Titanium 2021: A year of scrap shortages?

After the decimation of aerospace production from a clampdown on international travel, titanium scrap availability declined by the end of 2020, raising questions over supply chain when demand begins to recover. But early signs indicate that supply pressures could ease.

A shortage of titanium turnings and, to a lesser extent, solids began as a result of a collapse in aerospace manufacturing and lifted prices across the titanium complex in recent weeks.

European prices for titanium turnings rose to $1.15-1.25/lb on 3 December, the highest price since May 2015, while US prices for 85pc non-tin bearing turnings increased to over a five-year high of 55-65c/lb.

With steel mills starting to recover, demand outstripped supply. This knock-on effect lifted ferro-titanium prices to 16-month highs. European Western grade alloy prices rose to $5.30-5.60/kg in Rotterdam on 3 December and US prices increased to $2.35-2.45/lb fob North America warehouse.

UK and European ferro-titanium producers have cut capacity to 60-75pc because of the acute scrap shortage, with the threat of further reductions in 2021. Although consumers try to secure supply on the spot market and under long-term contracts, material is hard to come by, participants said. An end user launched a tender for 864t, which is yet to be completely filled.

Some steel mills are considering switching to titanium sponge. A trader sold TG100 grade sponge to a customer in the steel industry at $8.50/lb. Prices for TG-Tv grade sponge jumped by 14pc over a month to $7.00-7.55/kg in December.

Sponge producers may use this as an outlet for lost aerospace sales. Japan's Toho Titanium sponge and titanium ingot sales halved on the year during April-September. Rising sponge demand may raise ingot and slab prices in the near-term.

Ryanair order boosts aerospace sentiment

The impact of scrap shortage can be alleviated by restoring aerospace production to near pre-pandemic levels and news of viable vaccines has boosted hopes for a recovery.

Ryanair, the Irish airline, ordered 75 of Boeing's revamped 737 Max in December, throwing down the gauntlet to other airlines to invest in aircraft. Chief executive Michael O'Leary said Ryanair got a "modest discount", which could indicate a buying opportunity to other airlines.

Ryanair's order is also a vote of confidence in the troubled 737 Max, which was grounded after two crashes.

Furthermore, Airbus' monthly jet orders rose to almost pre-pandemic levels in October, with 72 aircraft deliveries, down by 6.5pc on the 77 it sold in October 2019. But its year-to-date order book was still down by 36pc from January-October 2019.

But a quick return to pre-pandemic production levels is unlikely, as airlines, leasing companies and manufacturers work through high inventories. A vaccine mandate on airlines may delay a recovery in flying hours too.

Defence stimulus to boost demand

Defence industry demand remains promising as the two largest members of NATO — the UK and the US — plan to increase defence spending in 2021.

The UK has committed an extra £16.5bn ($21.9bn) for shipbuilding, space, cyber and research over the next four years. Shipbuilding uses CP grade ingots and titanium bearing steel grades. The investment will fund the Royal Air Force's Tempest project, a new jet aircraft. The engine and body will likely use titanium and other aerospace metals such as chromium, hafnium, rhenium and tantalum.

The US congress is expected to pass the new National Defence Authorization Act before the end of the year, which will expand the US defence budget by $20bn on the year to $740bn in 2021. Although outgoing president Donald Trump has threatened to veto the bill, it is expected to pass as it has every year since 1961.

In response, some companies have pivoted towards this sector, with Allegheny Technologies Incorporated (ATI) outlining plans to target 70pc aerospace and defence in its revenue mix, up from 52pc in 2019. ATI produces nickel-based alloys, titanium and titanium alloys, and specialty steels.

Prices increased slightly in other defence-linked metals this week. Chromium prices rose to $5,750-6,150/t on 3 December, up from $5,600-6,000/t on 1 December, which one trader linked to interest from US alloy producers.

By Thomas Kavanagh