Titanium braces for coronavirus impact

There are turbulent times ahead for the titanium market as airlines ground entire fleets of planes and slash budgets for buying new aircraft in response to the coronavirus pandemic.

Aerospace — commercial and military airbodies and engines — continue to account for the bulk of titanium use, and the metal content on board new commercial planes has been rising with the increase in composite use.

A third of the world's fleet, or around 8,500 aircraft, are now grounded, and flight bookings for March and April declined by 50pc, and by 40pc for May, according to the International Air Transport Association (IATA).

The global passenger aviation industry could lose 44pc or $252bn of its revenue this year, IATA warned. Its analysis shows that airlines are expected to burn through $61bn of cash in the second quarter alone, posting a $39bn net loss.

Initial impact

The decline in air travel and cargo flights, the sharp fall in revenue and a reduced urgency to cut jet fuel costs amid lower oil prices are expected to cause airlines to delay buying new planes as they opt to extend the lifetimes of their legacy fleets.

The world's largest aviation trade event this year, the UK's Farnborough International Airshow — which was due to take place in July, and where major aircraft orders are normally signed — has been cancelled because of the coronavirus pandemic.

Some major negotiations on long-term titanium purchasing had already been delayed from late 2019 into the first quarter of 2020, and there have been reductions by some customers on volumes taken under framework contracts.

The industry is now waiting for information on aircraft orders and to see the impact on future customer purchasing, but the signs are already negative as factories closed to help slow the spread of the virus. Boeing's factories in Washington have been shut for two weeks after an employee died of the virus at its Everett assembly plant. In Russia, its major titanium supplier VSMPO, which had only recently ramped up production to 44,000t/year, closed this week for a deep clean and anti-virus measures.

Boeing, already hit by the grounding of its 737-Max for technical refits, has called for a $60bn rescue package for the US aviation industry. Its European rival Airbus has built up a €30bn ($32bn) reserve — half of this through a new credit facility — to help it continue building planes.

Technology firm and engine maker GE announced layoffs of 10pc of its staff in the US. In the UK Rolls-Royce closed its main aerospace manufacturing facilities for a week from 27 March.

Titanium is a market in which supply contracts of 10 years or longer are common. The industry took a decade after the 2008 financial crisis to consume surplus inventories.

Last year saw a turnaround. With titanium machining picking up pace again, the US raised concerns over securing long-term titanium supply for its critical industries, notably defence, while producers of the crude metal titanium sponge returned to ramping up production.

The grounding of the Boeing 737-Max at the end of 2019 initially gave engine makers breathing space to catch up with production backlogs, but the additional pressure from the coronavirus crisis now looks likely to have wider and longer-term consequences.

Pressure on prices

As countries extended lockdown measures and travel bans, the titanium market — already dominated by long-term buying — found pricing of material challenging as activity came to a halt.

Argus-assessed prices of CP titanium ingot were unchanged as the market reported a lack of short-term transactions, amid complete uncertainty and suppliers focused on fulfilling long-term orders.

Prices for main alloy Ti-6Al-4V ingot were assessed down by 10¢/kg at $14.90-15.50/kg in Europe on customer pressure and lower raw material costs, including the fall in prices of alloy elements. There were signs that $15/kg was becoming more of an average, compared with a $15-16/kg spread in early 2020.

Aerospace grade TG100 and comparable sponge prices were also assessed down 10¢/kg from the top end of the previous range for long-term contracts at $8.60-9.00/kg. But producers are likely to closely track developments throughout April, given a supply surplus particularly in Asia.

There are signs that suppliers keen to liquidate stock could succumb to pressure on prices. But price was not a determining factor, amid a fundamental pause in purchasing.

Aside from troubles specific to the aerospace sector, the fall in oil prices, which has prompted a reduction in output and exploration, also weighs on industrial demand for titanium used in oil drilling and chemical processing.

At the same time, a reduction in titanium machining is tightening scrap supply and pushing up prices of titanium scrap in the international markets. So far, competitive cost of scrap has contributed to lower prices of sponge, and both upstream-integrated and custom smelters have switched to higher scrap content in ingot and billet. This could gradually shift if the current trend continues in the scrap market.

Furthermore, the outermost tier of the titanium world — the ferro-titanium industry, which recycles lower-grade scrap into feedstock for steel manufacture — felt the immediate impact and has seen feedstock costs starting to rise.

Among generally falling ferro-alloys markets, ferro-titanium is bucking the trend, albeit from an already historically low sub-$4/kg price point, on reduced output and high feedstock costs. But titanium consumption in steel is suffering as its end-market because of the downturn in the automotive sector.

So, for now, the global titanium industry is bracing for developments in the coming weeks.

By Polina Sparks