You cannot accuse the folks at Alcoa of not understanding their market or of lacking a strategic plan.

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Investors would always like a better performance but in the midst of one of the most tumultuous periods in the history of the non-ferrous metals markets the firm has seen the writing on the wall and positioned themselves to take advantage of changes in their marketplace while minimizing the damage from market turmoil.

Titanium Maximum

Alcoa’s latest move, as reported earlier in MetalMiner, to acquire, Pittsburgh-based RTI International Metals Inc., in a $1.5 billion stock for stock deal is a logical and sound strategic move, building on the aluminum producer’s long-term plan to invest in downstream, value-added activities and gradually move away from the lower-return primary smelting business. Alcoa has invested heavily in new production facilities to meet an inexorable rise in demand for automotive sheet and to capitalize on it’s position as a major player in the equally buoyant aerospace sector.

The purchase of the  titanium specialist RTI Metals, with its focus on exactly the same markets but in the complimentary product area, will support Alcoa’s existing activities and allow it to grow its sales book with major automotive and aerospace firms.

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Alcoa Inc. said it would acquire Pittsburgh-based RTI International Metals Inc., one of the world’s biggest makers of fabricated titanium products for the aerospace and automotive industries, in a transaction with an enterprise value of $1.5 billion.

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For New York-based Alcoa, the world’s biggest aluminum producer by value, the stock-for-stock deal is part of its strategy to focus more on manufactured products for the aerospace and automotive industries.

Alcoa wants to become less reliant on its old-fashioned smelting business, which is suffering from weak prices for raw aluminum. Alcoa on Friday said it would look at closing up to 14% of raw smelting capacity. Since 2007, it has taken almost a third of its smelting capacity out of production.

RTI shareholders will receive 2.8315 Alcoa shares for each RTI share, representing a value of $41 per RTI share based on Alcoa’s closing price on Friday. RTI shares, which closed Friday at $27.28, jumped 28% to $35 in premarket trading Monday

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Indian Rare Earths Limited operates under India’s Department of Atomic Energy. When complete, the new $82 million titanium plant joint venture with India’s NALCO (National Aluminum Company) will make 100,000 tons (1 lakh ton) of titanium slag in the eastern state of Odisha. Some of it will also be used to make pig-iron. A feasibility study and technology selection on the project will soon be carried out.

FREE Download: The Monthly MMI® Report – covering the Rare Earths market.

Rare-Earths_Chart_July-2014_FNLIncidentally, the MoU for formation of the joint-venture was signed between the two state-owned entities about three years ago but was revalidated last week. No explanation was forthcoming for the delay.

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India’s state-owned National Aluminum Co Ltd (NALCO) has signed a Memorandum of Understanding (MoU) with another public sector company, Indian Rare Earths Ltd (IREL), to jointly set up a titanium slag plant.

FREE Download: The Monthly MMI® Report – covering the Rare Earths market.

That could be good news for India’s space program. Why? The project envisages adding value to Ilmenite, a titanium-iron oxide mineral, to produce the slag. Slag is an intermediate product for making titanium sponge and titanium pigments. Titanium sponge is a porous substance formed in the first stage of processing of the naturally available titanium. The latter is high strength but has low density properties, and is also corrosion-resistant. It’s widely used in the manufacture of aircraft, among other things. Titanium-alloy components are also used to make missiles and satellite launch vehicles.

Incidentally, just a few weeks ago, The Indian Space Research Organization (ISRO) launched five foreign satellites, marking an important milestone in its space program.

IREL operates under India’s Department of Atomic Energy. When complete, the plant will make 100,000 tons (1 lakh ton) of titanium slag in the eastern state of Odisha. Some of it will also be used to make pig-iron. A feasibility study and technology selection on the project will soon be carried out.

The plant is estimated to cost around $82 million (Rs 500 crore). The MoU for formation of the joint-venture had been signed between the two central public sector entities about three years ago but was revalidated last week. No explanation was given for the delay.

The author, Sohrab Darabshaw, contributes an Indian perspective on industrial metals markets to MetalMiner.

rusty iron chainlinksThe deadlock between Ukraine ­and Russia ­– particularly over Crimea, the current battleground where the US and the EU have joined the fray – got us thinking, “Man, there must be some massive supply chain implications here.”

And there definitely are – for pricing, availability, lead times across a broad range of commodities, parts, components and finished products, far beyond the immediate region itself.

