Metal movers: Aerospace metals outlook

Ronan: I'm Ronan Murphy, editor of Argus Non-Ferrous Markets. And I'm speaking today to Argus' titanium experts, Samuel Wood and Alex Nicoll, to explore the challenges for aerospace OEMs when they may be resolved, and how this will translate back to demand for titanium metal. Argus' associate editor, Cristina Belda, will also provide a view on complications in high-temperature alloy supply chains and how dual-use items are getting caught up in escalating global trade tensions. So Samuel, can you start us off with an overview on how the aerospace titanium market will fare in 2025?

Samuel: Yes, absolutely. Titanium metal is a key raw material used in the aerospace and defense, industrial, and medical markets. But geopolitical fractures, emerging supply markets, and downstream supply chain challenges have forced a reassessment of the fundamentals in the last two years. Aerospace-approved titanium sponge is facing an impending supply deficit, all the while China's burgeoning titanium sector is spreading exports into international markets. Looking further downstream, the aerospace industry has yet to truly take off, skewing scrap market dynamics and near to medium-term growth prospects and leaving inventory overhang in various parts of the value chain. So 2025 is really going to be a year to patch up and resolve various issues before some kind of inflection point in 2026 and 2027.

Ronan: Okay. So starting to go into a bit more detail in that downstream. What's the state of play for Airbus, Boeing, and their suppliers?

Samuel: Well, Airbus and Boeing's build rates and delivery targets have been subject to revisions, push-outs, and certain cases of surpassing. Now you've got these build rates for the production build rates targets stretching out to 2028. The supply chain is gearing up for a ramp-up that will see the wide-body production rates more than double as airframers vitamin demand for international travel. But there is a lot of work to be done to stabilize the supply chain before a true ramp-up can occur. Airbus and Boeing both hit production targets in 2023, albeit a revised one on Boeing's part. Then in 2024, Airbus was marginally short at 766 jets but still within a margin of error for its target of around 770. Again, this was revised down from 800. Boeing on the other hand delivered just 348 jets after what was quite a turbulent year for the plane maker. Broadly speaking, 2024 was a year characterized by parts shortages, federal interventions, labor disputes. As a counter-reaction to all of this, a drop in certain supply tiers has led to an accumulation of inventories at some manufacturers, whether that be on finished parts or finished semi-finished products. So you enter this situation where the tail starts to wag the dog.

Ronan: Okay. So can you talk a bit more about what are some of the specific shortages that are hitting the industry?

Samuel: Well, engines have been a big one or specifically if we're sort of zooming in on the actual engine itself, high-pressure turbine blades if we look at CFM's narrow body program. You're also looking at shortages on structural castings, heat exchangers, cabin equipment like seats and just aero structures more broadly. And to make matters worse, because Airbus and Boeing can't get their hands on these parts, they're unable to fulfill their order commitments to airlines. The airlines are therefore forced to run their existing fleets longer. This in turn drives demand for MRO services, which once again extends the strain on parts supplies. So you enter this vicious cycle. The communications from OEMs toward the end of 2024 signaled that some of these bottlenecks will start to iron out in 2025. But it really can't be understated the damage that COVID-19 and geopolitical fractures since then have exacted on the supply chain, whether that be an exodus of experienced workers or a sudden need to switch suppliers. It's worth noting that these downstream challenges don't immediately translate back to metal procurement because of term contracts and the lengthy process it takes to get from, say, an ingot to a final product.

Ronan: Okay. So in your opening statement you referenced an interesting dynamic further upstream emerging on titanium sponge and Chinese oversupply. Could you elaborate a little bit more on that please?

Samuel: Sure. The titanium sponge market is both set to enter a deficit by 2030, but also facing vast oversupply from a growing Chinese market. While seemingly contradictory, both of these scenarios are true. Titanium sponge utilized in aerospace parts must be sourced from qualified producers, which currently includes Toho Titanium and Osaka Titanium in Japan, UKTMP in Kazakhstan, and ATTM in Saudi Arabia. Additionally, you have VSMPO-OVISMA in Russia, but the onset of the war in Ukraine led to Western OEM scaling back procurement from Russia. Assuming a continued phase out on Russian supply, as the aerospace sector ramps up in the coming years and through to the end of the decade, demand for titanium will grow at a rate that exceeds supply. And for reference, the CapEx required to build a new sponge plant to address this imbalance, it's output of $300 million, $400 million.

Ronan: Okay. And how does China fit into this picture?

