Titanium Scrap Market Update

There was some concern about a mild slowdown in business, but the hope was the scrap market would hold steady. However, eight months later, measured by all yardsticks, the titanium scrap market has become sluggish with declining prices and supply outweighing tepid demand.

In recent years, industry sources have estimated that the size of the global titanium scrap market is 80,000 mt for higher-quality aerospace titanium scrap, plus an additional 80,000 mt for lower-quality, mixed ferrotitanium scrap. According to statistics from the U.S. Geological Survey (Reston, Va.), titanium scrap receipts in the first three quarters of 2015 registered 48,400 mt compared with 36,700 mt in the first three quarters of 2014. End-of-period scrap stocks for the third quarter of 2015 came to 19,900 mt, while scrap stocks totaled 14,400 mt in the comparable 2014 period. Scrap consumption in the first three quarter of 2015 totaled 38,900 mt, while consumption in the same period of the previous year was 31,900 mt.

Edward Newman, senior vice president of United Alloys and Metals (Columbus, Ohio), said demand for titanium scrap for industrial applications has taken a major downturn in the last 12 months “due to reduced demand for titanium from the energy market along with a lack of large chemical and desalination projects. Aerospace scrap demand held steady through most of 2015, but started to slow down in the second half of 2015 and this trend has continued in 2016.”

Newman explained that several factors are involved in this trend. “Mill demand has slowed due to a backup of material at the mills resulting in ongoing scrap inventory adjustments at a number of major producers. Second, sponge capacity is more than adequate, which negatively affects both scrap demand and pricing. On the supply side, ongoing high levels of aerospace production continue to generate large volumes of titanium scrap.”

Market analyst Chris Olin, president and founder of Olin Research Group (Avon, Ohio), speaking at TITANIUM 2015, concurred with Newman on the slack business conditions in the industrial and oil and gas sectors, which have offset generally positive activity in the commercial aerospace industry. “We’ve been seeing weakness in the industrial categories—everything non-aerospace,” Olin said. As a result, distributors have been hedging away from the industrial sectors and adjusting their titanium inventory levels accordingly, he said. At the time, Olin’s remarks were aimed at overall business conditions in the titanium industry, but his insights do relate to the current scrap market trends.

While all sources interviewed for this article concurred that the titanium scrap market has entered a lackluster period, only two executives, other than Newman, took a stab at explaining the “why” behind current business environment. (They both requested anonymity as a condition to share their feedback.) The first source, representing an integrated melter, pointed to the “structural changes” that have taken place in the titanium industry during the last three years. In essence, the structural changes reflect the major merger and consolidation activity, especially the Alcoa purchase of RTI and Berkshire Hathaway’s strategic acquisition of Precision Castparts Corp.

An extended inventory evaluation period typically takes place in the wake of major acquisitions in a market, this source stated. This evaluation process has contributed to the slowdown in the scrap market. “A company has to tally the inventory on the books. There is a desire for companies to right-size inventories. We’ve seen an increase in melting volume, but scrap isn’t necessarily taking a bigger piece of that melting volume.”

This executive said that the overall evaluation process also takes into account other important factors, such as projected, near-term market conditions, international currency trends, and assessing the value of sponge contracts.

“The strong U.S. dollar has enabled sponge producers to reduce their prices without damaging their profitability,” he said. These low sponge prices, combined with low commodity prices for vanadium, have combined to create a situation where sponge and alloy formulations are more competitive and put downward pressure on the scrap formulation alternative. The presence of the vanadium alloy typically was an inherent advantage for scrap distributors.

In addition, there are different degrees of scrap price “softness,” depending on the particular category of titanium and the market it serves. For example, commercially pure titanium scrap has seen a moderate drop in price, much like nickel and nickel-alloy scrap, for industrial applications that utilize superalloys. By contrast, pricing for ferrotitanium scrap is extremely weak, due to abundant supply but slack demand, particularly from the steel industry.

The second executive, who works at a titanium scrap recycling company, also cited structural changes in the titanium industry in the wake of the recent mega mergers. “Maybe these companies have excessive inventory positions,” he wondered. “As new players, maybe they think they have too much inventory. Eventually, they’ll get their inventories in line with what they want to hold, but what then? How much scrap will they buy in the market?” He also pondered the impact of expanding closed-loop recycling systems mandated by aerospace original equipment manufacturers. “This scrap used to enter the marketplace, but no more,” he pointed out.

