Russia's VSMPO Delays $ 1b Investment in the Face of Falling Global Demand

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The drop in aerospace build schedules and delay of major programs such as the 787 are having a profound impact on the aerospace supply chain. Russia’s VSMPO-Avisma, the world’s largest titanium producer, is reported in Reuters to be postponing a major increase in production until 2014, two years later than planned. VSMPO-Avisma, controlled by state conglomerate Russian Technologies, is located in the Ural Mountains and exports about 70% of its output. The company’s previous investment program had foreseen global titanium demand of 150,000 to 160,000 metric tons by 2013 but following a 27% decline in output this year now says it will be 2015 before that level can be achieved. This year, the firm is expected to make around 19,500 metric tons, down from 26,600 metric tons in 2008 but had planned to raise production capacity to between 44,000 and 46,000 (metric) tons. Already the world’s largest titanium producer, the $1 billion investment would have lifted VSMPO to claim 33% of the titanium products market by 2012, now 2015.

With 60% of the world’s titanium sponge production going into aerospace, according to the USGS the metal is closely tied to the fortunes of civil and military aerospace, both of which have seen reductions in build programs stretching into the middle of the next decade. Titanium is also used as an alloying element and grain refiner in steels which have also seen dramatic production cuts and in pigments and medical applications. The price has halved from over $8/kg a year ago having briefly dipped to $3/kg during the second quarter.  Purchasing.com recently quoted John Mothersole of HIS Global Insights as saying, The visible sign of the market’s condition is inventory, which rose to over 70 million pounds in late 2008, its highest level in six years. Anecdotal reports indicate clearly that inventory continued to climb during the first half of 2009.”

–Stuart Burns

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