Samuel: Well, China accounts for approximately two-thirds of the global titanium market, but its presence in the aerospace side of that is quite limited because its domestic industry is currently and has historically been tilted towards industrial applications. In 2023, China produced 218,000 tons of sponge, more than double the nameplate capacity of Japan, Kazakhstan, and Saudi Arabia combined. Currently, China's sitting on around 30,000 tons of surplus sponge capacity with another 150,000 tons set to come online in the coming years, meaning it is predisposed to export, but it's not yet qualified for these critical aerospace applications. We understand that certain Western consumers of aerograde material are currently testing Chinese sponge.

For reference, an aerospace qualification can take up to three years for standard quality sponge and five-plus years for premium quality rhodes grade sponge. Of course, if it were to receive the relevant qualifications, then the question remains as to the long-term viability of a U.S. trade partnership with China that may be subject to further tariff hikes under the tenure of President Trump. This is an evolving situation. It's one we see new rhetoric on every single day at the moment. In response to the development of China's sponge export market, Argus launched two new Chinese titanium sponge export prices earlier in January, a min 99.7 tie grade and TGTV grade. Further information on these prices can be found on the landing page for this podcast.

Ronan: Yes, thanks for that. And yeah, I'd also point out that Argus has released a more extensive white paper on the Chinese titanium sponge export price launch and the development of that capacity. But that's, I think, looking at the kind of just overall global picture and the overall aerospace picture. So I'll turn now to Alex Nicoll for a U.S.-centric perspective. Alex, how will the new U.S. melting capacity that's coming online confront a recovering aerospace market?

Alex: Yeah. So as Sam described earlier, you know, airframers have faced challenges meeting their obligations to customers, you know, either as a result of their own operational missteps or because of supply chain disruptions. And those setbacks kind of dampened some momentum for these titanium mills that are expanding their melting operations. The striking at Boeing's Pacific Northwest facilities, which already curb production of the 737 MAX and other aircraft programs, kind of exacerbated softening demand for titanium ingots, which are, you know, used to produce mill products. That was already tempered from the company, curbing its output earlier in the year to focus on quality. We understand that some mills in the latest quarter had freed up capacity that they were seeking fill with new orders after Boeing admittedly turned off parts of its supply chain because of the work stoppage. And that forced certain machine shops and distribution centers to push off or cancel shipments for ingots.

Perryman, TIMET, and ATI all have planned to increase their titanium ingot production, with each at different stages in the process. Perryman and ATI are expanding existing operations and, from what we understand, are in the process of qualifying their products, while TIMET is building a new production facility in Ravenswood, West Virginia that will be its second biggest melting site after Morgantown, Pennsylvania, based off the waste capacity numbers to which we have access. Selling it to other end markets, such as to industrial defense customers, could provide somewhat of a relief valve in the short-term for titanium mills who will want to run their new furnaces once commissioned and ramped up after spending the capital, investing the time into the multi-year projects. Still, commercial aerospace applications account for around half of titanium mill consumption, meaning that as Boeing goes, so does the U.S. titanium industry.

Ronan: This new U.S. furnace capacity, how is that going to alter the type of titanium scrap that's consumed domestically?

Alex: Titanium mill scrap preferences vary based on how well they can handle the different forms and what kind of furnaces they're feeding. Consumption of vacuum quality turnings, which are better suited for use in electron beam melting, for instance, differs vastly by mill, with some able to control yield loss better than others when adding small chips to their melt mixes. This year could bring more parities to the titanium scrap market in terms of what mills want, given the new furnaces coming online. ATI and Perryman are both adding EB capabilities, which would theoretically increase their consumption of turnings and their share of the chips market. TIMET is adding seven vacuum arc remelt furnaces at Ravenswood, which theoretically would increase their need for scrap solids such as bulk weldable and feedstock. Still, any meaningful impact on the scrap market from the new plant likely won't be felt until 2026, as the company will still have to undergo product qualifications. Argus is actually adding a six-word feedstock price to titanium offerings in an effort to bring more nuance to scrap prices in the U.S.

Ronan: And just looking at Boeing specifically, if Boeing were to ramp as it says they will this year, what will titanium scrap demand theoretically be based off its targeted build rates for the company's main programs?

Alex: So broadly speaking, narrow-body aircraft weigh around 50 tons, and that number, you know, rises to 120 tons for the wide-body programs. Accurate numbers are difficult to find since Boeing does not disclose its manufacturer's empty weight for its jet, which is essentially the "add-the-built weight" coming off the assembly line. Still, taking those industry estimates, we can assume that 737 MAX aircraft contain about, you know, 3.5 tons of titanium, while the 787 Dreamliner contain about 80 tons, given what we know about the rough percentage breakdown of titanium content per, you know, major aircraft program for the airframer. Now multiply those figures by the 38 per month target Boeing has for 737 and the 10 per month target it has for the Dreamliner. It adds up pretty quickly. Still, those are the goals for the aircraft manufacturer. Boeing only ended 2024, producing the 787 at five per month, while it just resumed production of the 737 in mid-December, following the strike and ramp-up period took for them to retrain factory workers.