It is our view that the political front is the one to watch, as impending sanctions on Russia imposed by the US/EU would be the main catalyst for supply chain upheaval. On the non-metal commodity front:

  • According to JPMorgan Commodities Research analysts, although Ukraine is neither a major oil producer nor oil consumer, it is the key “middleman” country for Russian energy exports. More than 70 percent of Russia’s gas and oil flows to Europe pass through its territory. In turn, Europe is the buyer for nearly 90 percent of Russia’s oil exports.
  • If tension escalates, namely if military action is undertaken, pipelines could potentially be cut off and actual delays or shortages could hamper western (EU) supply.

On the metals front, several key US manufacturers’ supply chains could feel reverberations due to their business in Russia (especially if US/EU sanctions directly affect them). For example:

  • Boeing Co. buys nearly a third of its titanium for its planes (translating into an $18 million total spend) from Russia, mostly from VSMPO-Avisma, which is the largest titanium producer in the world, according to the WSJ.
  • If the supply chain is impeded in any way, the perception of “slow availability” could drive titanium prices to rise, even though Boeing’s long-term contracts with VSMPO-Avisma lock in price.
  • VSMPO-Avisma also does business with Alcoa.

So what are five specific takeaways for a procurement organization? Jason Busch of Spend Matters dives deep on that frontclick here to read them right now.

From fake knees to models of the Sagrada Familia, 3D printing and additive manufacturing have seemingly taken the industrial world by storm.

Or at least that’s what the industry would like potential customers and users to think – which is what’s worried the industrial manufacturing sector the past couple years.

However, MetalMiner is happy to report that traditional machining and fabrication methods don’t seem like they’ll be going away anytime soon. Why?

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India has taken another step in the production of titanium sponge when the well-known public sector steel producer, the Steel Authority of India Limited (SAIL), signed an agreement with the Kerala State Industrial Development Corp (KSIDC) and Kerala Minerals and Metals Ltd (KMML) to jointly set up an approximately US $458 million plant to produce titanium sponge and metals, according to the Times of India.

Titanium sponge is a porous substance formed in the first stage of the processing of the naturally available titanium.

Titanium is known for its excellent corrosion resistance, high strength and low-density properties, which make it widely used in the manufacture of civilian and military aircraft. Titanium-alloy components are also used in satellite launch vehicles, rockets and missiles.

(Ed. Note: It also happens to be a strategic/critical metal to the United States, as our friends at the American Resources Policy Network put it at the top of their Risk Pyramid.)

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The Economist covered an industrial development in a recent article entitled “A Tantalising Prospect” that would catch the eye of anyone remotely interested in the metal industry.

The process described effectively allows the reduction of high-melting-point metal ores such as titanium, tantalum, and potentially other expensive metallic elements including neodymium, tungsten and vanadium, from the oxide to the metal in powder form.

The process is a type of electrolysis, but rather than hold the metal oxides in liquid form, it holds them as metal powders in a liquid salt at much lower temperatures and hence requires much lower energy inputs than would be the case if they were reduced in the liquid state.

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MetalMiner (and our parent organization, Azul Partners) has been quietly building up a cool business the past few years. The only thing increasing faster at the moment than our revenue and cross-site traffic — we’re currently up to nearly 100,000 unique visitors and over 300,000 visits per month across our four sites — is the quantity of thought leadership we’ve been publishing both in blog and research paper formats.

Yet we haven’t always focused so heavily on publishing.

Before MetalMiner became a preeminent site in the metals and supply chain market, the founders ran a successful consultancy focused on metals cost reduction for manufacturers. The blog, in fact, was originally just a ploy to position the firm’s expertise and services (my, how a few years can change everything!).

But as MetalMiner grew to such a level where not pursuing publishing as the full-time focus would have denied the chance to carve out a high-growth niche in the market for information and insight, the original team scaled back on our metals advisory work.

Now, with a greatly expanded organization with additional team members and a broader portfolio of sites and talent to draw on, MetalMiner and our sister site Spend Matters are once again providing highly specialized knowledge and services to clients through a new advisory firm: Spend Matters Group.

Spend Matters Group is taking a targeted role across the broader sites, serving as an advisory firm focused entirely on serving specialized needs, delivering services both direct to manufacturers as well as through third-party firms (e.g., consultancies) looking to uniquely advise their clients.

When it comes to metals specifically, Spend Matters Group (with MetalMiner resources) can identify and implement cost savings or cost avoidance strategies that the great majority of practitioners have not even heard of before. And we can do it in categories that others won’t touch (e.g., heat treat services or electro-plating). Our engagement model leverages proprietary MetalMiner IndX℠ pricing data and forecasting models and a general metals procurement bag of tricks that simply does not exist elsewhere in the market.

