Allegheny Technologies Inc. (ATI) is paying the price for
running its Rowley, Utah, titanium sponge plant at a higher
rate than might be expected during a period of low-priced
Operating earnings by
ATIs High Performance Metals segment were reduced in part
"by our strategic decision to use ATI-produced titanium sponge
rather than titanium scrap" to make certain products, chairman,
president and chief executive officer Richard J. Harshman said
during the companys third-quarter earnings conference
Harshman said that
Rowley has begun the qualification process to produce
premium-quality sponge, which is used in rotating parts for
aircraft engines, a critical milestone for a sponge plant.
"Until the completion
of the (premium quality) process, we will continue to assess
the optimal production rates at Rowley based on market demand
for standard-quality titanium products," Harshman said. ATI
expects "full" premium-quality qualification for Rowleys
process within 18 to 24 months.
Rowley, the newest
U.S. greenfield titanium sponge operation, has an annual
capacity of 24 million pounds. ATI said earlier this year that
the Utah facility was operating at about 60 percent of its
annual capacity, but no rate has been mentioned since (
amm.com, May 1).
use of sponge instead of "lower-cost titanium scrap," an ATI
spokesman said there had been an "abnormal" decoupling of the
normal relationship between prices of the two raw materials.
"This disconnect between the price of sponge and the price of
scrap is always temporary," he said, stressing the importance
of ATI producing the highest-quality sponge as aircraft build
rates move up. "We need to go forward with (premium-quality)
qualification to be ready for the big ramp, particularly on
Rowley, which started
up in late 2009, became qualified for standard
aerospace-quality sponge last year (
amm.com, March 14, 2012).
Although furnace mix
can vary greatly depending on the economics of the competing
raw materials, the specific melting process used and the
particular titanium alloy being produced, a general rule of
thumb in the industry is that it can swing 70-to-30
sponge-to-scrapor the reversebased on the
competitive economics of each material.
The decoupling of
scrap and sponge prices first became evident about two years
ago, when sponge prices from Japanese producers, pressured by
escalating costs of rutile feedstock, began shooting up (
amm.com, Oct. 4, 2011) while scrap tags were
declining from midyear highs. Although market sources note that
this rise in sponge tags has since stalled, and may even be
reversing, scrap has continued eroding to the point where
theres general agreement that the economics for melters
today are squarely on the side of scrap.
titanium sources said, had ATI not chosen to continue running
Rowley at its current rate and had increased its scrap
purchases instead, it might have helped push scrap prices up
and left the sponge-scrap relationship more in balance.