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Oversupply weighs on industrial titanium: ATI

Keywords: Tags  ATI, Allegheny Technologies, titanium, Richard Harshman, Yanbu 3, desalination project, commercially pure titanium, Frank Haflich

LOS ANGELES — Allegheny Technologies Inc. (ATI) is looking to benefit from higher shipments of nonaerospace, industrial titanium this year, but might nevertheless reduce its sponge output rate as it moves to avoid surplus inventory.

Richard Harshman, chairman, president and chief executive officer of the Pittsburgh-based specialty metals producer, noted last week during a quarterly investors’ conference call that ATI’s Rowley, Utah, sponge operation is at about 60 to 65 percent of its 24-million-pound-per-year capacity.

However, with overall supply adequate, ATI might lower that utilization rate "a little bit" further so that "we don’t just continue to build sponge," according to a transcript of the call. Because Rowley’s sponge can presently be used in the aerospace industry only for "standard-grade applications and not for rotating material" for engines, its inventory is being managed to prevent oversupply, he said.

Shipments of flat-rolled commercially pure (CP) titanium for Saudi Arabia’s Yanbu 3 desalination project will "favorably impact" ATI’s second- and third-quarter performance, Harshman noted. ATI’s Moon Township, Pa.-based Uniti LLC joint venture with Russia’s VSMPO-Avisma Corp. will supply skelp for CP titanium tubing used at Yanbu, its first major desalination job since it supplied another large Saudi project in 2011.

Uniti has also received additional tube skelp orders for other smaller projects and is quoting for several other power plant projects, Harshman said.

However, the titanium industry has installed substantial capacity in recent years to supply the commercial aircraft market, and that is now "quite frankly looking for uses," putting pressure on industrial titanium prices, he added.

"So while the projects are good and attractive and provide volume and margin expansion opportunities, the pricing is aggressive," he said of industrial titanium.

Rowley, which is producing sponge for both the standard aerospace alloy and industrial markets, continues to work toward achieving premium-quality standing for the processes that would qualify its sponge for rotor-grade components. This process should begin in the third quarter of 2013 and typically takes 18 to 24 months, Harshman said.

ATI—whose Allvac Inc. unit in Monroe, N.C., is one of the major U.S. producers of titanium long products for jet engine rotating parts—has been melting and processing premium-quality sponge from outside sources for years, he noted.

Chicago-based aircraft builder Boeing Co. continues to buy "the minimum contract requirement" of titanium from its suppliers, Harshman said.

ATI, along with Titanium Metals Corp.’s Portland, Ore.-based Precision Castparts Corp. subsidiary and VSMPO, is one of three suppliers of titanium for Boeing’s commercial aircraft operations under long-term contract agreements, he said, emphasizing that while "only Boeing" knows how much excess titanium inventory it is still holding, each passing quarter brings it closer to achieving a "level of stability."

Harshman also said there appears to be "some level of a bottom forming" on titanium scrap, as well as nickel and nickel scrap. If that bottom is reached in the second quarter, this would "remove a headwind" for the second half of the year, he added.

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