Understanding Titanium

I previously posted why titanium demand is surging: it's the easiest and cheapest way to achieve higher fuel efficiencies in planes.

The next question to answer is: why don't other companies make titanium.
Titanium is highly reactive with air - molten titanium must be forged in a vacuum. Additionally, there are nasty chemicals involved.

There are only 6 companies that work with titanium and only 3 companies certified to make titanium for plane parts. Certification takes years - the Russian plant is not certified, and they are the world's largest manufacturer of titanium. So TIE has a major advantage. There is also incredible visibility to the potential increase in supply: companies would announce intent to make titanium (they would have to because of capital intensity and environmental regulations) and they would announce intent to get certification from Boeing or Airbus.

A bit easier than titanium for planes is the raw titanium sponge. ATI has no sponge making facility (they closed the facility in 2001) - they depend on imports and other producers. RTI is the same. TIE makes sponge and is increasing proudction 50% in early 2007. Sponge is made by only 4 producers worldwide, so it enjoys a high price. This is why TIE is better than ATI and RTI.

The reason for the worldwide shortage of titanium is that producers were shy about investing in titanium sponge production - it's expensive. With ATI going to re-open their facility and TIE expanding in 2007, we will see price corrections. I would expect TIE to become vulnerable in September to price corrections - but possibly not until January when actual visibility becomes clearer. Additionally, the demand for titanium for planes is known at least 1 year in advance due to long term arrangements and manufacturing requirements. So in January 2007 we will know plane demand for 2008/9 and titanium production capability.