The global titanium market is entering a “sweet spot” in demand at the midway point of 2018, driving restored mill pricing leverage. Industry volume growth is back to the strongest levels since 2011. Industrial growth for titanium in 2019 will increase 8 to 10 percent (compared with 2018), supported by more favorable industrial and energy activity and stronger aerospace demand.
These are among the key findings in an outlook report, “Mid-year titanium market update, highlighting trends in 2018, and a five-year outlook,” complied by Chris Olin, vice president, senior research analyst, Longbow Research, Cleveland. Longbow projects total Western World titanium market demand at 240 million to 245 million pounds in 2018, up 6-7 percent compared with 2017, with the global outlook (including China and Russia) at 375 million to 380 million pounds, up 6 percent, year over year.
“We do not see a peak (in the global industrial titanium sector) before 2021-2022, assuming the aerospace original equipment manufacturers hit the long-term delivery targets and the macro environment stays relatively healthy,” Olin wrote in the report. “Titanium sponge and melt operating rates should start moving higher.Based on the updated modeling assumptions we are raising our two-to-three year pricing outlook.”
The Longbow report indicated industrial demand should trend higher based on four key assumptions. It’s expected that there will be good growth in the shipbuilding market, which helps demand in Russia. There will be a 25-30 percent upside for the oil and gas market, which represents about 8-10 percent of industrial consumption. There are no major desalination projects impacting the global market until the year 2020 (and then desalination will add up to 3 million pounds to industrial demand). Finally, consumer price index (CPI) demand growth is anticipated to be 1 percent, which could result in an upside for industrial demand.CPI generally is defined as a measure that examines the weighted average of prices of consumer goods and services, typically used to track inflation.
Olin said the consensus outlook on titanium growth for 2018 is a 7-8 percent increase compared with 2017, with 2019expected to close out with growth above 8 percent. By way of comparison, the nickel-based alloys group is looking for a 5-6 percent growth in 2018 over 2017. However, Olin pointed out that this market is seen as having upside of 7-8 percent growth during 2019, driven by the new jet engines and oil and gas demand. The outlook for aerospace aluminum plate is 2-3 percent growth this year, with a similar level of growth in 2019 as well. Olin cautioned there may still be too much inventory in the “channel” from lingering 777 hangover and A330 cuts. “Channel momentum” reaccelerated despite a short pause in customer activity during the first quarter of 2018.
As for its definition of “channel” research, Longbow explained that each quarter its analysts communicate with several global mills, distributors and forgers having exposure to the titanium, nickel-based alloys, exotic alloys and aluminum plate products—both buyers and sellers. Longbow believes the collected data and analytical charting provides a “solid proxy for the specialty materials coverage group,” revealing a general sense of the relative strength/weakness in demand and pricing.
The channel research analysis on individual end-markets provides an indirect glance into key channels like aerospace, power generation, and oil and gas, according to Longbow. “We normally ask high-level executives about current demand, full-year expectations, inventory holding intentions and the price visibility/outlook. Our data can be compared against trends over the previous two cycles. Historically, inflection points evident in our survey are leading indicators for the coverage group. There is a normal three to six month lead time between order fluctuations at the distribution/forging level and the top-line performance for publicly-traded companies. This ‘delay’ primarily relates to extended production times, lagged pricing effects and inventory management.”
Based on this channel research, Longbow sees a reacceleration in global demand growth, with titanium as the strongest specialty material product group tracked by the outlook report. Olin said that “second-quarter data points from our proprietary survey-work indicate better near-term order activity, spread across all specialty material categories. Supply is getting tight heading into the second half of 2018. Producer lead times have increased by one to two weeks since early 2018, and the titanium index is now sitting at 33 weeks (including 50-60 weeks on sheet and 20 weeks for ingot).
“The near-term inventory intention can still be characterized as ‘aggressive’ for distributors,” Olin continued. “A net-46 percent of downstream companies said they plan to build internal warehouse holdings over the next three months, up from 29 percent from the last quarter. This is the most bullish near-term reading we have captured for this survey in the last four to five years. (There are) better pricing data points spread across most materials and product forms. Both upstream and value-added spot pricing updates offered by contacts coincide with the improving global demand/supply outlook.”
Appearing as a speaker at the TITANIUM 2017 conference and exhibition, which was held in Hollywood, Fla. and sponsored and organized by the International Titanium Association, Olin previewed many of the forecasts in the current outlook report and declared that Longbow is “bullish” on titanium. “The macro backdrop is strong, and there is increased confidence in the United States economy,” he said at the 2017 gathering. “Industrial-related markets are becoming less of a headwind. Aerospace has become an increasing pull on demand. Growth in single-aisle jet production and introduction of next generation aircraft designs are finally offsetting the (Boeing) 777 production cuts last year. The most consistent feedback we are getting is that ‘the forgers are busy.’ Inventories are much better balanced, distribution are more likely to ‘build holdings’ over the next few months.”
The Longbow report pointed out that, as always, there are risks and uncertainties to consider in any near-term business outlook. For example, recent discussions about global trade and lingering tariffs by the Trump administration could slow demand and break sentiment. Fuel surcharges are now getting added to the airline ticket price, and this could result in slower passenger traffic growth. The United States market is at full employment, but can aerospace find enough high-end labor to satisfy production schedules? What happens if there is an outage at one of the major forgers? Is there enough nickel-based alloy demand to meet further jet engine needs?
As for procuring materials of choice, 73 percent of the companies tied to titanium said they are having difficulty finding various alloy grades, the report revealed. By comparison, 40 to 45 percent of the companies tied to nickel-based alloys said they are having sourcing problems, and 20 percent in stainless steel.
Longbow Research provides quarterly updates on various metal and aerospace markets (including specialty materials) through proprietary survey work and separate industry analysis. Longbow utilizes a network of industry contacts who participate in quick surveys and turn the commentary/data into analytical charts each quarter. Once the research is compiled, Longbow produces a report that highlights demand momentum, end-market strength/weakness, inventory positions, and lead times/pricing trends.