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Double trouble for titanium market

Keywords: Tags  titanium sponge, titanium sponge capacity, Roskill Information Services Ltd., Japan, Kazakhstan, Russia, Allegheny Technologies Inc., Richard J. Harshman titanium producers

Although most factors in the titanium market have producers thinking locally, the supply and demand curve is still forcing many to act globally as the twin realities of overcapacity and oversupply exert their influence.

Global titanium sponge capacity jumped to 241,000 tonnes in 2012, up 94.4 percent from 124,000 tonnes in 2009, resulting in what London-based consultancy Roskill Information Services Ltd. estimates is a 20,000-tonne surplus.

The global market is expected to work off surplus capacity this year, Roskill said, forecasting that demand for titanium mill products will grow at an annual rate of 6 percent to 140,000 tonnes by 2015, requiring up to 200,000 tonnes of sponge.

The current and forecast supply of aerospace sponge--produced chiefly in Japan, Kazakhstan, Russia and the United States--is “more than adequate to meet demand” since there’s “some unused capacity overhanging the market,” Roskill said.

In just one example of a response to overcapacity, Pittsburgh-based Allegheny Technologies Inc. (ATI) is running its Rowley, Utah, titanium sponge operation at just 60 percent of capacity “due to reduced global demand for industrial-grade” titanium, chairman, president and chief executive officer Richard J. Harshman said.

During a quarterly earnings conference call at the end of July, he noted that industry overcapacity due to a lagging global market for nonaerospace industrial titanium has created short-term pressure on spot transaction business that “magnifies” disruptions due to ongoing inventory corrections.

After falling in 2009, global supply of titanium sponge rose by an average of 26.5 percent per year from 2010 to 2012, creating a worldwide surplus, Roskill said in its Market Outlook to 2018 report. Output is expected to fall in 2013 because of growing inventories and slowing demand growth. World titanium sponge production capacity is in excess of both demand and output.

Most of this surplus is for industrial-grade material in China, although capacity for aerospace-grade sponge, mainly in Japan, Kazakhstan, Russia and the United States, is more than adequate to meet demand. Nevertheless, new capacity is likely to come on-stream in China, Ukraine and the United States, and the supply of sponge is forecast to grow 5 percent per year to 2018.

However, titanium sponge prices will remain “relatively subdued” over the next two years despite growing demand from China, Roskill analysts said in the market outlook.

The consultancy noted that U.S. imports account for more than half of global trade in sponge. U.S. titanium producers also “rely heavily” on supplies from Japan and Kazakhstan, although the latter country’s role is declining as it increasingly processes its own sponge.

Titanium sold for industrial applications is more “price sensitive” than aerospace, since industrial specifications aren’t as rigorous as in aerospace and there’s more competition in the industrial market from other metals, Roskill noted. This price sensitivity is “more apparent” in North America and Europe than in China, where titanium is often chosen over less-costly materials and now accounts for half of industrial demand,

After stalling in 2012, global demand for titanium mill products will resume growth this year and expand by 4 to 5 percent annually through 2018, although the titanium sponge surplus will continue, according to Roskill.

Roskill noted that while demand for mill products--based on apparent consumption--reached a record 165,000 tonnes (363.8 million pounds) in 2011 after recovering rapidly from a sharp downturn in 2008, growth “stuttered” in 2012, barely budging from the previous year’s level.

Roskill told AMM that world production of mill products moved to about 152,500 tonnes (336.2 million pounds) in 2012, up 3 percent from 148,000 tonnes (326.3 million pounds) the previous year, with China accounting for about 38 percent of international mill product output.

Although titanium is used in a variety of applications, Roskill said that aerospace remains the single-largest market at 60,000 tonnes (132.3 million pounds) in aircraft buy-weight of mill products in 2012. Growth in aerospace has been aided by the increasing use of carbon-fiber composites, which are “compatible with titanium but not with aluminum,” in the latest generation of airliners, such as Chicago-based Boeing Co.’s 787 Dreamliner and France-based Airbus SAS’ A380 and A350, which helps assure titanium’s future role, Roskill said.

Russia’s VSMPO-Avisma Corp., the world’s largest aerospace mill product source, supplied more than 20,000 tonnes (44.1 million pounds) last year, it added.

In an example of a different response to circumstances, while titanium capacity utilization at Pittsburgh-based RTI International Metals Inc. has dropped sharply from earlier this year, it’s not all bad news for the producer.

Before RTI’s new electron-beam (EB) furnace came on-stream, “we were almost at full capacity,” vice chairwoman, president and chief executive officer Dawne S. Hickton noted during an August earnings conference call. “Now that we’re on, clearly we have more capacity,” she said, referring to the new furnace at the company’s RTI Alloys unit in Canton, Ohio.

Hickton estimated RTI’s overall capacity utilization at 60 to 70 percent, including the new furnace, pointing out that RTI had produced 1 million pounds of material in the EB furnace as of the end of June out of an annual capacity of 8 million pounds.

Internal consumption of the furnace’s output is due to begin in the current quarter, “and correspondingly we expect to see improving operational performance comparable to the first half of 2013,” Hickton said.

The company has mill product capacity of 22 million to 23 million pounds per year at its Niles, Ohio, facility, where it houses its vacuum-arc remelt operation; and 14 million pounds per year at its $135-million plant in Martinsville, Va., where the company began commercial production at its new forging cell last year. RTI’s annual capacity is now estimated at about 25.5 million pounds.

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