedstock purchased by Japanese sponge producers was soaring. Perth, Australia-based Iluka Resources Ltd. was in the process of boosting rutile prices by 70 to 90 percent in both the second half of 2011 and first half of 2012. This translated into sponge price hikes estimated at 25 to 35 percent to domestic titanium melters this year.

Reflecting these higher prices, the average value of U.S. imports of Japanese sponge was $14.92 per kilogram for the three months ended in July, up from an average $12.61 per kg during the same period last year, according to calculations by the U.S. Geological Survey (USGS), based on data from the Commerce Department and International Trade Commission.

But conditions are changing, and few observers expect anything like the increases of late 2011 and 2012 to be repeated next year. Iluka in August said it was deferring a planned reactivation of its third synthetic rutile kiln and "moderating" run rates at its two operating kilns due primarily to weak titanium dioxide demand in this year’s second half (, Aug. 30).

Japan’s sponge producers are also reacting to falling global demand. Last month, one of the country’s two major sponge producers, Toho Titanium Co. Ltd,, lowered by 60 percent its earnings forecast for the fiscal first half ending March 31, 2013. It cited a decline in the nonaerospace industrial titanium market due to a "stagnant world economy" and "inventory adjustment" in the aerospace sector, which has led to lower-than-anticipated sponge and ingot sales.

"Under such a situation, we plan to reduce the production rate of titanium sponge" at Toho’s Chigasaki, Japan, plant, according to the company.

U.S. imports of Japanese sponge in the first seven months of this year rose nearly 25 percent year on year to 11,038 tonnes, peaking in June at 2,329 tonnes, according to the USGS.

Moreover, scrap prices, which in contrast to sponge tags were falling at this time last year, against general expectations have continued to weaken through 2012. This decline, presumably due in part to growing scrap generation from rising commercial aircraft build rates, has encouraged some melters to put more secondary material and less sponge into their furnaces when practical. The estimated dealer buying price for unprocessed bulk weldables has declined over the past year to $3 or less from slightly more than $5 per pound, according to industry sources.

Still, some observers warn that history has shown that it won’t take much to push sentiment from one extreme to another, maintaining this could occur with the first indication that scrap prices are turning around and mill product delivery times are stretching.

"When lead times go out and scrap prices go up, people could panic," one industry executive said, a view that most others aren’t quite yet ready to embrace.

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