Titanium

Success is not just about skills and hard work, it’s also about being in the right place at the right time. That’s especially true in the commodity business. Let’s look at an example.

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From 1995 until 2000, stock market indexes rose in the range of 200-500%. If you happened to be a fund manager during those years (being in the right place at the right time) you probably made a killing, regardless of how good of a manager you were. In contrast, if you ran that same fund over the next three years, in which stock indexes fell in the range of 40-75%, then investors would probably think you are a terrible manager.

The same thing applies to real state agents that happened to be there during the housing boom or to the NBA head coach, Phil Jackson, who took the helm of the Chicago Bulls when Michael Jordan delivered the franchise its best years… and then took over the Los Angeles Lakers when Kobe Bryant and Shaquille O’Neal rejuvenated that franchise. Not to take credit away from any of these individuals, but they didn’t have that difficult of a time delivering what was expected from them. Read more

Even in today’s price competitive global market place there are a few industries in which the United Kingdowm can be said to punch above its weight. Automotive is one, it accounts for 10% of the UK’s trade in goods, and over 50% of UK manufactured cars go out for export.

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Defense is another. The U.K. is the world’s fourth-largest arms exporter after the US, Russia and China. But maybe the crown jewel of U.K. manufacturing is the aerospace sector. It doesn’t come much more value-add than aerospace and the U.K. ranks fourth in the world behind the US, Germany and France for export values. However, France’s numbers are distorted by the fact Airbus aircraft are receive their final assembly in Toulouse. So, although 75% of the aircraft is imported as major components — fuselage, wings, tail, engines, etc. — the total value of the aircraft is reflected in France’s export earnings even though most isn’t made there.

And therein lies the problem for the U.K. post-Brexit. The wolves are gathering around the gates slavering at the prospect that the majority of the citizens’ decision to leave the E.U. means the position of U.K. aerospace manufacturers in the Airbus supply chain is up for grabs.

According to the Financial Times, Airbus will face political pressure to bring jobs back to France, Germany and Spain as a result of the U.K.’s decision to leave the single market. BAE Systems has played a leading role in the development of wing technology, designing and manufacturing virtually the entire wing for Airbus’ super jumbo jet, the A380. But there has been a constant move by Germany to get as much wing work out of the U.K. because it is one of the most lucrative parts of the supply chain. The bottom skins of the wing for the new A350 went to Spain and Germany, both keen to secure further work as new models come up for bidding.

Last year, the U.K. aerospace sector grew by 6.5% to £31 billion ($38 billion) 87% of which was exported. The industry fears a clampdown on free movement of labor and political influence over trade regulations could combine to raise the cost of business for U.K. companies in the sector.

Although aircraft and their parts are exempt from tariffs under World Trade Organization rules, the FT reports there is a fear the competitors could encourage their governments to find loopholes during exit negotiations that would create barriers or raise the cost of business for U.K. companies. For Rolls-Royce, the U.K.’s premier aero-engine manufacturer, the major concern is that a block on free movement of labor would inhibit the company’s ability to move workers between Europe and the U.K. at short notice as production issues demand.

About a quarter of Rolls-Royce’s workforce is based in the E.U. outside the U.K. Despite the U.K.’s reputation for engineering excellence, the country is desperately short of engineers. As a result, the manufacturing sector has been at the forefront of lobbying government for exemptions to a blanket block on immigration.

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The future prosperity of U.K. manufacturing was probably not at the forefront of voters’ minds when they opted to leave the E.U., but if it is found that highly paid jobs are lost as a result of the U.K.’s exit from the single market, economic issues me yet come back to become a focal point in any post-Brexit analysis.

“Trump puts pressure on Lockheed Martin over cost of F-35” says the Financial Times.

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Well, we don’t have a problem with that. These defense contracts are notorious for overrunning budgets and, although to be fair to the contractors, the overruns are as often due to the buyer changing specifications as they are to the manufacturer mismanaging the project. At least that’s the case here in the U.K., and I don’t doubt it’s the same in the U.S.

Poor Lockheed Martin. The president-elect doesn’t love its F-35 Lightning II. I guess no one appreciates air superiority anymore. Even five generations in. Source: Adobe Stock/Spacekris.

But — and this is the big but — whoever is to blame, the fact is it is you and me, the taxpayer, that picks up the tab for these overruns and we aren’t talking a few dollars. It’s billions. Billions that could be spent on other defense equipment or roads, schools, research and development, etc. So, if the new president-to-be is intent on reducing this waste, then good for him. The issue is how you achieve that. Read more

The aircraft market is having a pause.

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Suggestions that sales have collapsed or that airlines are cancelling orders are overdone. After several years of record sales and the buildup of a huge backlog, it was inevitable that new orders would slow at some point. Not least of which because aircraft makers are a victim of their own success.

Order backlogs are so long airlines are looking at new models scheduled to come out in a few years and saying, “why order the existing model — which won’t be delivered for years — when we could order the more fuel-efficient or longer-range model in a year or two from now?”

In an article this week, the Financial Times reviews slowing sales for wide-body, twin-aisle aircraft and asks is it a long-term trend that will continue or is it a result of short-term problems manufacturers have had with their new models?

