Demand for metals from the aerospace industry is expected to hold firm in the long term, despite mounting financial risks globally amid the coronavirus outbreak and bearish metals market sentiment.
Despite short-term downside potential on most aerospace metals, medium to long-term demand is still expected to be firm, market participants said. Most orders for new planes are typically placed 5-10 years in advance and traders told Argus they are still receiving regular orders from super alloy producers relating to aerospace applications in both Europe and the US.
One trader said that last week was "the busiest week this year" as consumers in the aerospace sector tried to secure material, fearing logistics issues in the coming weeks. There is also a risk that operations in the US and Europe could be suspended during quarantine measures, which would reduce demand in the short term.
"Most of our super alloy customers are still smelting," one UK trader said, adding that "despite the catastrophe for the airlines. We assume most national carriers and large airlines will be bailed out, which will save large orders."
Some smaller airlines have already gone into administration, such as Flybe, the UK's largest domestic airline. International airlines have been left reeling from political measures to stop the coronavirus outbreak.
President Donald Trump barred all flights from Europe to the US, which reduced some airlines' traffic by up to 80pc. Many airlines cancelled flights to Spain and Italy and are expected to cancel flights to more destinations in the coming weeks.
Delta, the US carrier, has said it will reduce its annual investment by around $2bn. It is unclear whether it would cancel any new orders. Rolls Royce, which builds engines, and Airbus, along with other engineering firms, are expected to re-allocate resources to meet the UK Government's request for ventilators, which could impact usual operations.
The International Air Transport Association (Iata) said earlier this month that it expects the coronavirus outbreak to cause global passenger airlines to lose revenue of $63bn-113bn in 2020, depending on the spread of the disease. Iata chief executive Alexandre de Juniac estimated that if the coronavirus is similar to other recent outbreaks then it "should be reasonable… to see something between 3-6 months, in terms of the beginning of the crisis until the end".
Chinese metals sellers have returned to the market with relatively low prices to raise cash, which has weighed on prices in other regions. The Argus assessment for alloy grade cobalt fell to $16.50-17.40/lb du Rotterdam yesterday. Sellers of alloy grade metal said they had reduced offer prices to $16.50/lb. One deal was concluded at $16.35/lb for 5t of metal. Molybdenum ingot prices fell to $36-40/kg on falling molybdenum oxide prices and lower offers from Chinese sellers. Spot trading activity for rhenium and hafnium was limited as market participants waited to see if prices would fall.
When the Chinese market effectively shut down last month, many in Europe temporarily turned to scrap traders. But demand for rhenium, molybdenum and cobalt bearing scrap has fallen now Chinese sellers have returned.
