Allegheny Technologies, Inc. (ATI) has decided to idle its state-of-the-art Rowley, Utah, titanium sponge plant.
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.
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.
In addition to the idling of Rowley, higher cost titanium hot-working operations in Albany, Ore., will be consolidated into other operations.
Albany was already impacted when the Rowley facility replaced Albany’s titanium sponge production with a more efficient process to produce it. Richard Harshman, ATI’s President and CEO, stated in the August 24 press release, the actions are expected to improve ATI’s operating earnings by approximately $50 million beginning in 2017.
Harshman believes that ATI’s High Performance Materials and Components (HPMC) business is well-positioned for profitable growth, especially in next-generation jet engine platforms. ATI was awarded 300 new airframe and jet-engine parts contracts which will represent over $1 billion of new business from 2016-2020. The long-term agreements will lead to significant growth in ATI’s components business in precision forgings and castings as well as in powder metal alloy.
In addition to the expected $50 million improvement in annual operation income, ATI expects $50 million of cash flow to be generated when the titanium sponge inventory is reduced over the next several quarters.
Although the Rowley facility is a gem in the ATI facilities portfolio, global market dynamics have caused ATI to seek more cost effective ways to provide titanium sponge for its downstream operations. Harshman remains committed to returning ATI to sustainable, profitable growth and improved cash flow.
Harshman characterized the decisions pertaining to its titanium business as being part of disciplined process which reviews all ATI operations from both a strategic and cost competitiveness standpoint, while considering future market conditions.
“This disciplined process is a key part of our commitment to make the tough decisions that are required to strengthen and enhance ATI’s ability to deliver sustainable, profitable growth, and create value for our customers and our shareholders over the long-term,” he said.
In the last year, ATI has chosen to exit unprofitable products in its Flat-Rolled Products (FRP) business: it has exited the grain-oriented electrical steel (GOES) as well as commodity stainless steel markets. The decisions ATI has made with regard to its titanium business are still attractive to the company; however, the way in which they produce its products has to be streamlined and optimized to reflect current market conditions.