Ti scrap supply may face 'bullwhip' shortage

Aircraft makers Boeing and Airbus have warned of a preliminary tightening of titanium scrap supply once manufacturing begins to ramp up again.

Even as titanium demand in the aerospace sector is not expected to recover from the Covid recession for multiple years, representatives for Boeing and Airbus at the International Titanium Association's (ITA) virtual conference both pointed to a potential "bullwhip effect", a sharp shortage in titanium scrap, when demand for aircraft returns to normal.

"Titanium demand in 2020 and 2021 [will] be very low," Airbus vice president of Metallics Materials Laurent Jara said. The company expects a full recovery in titanium between 2023 and 2025.

Boeing's Supply Chain Strategy Director of Commodities Jeffrey Carpenter similarly said "scrap is plentiful right now, [nobody is] melting, so [nobody is] buying."

However, both representatives pointed to an eventual reversal in low demand at a time when raw materials may have become scarce.

"This will all snap back at some point and then when the melters turn back on in response to demand from aircraft production coming back up – scrap will quickly be gone and you'll see a spike in scrap pricing and sponge pricing just like we saw after [2008-2009]", said Carpenter.

Argus assessed titanium 6-4 aero grade turnings at 5-35¢/lb in early July 2009, with prices peaking at $2.95-3.05/lb some 14 months later.

Airbus also anticipates a bullwhip effect, as seen in the past, when manufacturers begin to ramp up production. Because the titanium industry is typically the first level of the supply chain, demand will often pick up 12-18 months before a similar pickup by Airbus, Jara continued.

Given the 2023-2025 estimate for a full recovery of the aerospace market and the 12-18 month lead time prior to a manufacturing ramp up, this implies as early as mid-2021 and as late as 2024 for titanium demand to begin improving.

"Demand for vacuum scrap will not return until the demand for titanium mill products has consistency and predictability," vice president of Titanium Products and Services for ELG Utica Alloys Nicholas Corby said on the matter at the ITA conference.

"Unfortunately, this will lead to vacuum [scrap] being sold into the [ferro-titanium] markets," he continued. "We'll see a shortage in scrap. Presumably, this will impact [ferro-titanium] production first, but vacuum melters the most."

Ferro-titanium demand has risen in recent weeks, while titanium alloy producers mostly remain out of the secondary market. Processors have noted fewer inflows of scrap in the past two months, but many have partially coupled aero-grade scrap with ferrous-grade scrap to sell to consumers for an even longer period.

Argus assessed dealer buying prices for ferro-titanium turnings (85pc Ti non-tin bearing) 30-35¢/lb on 15 October, the highest level since 6 February when prices were 33-38¢/lb.

Although the timeframe the two plane manufacturers discussed could be multiple years from now, tighter supply putting a floor beneath aero grade scrap prices has been a topic of conversation among market participants recently.

Further price hikes could have significant impact on input costs when they return to the market. Weak demand initially weighed on the volume of finished product produced, which market participants now expect to be followed by a tightening in the raw material supply chain.

By Nicholas Bell