Like other industry insiders, the team here at MetalMiner has paid very close attention to the way international sanctions on Russia are affecting metals markets. When the invasion of Ukraine started, aluminum, zinc, and even steel had been strongly supported. Since early March, those prices have fallen back (as have Russian troops). Despite this, we feel that the titanium market is long overdue for some investigation.
It's true that Russian troops have withdrawn from many major cities in Ukraine. However, it's likely this is just a tactical move. Once Russian forces regroup, they could escalate the fighting back east. Most experts feel the war will move to disputed provinces like Donbas and the southern "corridor" to Crimea.
Whatever happens, this geopolitical crisis has massive ramifications for metal prices. That's why it's odd that the titanium market hasn't seen more attention. After all, the US is far more dependent on Russian and Ukrainian supplies of titanium than other metals. According to US import data, the two countries supply an annual average of 37% of US titanium bars and rods. Of this, Russia alone provided some 50% of rolled products, while both delivered more than 80% of blooms and slabs.
Most US titanium was delivered by the Verkhnyaya Salda-based company, VSMPO-Avisma. However, as the Financial Times reported this week, Boeing recently stopped buying titanium from the corporation despite the latter being its largest supplier. As it turns out, VSMPO-Avisma is actually a sub-corp of Russian state-owned defense company Rostec.
In this case, Boeing had little option. As a defense contractor with huge commercial interests, it would be near impossible for the company to continue buying from Russia. In fact, this was likely true before the surge in negative sentiment related to surfacing Russian war atrocities. Fortunately, Boeing does have options.
Japan is already a major supplier of aerospace quality titanium sponges. Despite accounting for only about a 1/5th of the global market, the country provides more than 80% of US sponge imports. Equally important to the equation are Japan's high-quality downstream producers. These include Toho Titanium and Osaka Titanium Technologies, two of the few high-grade titanium manufacturers in the world.
Unfortunately, both firms are reportedly near capacity already. In fact, the Financial Times recently stated that Toho was already at capacity in the first quarter of 2022. The company even had to turn away orders from US Timet. Fortunately, Japan's capacity can and probably will increase before long. However, the move to more costly Japanese suppliers will still result in higher prices throughout the Titanium market.
US companies like Boeing will not be alone in their search for non-Russian titanium supplies. Despite having significant European options, aerospace competitor Airbus is also a significant consumer of VSMPO products. Airbus leaders are even waging a fight to have titanium excluded from sanctions altogether.
All of this seems to indicate that titanium prices could reach pre-financial crisis levels of over $15/kg within the next two years. As of this writing, there are four major countries that are certified to produce and ship titanium for the aerospace industry. They are Russia, Ukraine, Kazakhstan, and Japan. With the first two out of the picture for the immediate future, upcoming supply constraints could make the current titanium market look like a surplus by comparison.
By Stuart Burns via AG Metal Miner
More Top Reads From Oilprice.com:
Stuart is a writer for MetalMiner who operate the largest metals-related media site in the US according to third party ranking sites. With a preemptive… More