What’s Selling?

At the recent peak in 2013, Boeing and Airbus logged combined net orders for 750 wide body jets. Orders fell in both 2014 and 2015, and so far this year the companies have scraped together deals for a mere 123 jets, the paper reports. But sales of single aisle aircraft have held up better as low cost carriers in particular have started flying further with smaller aircraft.

The paper quotes industry sources that say the share of widebodies in the global fleet has shrunk from roughly 25% in 1990 to about 19% today. About half of the routes flown by widebody aircraft are less than 5,500 kilometers, well within the range of the Airbus A321LR and Boeing’s new narrow-body 737 Max jet.

Smaller aircraft reduce the carriers risk: they may cost a little more per passenger to run but they are not so hard to fill. Airlines will always need bigger aircraft for the most densely traveled long-haul routes, but the smaller aircraft are posing a challenge.

FT Plane orders

Source: Financial Times.

The widebody market has also suffered from some plane-specific issues. Sales of the Airbus A380 have been slow ATW reports and Airbus cut annual production rates from 27 in 2015 to 12 by 2018, which, from a personal perspective, I feel is a shame. The A380 is a pleasure to travel in, spacious and quiet compared to previous widebody aircraft like the jumbo. Read more

It was on one of those weeks when a non-metal commodity dominated metals coverage. We mean the one that factors into just about every metal price through either production or transportation costs. The black gold that sluices across prairie and canyon in tanker cars, pipelines and trucks. The input whose value and production fluctuates at the whim of both Sheikh and wildcatter.

So, honey, then, right?

Saudi Arabia and Russia promised to work together on a “task force” to try to right-size the oil overproduction we’ve become accustomed to over the past two years. MetalMiner Co-Founder Stuart Burns warns that the days of $100 per barrel are, indeed, long gone but something could still come of this latest effort to rein in production. Naturally, the markets ebbed and flowed on speculation of what, exactly, that might be like a small ocean of the stuff filling to the brim a tanker bound for China.

Negative on that Manufacturing Growth

The Institute of Supply Management‘s manufacturing index turned negative in July for the first time since February. And the services gauge fell last month to the lowest level since early 2010. Perhaps the economy’s not doing as great as we thought it was?

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The manufacturing index dropped to 49.4% from 52.6% in August and the ISM services gauge retreated to 51.4% from 55.5%. The combined reading of two indexes was also the weakest in six years.

Transshipment Trouble

Last week, we wrote about China Zhongwang and its billionaire owner, Chinese Communist Party member Liu Zhongtian, buying U.S-based extruder Aleris. Well, more trouble this week for Zhongwang as the Commerce Department launched a new investigation into transshipments related to nearly 1 million metric tons of aluminum stored in rural Mexico.

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Zhongtian says he and his company have nothing to do with it. The Wall Street Journal? Well, it says shipping documents and sales receipts related to the massive stockpile all lead back to Zhongwang.

Less Titanium Production in Utah

Instead of forming titanium sponge by passing titanium tetrachloride in a gaseous phase over molten magnesium or sodium at its Rowley, Utah, facility, Allegheny Technologies, Inc., is cutting out the middle man. The specialty metals producer will now buy its titanium sponge on the open market. By idling the Rowley titanium facility indefinitely, ATI is also cutting 140 jobs. Read more

Allegheny Technologies, Inc. (ATI) has decided to idle its state-of-the-art Rowley, Utah, titanium sponge plant.

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Titanium sponge is a key raw material to produce ATI’s titanium products. While global titanium-sponge production has increased significantly in the last couple of years, the global industrial-grade titanium market has continued to be weak. As a result of these two factors, ATI is now able to purchase titanium-sponge in the global market at prices below Rowley’s cost of production.

Extreme detailed surface of Titanium Aura Crystal Cluster

Titanium sponge is now available at lower costs on the open market than for ATI to produce it themselves. Titanium cluster image courtesy of AdobeStock/Tomatito26.

ATI stated that it is able to procure from qualified global producers even aerospace-quality sponge under long-term agreements. ATI has entered into competitive long-term agreements with qualified producers for both standard and premium titanium sponge. The Rowley facility will be idled by the end of 2016 in a manner that allows the facility to be restarted in the future if a reopening is supported by market conditions.

ATI Consolidation

In addition to the idling of Rowley, higher cost titanium hot-working operations in Albany, Ore., will be consolidated into other operations. Read more

Rich Harshman, Chairman, President and Chief Executive Officer, of Allegheny Technologies, Inc. (ATI) emphasized in the company’s Q2 2016 earnings call last week that sales to the aerospace and defense market continue to drive ATI’s results, representing over 50% of total 2016 sales.

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Harshman said, “Our aerospace market is being driven, in large part, by the growth of ATI’s next-generation mill products, forgings and castings.”

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Defense, in both the aerospace engine and airframe segments, are helping ATI’s bottom line. Source: Department of Defense.

ATI’s business strategy is heavily focused on products which are proprietary to ATI or have high barriers to entry.  Based on long-term agreements, its technological prowess and its ability to meet build rate schedules, ATI seems well-positioned to capitalize on the increased build rates in commercial aerospace.

