Feed shortage hampers world Ti sponge ramp up

Titanium sponge producers are struggling to ramp up capacity to meet growing demand, fighting a losing battle for titanium dioxide (TiO2) feedstock with the larger pigments industry, delegates at the Titanium Europe 2019 conference in Vienna heard.

Most titanium sponge producers are operating below capacity and need to secure stable support of feedstock at a reasonable price to increase production.

This is not likely to happen while demand from the pigments industry is also growing, Belgium-based Specialty Metals managing director and Kazakhstan's UKTMP chairman Sylvain Gehler told delegates at the International Titanium Association's annual meeting in Europe.

Titanium sponge is the crude form of metal that needs to be melted into ingot and undergo further processing into mill products. Sponge producers form the backbone of the titanium metal industry, which serves aerospace and large industrial markets.

Metal demand is rising as leading aircraft manufacturers, Boeing and Airbus, have nine-year backlogs of orders between them that they are racing to meet. Industrial demand is also growing, driven by chemical, oil and gas and power generation industries in Asia. Larger orders for shipbuilding in China and South Korea have also bolstered demand for industrial grade sponge and titanium ingot this year.

Metal competes with larger pigments industry

But the sponge market is competing with the pigments industry, which consumes around 89-90pc of the TiO2 feedstock material, while sponge market demand is only 5pc.

This is reflected by the competing industries' buying power and ability to influence feedstock prices, Australian research firm TZMI analyst Cameron Perks told the conference.

Perks expects demand for titanium feedstocks to rise to more than 500,000t in 2023 from less than 400,000t in 2019.

Supply is also expected to tighten after Rio Tinto's titanium slag production in Madagascar comes off stream in 2020, but production from new sources might be enough to offset this fall.

There has been destocking in raw materials in the pigments industry since the fourth quarter of 2018, but rising demand projected for the second half of 2019 could trigger inventory replacement. The cost of rutile and synthetic rutile, both dioxide feedstocks, has already increased by 20-30pc so far this year, Specialty Metals' Gehler said.

Kazakhstan leads 2019 sponge production rise

To meet this rising demand, global titanium production is rising at the fastest rate in the past six years.

Global titanium sponge output increased to 202,453t in 2018 from 196,334t in 2017, Gehler estimates, and is set to rise further to 216,000t in 2019. Most of the increase — around 7,500t —is set to come from producers in former CIS countries such as UKTMP in Kazakhstan, because the largest producer, Russia's VSMPO-AVISMA, is already utilising all its capacity.

Sponge plants in Russia, Kazakhstan and Ukraine produced 67,500t of sponge in 2018, up from 53,600t the previous year. Between them accounted for 85pc of the increase in global production last year, with a 45pc increase in UKTMP's production and a 25pc projected increase at ZTMP in Ukraine for 2019.

ZTMP is looking to increase sponge output to around 800 t/month from its current rate of 650 t/month, the firm said. But this requires long-term investment in its ilmenite mining to reduce reliance of third party feedstock. It competes with other CIS producers for ilmenite from the legacy Volnogorsk mine in Ukraine, where resources are depleting. The Ukrainian producer needs to raise funds to open up the Matronovsky deposit, which it hopes to do in the next three years, but operating under capacity means its will take longer to generate the cashflow needed for the new mine.

China biggest but Japan leads Asian increase

China is now the largest producer of titanium sponge and is on course to reach 75,000t in 2019, a slight increase on 2018.

But Japan will show the biggest increase in Asia this year — to 55,000t from 50,000t in 2018, Gehler forecasts.

Chinese production tends to serve domestic demand. And imports increased to 4,918t last year from 3,844t in 2017 — a consequence of higher demand in Chinese chemical and aerospace industries that could not be met by domestic supply. Japanese exports exceeded production by 5,520t last year as Japanese producers Toho Titanium and Osaka Titanium chose to decrease inventory rather than increase output.

Japanese exports traditionally target the US — the world's largest importer. Output from Timet — the only domestic US sponge producer — accounts for two-thirds of US consumption. The US' own production is estimated to be growing at 1,000 t/yr to a projected 11,000t in 2019 from 10,000t in 2018 and 9,000t in 2017. But US titanium sponge stocks have shrunk from a peak of 25,100t at the end of 2016 to 10,700t by the third quarter of 2018, according to the US Geological Survey. Timet is now seeking support from the US government to ensure domestic capability, against continued reliance on imports from Japan.

Japan accounted for 92.3pc of US imports last year, up from 81.3pc in 2017, while Kazakhstan also increased its share to 7.4pc from 1.2pc in 2017. But Russia and Ukraine had a combined share of only 0.27pc in 2018.

In Europe and Asia — excluding China — stocks also fell from an estimated peak of 20,000t in 2016 to 7,000t in 2017 and were estimated at just 4,000t at the end of the third quarter of 2018. But production is constrained by raw material tightness and continues to lag behind capacity.

Capacity swell outpaces production

China holds the largest excess of sponge capacity following recent expansions at producers' Xinjiang New Material and Chaoyang Baisheng.

The country's production capacity increased by 15pc year on year to 107,000 t/yr by the end of 2018 against production in the same year of 74,953t, according to China Titanium Association.

Global annual sponge capacity stood at 269,300t in 2018 — 107,000t in China, 65,200t in Japan, 46,500t in Russia, 26,000t in Kazakhstan and 12,000t in Ukraine. Production averaged 75pc of capacity globally but this average was brought down by idled capacity in Japan and Ukraine and by underused capacity China. In Russia, capacity utilisation is running at more than 90pc, and the global average is forecast to rise to 80pc capacity utilisation, Gehler said.

Saudi Arabia is set to become a titanium sponge producer in June once the first line of its delayed 15,600t plant, a joint venture between AMIC — a Cristal and Tasnee joint venture — and Japan's Toho Titanium starts operations at the Yanbu industrial complex. But the plant is only expected to ramp up to half of its production capacity in the foreseeable future, Argus understands, and will supply industrial and steelmaking grade titanium sponge. It will supplement but not replace Toho's capacity in Japan, the Japanese producer said.