Revved up

Recycling Today, Jan, 2005 by Curt Harler

Titanium is hot as an F-16's afterburners. Nickel markets are flying high, too. It is no accident that the specialty metals markets are nudging new highs on a weekly basis. Civil aviation and military spending levels are both up and demand is strong.

With titanium scrap prices pushing hard at $6 per pound, there are those who see it touching $7 by the end of Q1 2005.

There are some wild cards, such as whether a Chinese company will end up owning Noranda. That is one of the many questions involving the Chinese and North American specialty metals markets.

Noranda, the Toronto-based producer of nickel and copper, has said it has ended an exclusive negotiating period with China Minmetals Corp. But that does not mean the dealing is over. Indeed, by the time this article hits readers mailboxes, a deal for Noranda could be completed--if not with the Chinese firm, then with Brazil's Companhia Vale do Rio Doce, an Asian consortium or another bidder.

While there is uncertainty, that does not mean Noranda's production will simply disappear. Nor does it mean that when the uncertainty is resolved, output will double overnight.

TITANIUM. "Demand for titanium is strong," says Bob Swenson, president of Global Titanium, Detroit. "Supply is squeaky."

He is a cautious bull on titanium. "I think conditions in 2004 are going to continue well into 2005." He looks into the second or third quarter before he sees any major changes. In the meantime, he says demand for ferro-ti into steal and for scrap units going back into titanium is strong.

"The supply side is still relatively tight," Swanson says. The titanium companies continue to work harder to control the in-house circle of scrap, he says.

"The first half of 2005 will be pretty good, but with a lot of volatility," says Stuart Freilich, Universal Metal Corp., Worcester, Mass. While prices in 2004 trended steadily upward, he expects large swings in Q1 and Q2 2005. "The second half, we'll have to wait and see," he says.

Freilich agrees with Swanson that supply is still tight. He sees more demand than supply, but the activity is not bullish. Freilich says he sees some backup in domestic auto sales in light of the sluggish economy and higher fuel prices.

More worrisome is the fate of the commercial aircraft fleet. He concedes that aerospace and military sales will continue. While the market for private jets and regional commercial jets is holding up well, he worries about the financial condition of several of the large, high-price legacy airlines like Delta, Continental and US Airways. "Some of those legacy airlines may go into liquidation in 2005," he says. While the market has dipped into about half of the supply of jets in storage, leaving only outdated planes in mothballs, dumping a fleet of relatively new planes on the market would cripple the market for new planes.

"Other airlines will pick up those airlines' newer aircraft and cancel orders for new planes," Freilich says. Because about 10 percent of the current 300 planes on order with companies like Boeing and Airbus are from legacy airlines, the loss of those sales would be significant.

Citing a need to improve its finances, in late November, American Airlines postponed--but did not cancel--delivery of 47 Boeing 737s and seven 777s.

On the supply side, the government is selling its last block of titanium sponge. This sale continues at a pace of 5,000 to 7,000 tons per year since before the turn of the century. Most of the government-auctioned titanium has gone to steel mills or aluminum application alloy makers.

"This has been going on for a while. We didn't think much of it while the sponge was there," Swenson says. "Now, with titanium in short supply, people are getting more interested."

Swenson says he expects the tight supply will force some increased scrap generation to the point where it might affect the supply side of the equation.

"I'm pretty bullish," Swenson says, "but I'm cautious. I expect something to happen...you never know when it will happen. But I don't expect it to happen until mid-year."

"When the end comes, it will come fast and furious," Freilich says. "There will be cancellations, and it will just die." He worries about the possibility of double-bookings, too.

FERROCHROME. "Ferrochrome for 2005 will not be plentiful, but will be in balance," says Larry Pryor at Sudamin Corp.'s Sewickley, Pa., office. He says prices could increase in the United States, mainly because of currency fluctuations. But he feels there will be pressure from buyers to keep any increases in check.

"2005 will be equally as good as this past year," Pryor continues. He says he does not think prices will peak suddenly, but that any increases will be gradual.

Aerospace--probably the single most important key driver in the market--is doing extremely well. "We are seeing significant scrap being generated from aerospace," Pryor says. He expects aerospace production to do well through the second half of 2005.

NICKEL. About two-thirds of the world nickel supply goes to stainless steel, with alloys and platings consuming another quarter. About 3 percent goes to batteries.