The titanium scrap market showed signs of softening in the second half of 2015 and that trend has continued through the midway point of 2016, this executive observed. How much longer will scrap prices decline? He offered no predictions, but only said that customers eventually will return to buying scrap. As usual, the scrap purchasing activity will be steered by sponge prices and industry demand. “Only the melters known the answers,” he said. “When the scrap market turns, it turns, and demand will move up rapidly.”

Even though there is a period of adjustment with regard to “structural changes” in the titanium industry, as described by these two sources, the consensus is that, for the long term, the mega deals struck by Alcoa and Berkshire Hathaway are positive developments, injecting confidence and capital into the titanium supply chain, especially in the key aerospace sector.

Other industry executives weighed in to give their perspective on scrap market conditions. Matt Schmink, vice president of sales for Global Titanium Inc. (Detroit), confirmed that the price for ferrotitanium scrap has been declining steadily since mid-2015, and that there is plenty of scrap available on the open market. He explained that the steel industry, in recent years, has been using less ferrotitanium for automotive applications, as car builders have been focused on designs that call for lighter-weight, thinner-gauge, higher-strength steels to reduce overall vehicle weight and boost fuel consumption. Ferrotitanium scrap isn’t part of that mix, he said.

Even though he currently sees nothing on the horizon to shift this downward trend, Schmink is confident that new applications are likely to emerge to boost consumption for ferrotitanium scrap. When used in the production of stamped steel parts, the addition of ferrotitanium adds ductility, which extends the life of the stamping presses as well as facilitates deeper-draw parts. “At the end of the day, markets always find a way,” he said.

Vasily Semeniuta, president of Grandis Titanium Co. (Rancho Santa Margarita, Calif.), said the titanium scrap market currently is “somewhat out of balance,” with prices down and more supply than demand. He also noted that there is extensive sponge production capacity, especially in China, which is a factor in the titanium units market’s balance. “The mills are simply buying less scrap these days,” he said.

Daniel Buwalda, director of aerospace operations for Keywell Metals (Monroe, N.C.), observed that, since the third quarter of 2015, there has been a slowdown in the sale of titanium and high-temperature alloys scrap. According to Buwalda, melters and original equipment manufacturers have “pulled back” their purchases of scrap. “There’s a lot of material in the supply chain,” he said. “Business for high-temperature alloys was a bit better in the first quarter of this year.”

Regarding end-use consumers of scrap, Buwalda said the aerospace market remains solid “but is a bit softer than last year,” while the industrial market “is extremely soft.” He said international industrial markets, such as chemical processing, desalination and heat exchangers, have been slumping, in terms of demand for titanium scrap. “There are not a lot of large builds going on right now,” he observed.

There have been technology upgrades in recent years, with regard to the processing of titanium scrap—namely the operations of cold hearth melting scrap processing. Newman, during a presentation at TITANIUM 2015, offered a review of titanium scrap processing trends. He explained that for cold hearth melting scrap processing, processed turnings can now be used without X-ray monitoring due to cold hearth’s ability to remove HDI’s. This advantage, he said, substantially increases the volume of titanium turnings returning to the titanium industry. He estimated that there are now 14 cold hearth furnaces operating in the United States.

Regarding the vacuum arc remelting (VAR) method for producing ingots, the advantages for this process are that scrap can be included in raw material mix, but VAR melting does not remove high-density inclusions (HDIs) contamination. HDIs are particles of with a higher density than titanium, which diminish the mechanical properties of titanium, with the contaminating particles serving as crack-initiation sites. As such, VAR is best used for processing titanium scrap in its early stages.

In his summary points during his conference presentation, Newman said scrap supplements sponge and master alloys to provide substantial low-cost units to the market place. Advances in melting and processing technology have allowed for the continuing increase in titanium scrap recycling. “The titanium industry needs to continue to move towards capturing a bigger percentage of the scrap stream. Implementation of buyback programs along with industry consolidation has stabilized both pricing and supply of scrap to producers. Scrap processing industry continues to provide valuable product, services, and innovation to the titanium industry.”