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.”
Michael
C. Gabriele is a freelance writer for the International Titanium Association. Jennifer
Simpson is the executive director of the International Titanium Association.