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Beneath the turbulence, there’s tons of thrust


Flying is not as much fun as it used to be. From the ever-decreasing size of airlines' complimentary packets of peanuts to the introduction of eye-popping fuel surcharges, much of the sense of excitement and adventure seems to have gone from the whole experience.

After a tough couple of years, the titanium industry could be forgiven for feeling a similar sense of let-down. While airline passengers have a choice of things to blame for their current woes—from security restrictions to rising oil prices—titanium suppliers have a clear scapegoat for sluggish prices and concerns over excess capacity Boeing.

That may seem tough on the giant aircraft manufacturer, which has had plenty of problems of its own in recent years. But the repeated delays to the company's 787 Dreamliner program, as well as pushbacks to the schedule for Airbus' giant A380 airliner, are the reason that titanium pricing remains in the doldrums while inventory levels are steadily rising. A single Dreamliner requires around 250,000 pounds of titanium, so when Boeing cuts its projections for the number of planes it will ship next year by over three-quarters, as it has done, that's a tough blow for suppliers. It's not surprising that titanium prices have fallen sharply since 2006, although optimists will point out that current prices of around $13 a pound for ingot are still far above the $5-a-pound levels seen in previous downturns.

Sellers of titanium, who not so long ago were commanding prices of $30 a pound, might disagree, but it looks like the optimists are right. The longer-term outlook for aerospace metals demand is good. Analysts estimate that Boeing, Airbus and smaller aircraft makers have an order backlog of as many as 6,000 planes, and there is little sign so far that the airlines' current woes have led to a cutback in orders. The credit crunch, record jet fuel prices and the slowing global economy right now are problems for the airlines, not the manufacturers. For aircraft producers to have a guaranteed order book of up to six years ahead in today's economic climate is, in the words of one analyst, "a very pleasant situation."

That's good news for suppliers. Aerospace metals is about more than just titanium Approximately 87 million pounds of nickel alloys were used last year in jet engines built by the likes of Rolls-Royce and General Electric. Engine construction will rise by more than 10 percent to around 9,000 units this year (many of which will go into business jets, which are expanding their market share despite—or, more likely, because of—the problems at commercial airlines).

The future even looks bright for aluminum, which has seen its use in aircraft bodies come under attack from the rise of lightweight carbon fiber composites. Aluminum plate demand from the aerospace sector seems likely to increase sharply in the next few years, while producers are moving quickly to develop newer, lighter products such as aluminum-lithium alloys that should help protect their market share.

So if the aerospace sector can ride out its near-term problems, it looks set to remain a steady source of growth for metals suppliers for years to come. It may not be much of a consolation the next time you're stuck in a three-hour delay at O'Hare, but the future of the industry is looking good.

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