ATI has a foothold in legacy programs for both airframes and jet engines but has also been part of the research and development for the next generation of both. ATI has been awarded 300 new parts contracts which will represent over $1 billion n new business from 2016-2020.  The long-term agreements (LTAs) will lead to significant growth in ATI’s components business in precision forgings and castings as well as in powder metal alloys, which are usually used for additive manufacturing or 3D printing. Read more

Alcoa, Inc., recently opened a state-of-the-art, 3D printing metal powder production facility in its Pittsburgh area Alcoa Technology Center.

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The lightweight metals center will produce proprietary titanium, nickel and aluminum powders optimized for 3D printed aerospace parts. Alcoa has invested in a range of technologies to further develop additive manufacturing processes, product design and qualification.

Alcoa Technology Center

The Alcoa Technology Center near Pittsburgh has been expanded to accommodate new research into 3D printing technology. Source: Alcoa

“Alcoa is forging a leadership path in additive manufacturing with a sharp focus on the critical input material—metal powders,” said Alcoa Chairman and Chief Executive Officer Klaus Kleinfeld. “We are combining our expertise in metallurgy, manufacturing, design and product qualification to push beyond the possibilities of today’s 3D printing technologies for aerospace and other growth markets.”

Arconic Will Inherit 3D Printing Research

The facility will form part of the spin-off, value-added metals company Arconic following separation from Alcoa’s traditional commodity business in the second half of 2016. The plant is part of a $60 million investment in 3D printing materials and processes that builds on the Alcoa’ 3D printing capabilities in California, Georgia, Michigan, Pennsylvania and Texas. Read more

Allegheny Technologies, Inc., reported in its first quarter earnings call this week that its high-performance materials and components segment sales were up. Sales were $493 million in the first quarter, up approximately 8% compared to the fourth quarter of 2015. 73% of segment sales were to the aerospace and defense market.

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Operating profit increased by nearly 40%, compared to the fourth-quarter 2015. Segment operating profit was 5.9% of sales.

New Generation of Jet Engine Parts

ATI’s product mix improved through increased sales of next-generation jet engine advanced materials. Sales of nickel-based alloys and specialty alloys increased by 8%, and sales of titanium and titanium alloys increased by 17%. Sales of ATI’s precision forgings increased 15%, driven nearly exclusively by growing demand for jet engine components and airframe forgings.

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ATI is very pleased with its sales of airframe and jet engine materials.

“Our differentiated products here include proprietary and unique alloys, as well as products that few others can make,” ATI CEO and President Richard Harshman said, “such as ATI 718+ alloy, Rene 65 alloy, ATI 720 alloy large billets, plasma arc-melted titanium alloys, powder metals, titanium aluminides, as well as hot-die forgings, isothermal forgings and titanium investment castings.”

PAM Power

ATI is currently the only qualified plasma arc melt producer of titanium alloys used for jet engine rotating parts.

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PAM is the preferred process for titanium alloys used in jet engine rotating parts for much of the industry.

“ATI has the most powerful open-die press forge in the industry, which enables fine-grained structure in complex nickel-based super alloy billet and the billetizing of powder alloys,” Harshman said. “ATI is one of only two independent and integrated qualified producers of nickel super-alloy powders and isothermal forged parts.”

Yorkshire UK-based 3D printing raw materials provider Metalysis recently reported a combined investment of  $29 million (£20 million) from Woodford Patient Capital Trust — managed by Neil Woodford, one of Britain’s most prominent fund managers — and Iluka Resources, an existing investor in Metalysis.

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Iluka has increased its interest in the Company to 28.8% as a result of this funding round. Other existing investors, such as BHP Billiton, are maintaining their stakes in the company.

Metalysis' oxide production process vs. the longer traditional one.

Metalysis’ oxide production process vs. the longer traditional one. Source: Metalysis.

Metalysis’ technology produces metal powders — primarily titanium, tantalum and bespoke alloys — at lower cost than traditional manufacturing processes and with reduced environmental impact. The increased use of metal powders in 3D printing is driving innovation in several sectors, including aerospace, automotive and biomedical engineering. This investment will support Metalysis’ growth and its commercial rollout, through strategic partnerships and licensing of its disruptive 3D printing powder technology.

DLMS Printing

Direct metal laser sintering (DMLS) printing is a process optimized for 3D printing metals rather than plastics or other materials. Instead of melting plastics and binders, DMLS printers actually create tiny welds using powders such as Metalysis’. Last April, Metalysis’ Director of Business Development, Dr. Kartik Rao, discussed how the company wants to change manufacturing with my colleague, Stuart Burns.

Rather than break raw metals down into powders, The Metalysis process transforms metal oxides into then-sinterable powders. It’s a cleaner and less-costly process.

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Metalysis’ technology produces high-grade metal powders directly from oxides in fewer steps. The lower-cost powders suit a wide variety of 3D printing needs across a variety of high-tech, industrial and manufacturing sectors. Metalysis recently completed a program with TWI, a UK leader in materials technology innovation, which demonstrated the feasibility of its bespoke powders for 3D-printing orthopedic hip implants.