Our metals advisory expertise for global manufacturers spans the following raw metals and metal component categories:

•    Aluminum, Copper, Nickel, Steel, Stainless, Titanium, Rare Earths

•    Primary metal, ingots, sows, billets

•    Semis, sheet/plate, extrusions in all forms, including pipes and tubes

•    Fittings, flanges, anodized sections, painted sections, painted sheet/coil

•    Semi-finished special sections for the defense industry

•    Plain and printed foil

Our metals component strategy and cost reduction expertise includes: castings, fasteners, bushings, levers, shafts, fabricated parts, forgings, machined parts, mattress innersprings, sheet metal, stampings and forged and machined blocks for molding and general engineering applications.

Whether formulating a range of sourcing and category management approaches (e.g., global sourcing, mill-direct, distributor, multi-tier supply chain sourcing, demand aggregation strategies, etc.) or developing statistical modeling/forecasting and hedging approaches across metals spend, MetalMiner’s advisory services can bring a laser-focused approach to metals category insight.

We also can help with developing conflict minerals (Dodd-Frank) traceability programs as well implementing metals rebate programs, index-based bidding strategies, VMI initiatives, consignment schedules and total landed cost models – including the skills processes and technologies that make it all possible.

Spend Matters Group (and MetalMiner) work with the entire metals value chain, from producers to manufacturers — and everyone in between. Whether you’re a consultancy looking for subject matter expertise as part of a client engagement (or to develop internal skills/competencies), or a manufacturer, distributor or producer looking to leverage the services of Spend Matters Group and MetalMiner directly, we look forward to hearing about your challenges, opportunities, and ways we might be able to help.

Learn more here.

The manufacturing world got some news late last week that is neither entirely uplifting nor completely dispiriting. The good news is that industrial production and capacity utilization did not decrease last month. The upward trend for US manufacturing continues, and we hope that it’s a sustainable one.

Growth continues, but not at eyebrow-lifting rates. According to the latest Fed figures, capacity utilization grew by 0.1 percent, from 77.3 to 77.4 percent. Industrial production was flat from January to February, but is likely to show an increase upon later revision — production figures initially showed no change for January, subsequently getting revised to show an increase of 0.4 percent.

The bottom line seems to point to one dominant issue (and two sub-factors) that challenges manufacturers and other sourcing organizations: uncertainty, brought on by 1) commodity/raw material price volatility; and by 2) the government policy landscape.

Commodity Price Volatility

Following the latest ISM PMI figure, which also decreased month-on-month in February but remained in positive growth territory, companies voiced concern over price volatility.

“Business is holding steady. Concern over commodity prices ongoing,” a chemical products manufacturer responded to the ISM survey. Another respondent, working in the machinery sector, said “”Still somewhat cautious about recovery. Expecting a good year, but not seeing orders yet.”

All metal categories were reported to be up in price for buyers, including aluminum products, copper products, rolled steel, scrap and titanium dioxide. The only commodity down in price was natural gas (which seems to be a trend that US and EU manufacturers are taking advantage of for the long term — see GM’s plans for natural gas vehicles, and a report claiming that 1 in 3 large vehicles in Europe will run on LNG by 2035.)

Manufacturing-Friendly Government Policy

Economist Chad Moutray, writing in the National Association of Manufacturers’ (NAM) Shopfloor blog, said that in order to see continued growth across all manufacturing sectors, Washington must put through more business-friendly policies.

This issue will be directly addressed at Day 2 of our conference, Commodity EDGE: Sourcing Intelligence for the New Normal. (The kickoff sessions begin later today!) Attendees will get both US and European policy perspectives at the panel discussion, “Public Policies Sure to Impact Sourcing Organizations.” 

Jennifer Diggins (Director, Public Affairs for Nucor Corporation) provides incisive policy viewpoints from the domestic steel industry’s perspective.

Thierry Decocq (Founder and Managing Partner of YQ Purchasing in Belgium) leverages creativity in the procurement process — if government policies are unbending, the wisdom goes, there must be more creative ways to structure your buys to help your margins.

And Mike Zadoroznyj knows a thing or two about regulatory compliance. As VP Product Center, Treasury and Regulatory Compliance Division at Triple Point Technology, Mike’s insight can help navigate manufacturers through periods of uncertainty.

In our messy policy landscape, manufacturers need to know which policies not only affect their business today, but which ones will rear their heads in the future. Uncertainty in prices and policies may reign for now, but equipping yourself with strategic sourcing practices to best meet those challenges — that’s up to you.

*Make sure to visit MetalMiner all day tomorrow for the latest updates from our panel discussions, keynotes speeches and breakout sessions!