Aerospace ramp-up could squeeze titanium scrap further

Aero-grade titanium scrap buyers are bracing for a possible jump in US prices, with the March-April ferro-titanium-led rally losing steam, but activity in the aerospace industry poised intensify in the coming months.

Since the start of the pandemic - when aerospace demand fell sharply and production of Boeing's 737 Max was already under pressure - market participants have warned of an upswing in prices for titanium scrap once activity resumes.

Market participants said that as downstream demand tapers off, reduced scrap generation would eat into feedstock availability and raise costs for titanium mills and aerospace manufacturers.

The titanium aerospace market is particularly susceptible to this trend, given high scrap generation rates relative to the final part produced.

In recent years, aero-grade scrap prices have been driven by the chief alternative market for scrap, ferro-titanium production. As demand for the alloy rose, aero-grade scrap buyers had to lift prices for scrap grades with more stringent specifications in tandem.

At the same time, titanium alloy producers cut production capacity as air traffic plummeted and aircraft manufacturers scaled back production, especially in regards to Boeing, which was attempting to re-certify the 737 Max with the Federal Aviation Administration.

Despite the downturn in aerospace demand, aero-grade 6Al 4V turnings prices rose in line with higher ferro-titanium prices heading into 2021, as US steel mills ramped back up, leading to greater alloy consumption. This rise in prices was supported when Russia, a key supplier of titanium products, invaded Ukraine in late February - taking Russian supplies largely off the table.

Argusassessed aero-quality 6Al 4V turnings at $3.00-3.60/lb del US dealer/processor on 19 May, little changed since late March, after rising from $1.80-2.10/lb before the conflict.

But as prices for ferro-titanium and mixed titanium turnings retreat from recent highs, aero-grade scrap has held onto gains.

Market participants attribute this to the long-awaited recovery of aerospace demand and a heavier reliance on US-based producers,while the viability of Russian-based titanium producer VSMPO as a supplier is questionable in light of the Ukraine conflict.

Demand is still below pre-pandemic levels, according to sources, but so is scrap supply following years of low generation. Additionally, supply chain bottlenecks have caused delays in titanium sponge shipments as US producers are largely reliant on trans-Pacific cargoes from Japan.

Titanium sponge imports have rebounded, but from low levels. In the first quarter, the US imported 6,326t of titanium sponge, roughly triple levels from a year earlier and almost entirely from Japan, according to US Department of Commerce data.

The cost of magnesium, used to reduce titanium tetrachloride into sponge, also rose sharply because of the Ukraine conflict. Russia had its permanent normal trade relations status removed by the US, with Russian magnesium now subject to 100pc duty.

Finished products, like titanium ingot, have risen in line with higher input costs. Offers as high as $12.00/lb have been floated in the spot market for 6Al4V titanium ingot and prices are now up by 43pc on the year.

Counterbalancing these increases is the fact Boeing has built up a large inventory of undelivered planes in the US. It has 320 of the 737 Max aircraft in inventory and 115 of the 787 aircraft. The B787 family still awaits recertification.

On the other hand, some say this helps explain why titanium prices - specifically for aero-grade titanium scrap - are only in the early stages of rallying.

As 737 Max production rates rise - and assuming 787 production ramps up following recertification - scrap prices could climb even higher if demand outpaces feedstock supply.

By Zach Schumacher

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