Titanium Metal Stocks in Excess as World Commercial Jetliner Assembly Stalls

14 Jan 2010 • by Natalie Aster

Domestic titanium producers don't expect an immediate pickup from current "very weak" demand as commercial jetliner manufacturing isn't expected to improve until late next year at the earliest. Another depressant for producers is an estimated 35 million lb of excess titanium in the supply chain at present, which probably won't be reduced until late 2010 or early 2011.

"We still have not seen a pickup in demand, nor do I expect to see demand improve until the end of 2010 at the earliest," says Dawne S. Hickton, CEO of RTI International, in a statement accompanying the report of a 33% third-quarter 2009 drop in sales. J.P. Morgan & Co. analyst Mike Gambardella also says "it will take longer than expected for volumes to rebound" for titanium and other high-performance metals.

Goldman Sachs Group analyst Sal Tharani writes to clients that "excessive titanium inventory will continue to be an overhang (since) it won't be until late 2010 or 2011 that the production ramp-up of the new jetliners will provide meaningful support to titanium fundamentals."

Production of the Boeing 787 jet has been delayed five times in the past three years, and the initial flight had been postponed six times before its maiden voyage in December. Hickton at RTI says "the production delays associated with the 787 Dreamliner continue to stress our company, particularly in the fabrication group."

In fact, Boeing's continuing problems with assembling the next-generation carbon fiber and titanium jetliner explains why RTI's distribution "continues to see depressed spot market activity with somewhat volatile pricing," she says.

Net third-quarter 2009 sales for rival producer Titanium Metals (Timet) were down 39% when compared with the third quarter of 2008. Management says the near-term demand outlook remains unclear. However, in a statement, Timet says that Boeing still expects first commercial delivery of the Dreamliner during the fourth quarter of 2010, which "will likely drive production throughout the commercial aerospace supply chain and, thereby, create demand for titanium products."

Hickton adds she "wouldn't be surprised" to also see production pushbacks at Airbus this quarter, but still predicts better demand beginning to show in late 2010 as the European firm gears up production of its A350 wide-body jetliner. In the meantime, she admits that titanium spot prices "continue to deteriorate" while contract customers are buying the "bare minimum" of their contract requirements—which she expects to see continuing in most of 2010.

Early forecast shows prices increase 14%

China's contract iron ore prices may jump 14% in 2010 to the second-highest-level on record, according to a Bloomberg survey of 11 analysts. "Prices are still going up as demand from emerging countries will continue to surge," agrees Wu Wenzhang, CEO of Shanghai-based research group Steelhome.cn. "We are likely to see a 10% rise in 2010 demand," Wu tells the recent Metal Bulletin Steel Success Strategies conference in London.

"The outlook for iron ore is driven by steel production," which is expected to rise again in 2010, analyst Neil Goodwill at Goldman Sachs JBWere writes to clients. "The growth of steel production in China combined with the lack of high quality domestic Chinese ore provides an opportunity for global seaborne iron ore to producers to fill the gap." So, he takes the view "that iron ore prices will be very robust in the short term."

China is seeking to increase iron ore supplies from Russia, Ukraine, South Africa and North Korea to about 15% of the total, from less than 10% in 2009. Wu says that would give China more bargaining power with major global iron ore producers Rio Tinto Group, BHP Billiton and Vale, a trio of suppliers that now accounts for 70% of iron ore shipped to the nation.

However, any steel production and price revival will hamper China's ability to bargain contract iron ore prices, says Luo Wei, Shanghai-based analyst with China International Capital Corp. Reason: Housing, nonresidential and infrastructure construction, automotive assembly and major appliance manufacturing may be catalysts for steel capacity utilization rates at 90% in 2010.

Source: Purchasing


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