Ronan: And just, obviously, President Donald Trump has been inaugurated now, and we're still waiting for a lot of clarity on exactly how his protectionist agenda, especially in the form of tariffs, is going to unfold. But just broadly speaking, how do you expect that to modify flows of raw materials, including scrap and sponge for merchants and melters in the U.S.?

Alex: Boeing has stressed the importance of its revert programs in the past, you know, not allowing good titanium scrap to exit its supply chain or even the country. Still, the U.S. has had to look abroad to supplement domestic generation of scrap, given increased consumption of the metal, and improving buy-to-fly ratios that reduce the amount of scrap generated by a single component. The U.S. is actually a net importer of titanium scrap, primarily sourcing aerospace grade from overseas, while most exports that you'll see in trade data being of feral quality from the U.S. Currently, the U.S. is not levying any tariffs on scrap from most countries, allowing it to be freely traded, except from a few select sources that include China. That could change under Trump, who has already proposed instituting a 25% tariff on all imports from Canada and Mexico beginning on 1 February. Those two nations alone accounted for 50% of U.S. scrap imports from January to November of 2024. And Trump has also floated a universal 20% tariff on imports from all over the countries.

Regarding titanium and sponge, the U.S. has been 100% reliant on overseas production since TIMET idled its plan in Henderson, Nevada in 2020. There is currently a 15% tariff on all sponge imports into the U.S., even though there is no domestic industry to protect. That seems to have resonated with some politicians who have filed bills seeking to make sponge imports free of duty. The Securing America's Titanium Manufacturing Act is currently making its way through the U.S. Senate, lastly referred to that chamber's finance committee. An identical bill has been referred to the House of Representatives' trade zone committee. Titanium mills may alter their melt mixes to accommodate more sponge if tariffs were enacted on scrap, which would raise prices substantially both here and internationally. Generally, ingots are produced with a mix of sponge and scrap, with the latter accounting on average anywhere from 40% of an ingot feedstock source.

Ronan: Excellent. Thanks very much, Alex. And yeah, I think, certainly, on the tariff front, that is something that is very much a developing situation. And there is still a lot of uncertainty in the market on how that will actually unfold. Lastly, we are going to take a quick look at the state of play with key high-temperature metals, which although small in volume are crucial for engines in the aerospace industry and have garnered increased attention recently due to some sharp price increases. Notably, we've witnessed some price spikes in markets like rhenium. So Cristina, as the kind of expert on these high-temperature metals, can you tell us more about this?

Cristina: Yes. So over the past year, we've seen an increase, as you say, in the prices of high-temperature metals like rhenium. In engine manufacturing, rhenium's volumes are small, but they play a vital role. We saw that prices rose across all markets from the U.S. to Europe and China between late June and early September. They stabilized for a bit, but are trending upwards again. And one of the main reasons behind this increase is that China is buying more as they aim to develop their own engine and to reduce dependence on foreign suppliers for both civil and military aircraft. So just to get an idea, Molymet, which is the world's rhenium primary producer, reported an 80% increase in sales last year, driving by this demand from China mostly. We also see demand for other countries for the aerospace industry. So even without China, there will be a deficit. That said, aerospace consumers have become more aware of all these supply chain vulnerabilities in markets like rhenium and other high-temperature markets. And now they seek more extended supply contracts, for instance.

Another market to watch is tungsten. There's also been an increase in prices for tungsten products. The ones that go into aerospace are tungsten bars and vacuum scrap. And since August, we've seen also significant increases, also supported by higher prices in China and some tightness. On top, the ongoing trade tensions between the U.S. and China that you guys mentioned add another layer of complexity, especially because tungsten holds a strategic value. The U.S. has implemented a 25% tariff on some Chinese exports of tungsten. And this might drive the development of domestic projects within the U.S., but there is still a significant reliance on Chinese tungsten scrap and bars. And we need to see what happens, because it looks like Trump unexpectedly has held off on tariffs on China for now.

Ronan: Yes, absolutely. Absolutely. And beyond those smaller volume high-temperature metals, there's a separate story occurring with cobalt right now. Is that correct?

Cristina: Exactly, yes. There is an interesting dynamic with cobalt. The premium for alloy grade cobalt against the chemical grade has widened in the past two years as price have fallen for chemical grade and alloy grade has maintained a more robust demand. The demand for this cobalt product is tied to Boeing and Airbus sales, and it's also increasing in use in military applications. While all this is happening, there are issues at the three leading Western producers who are qualified to supply the aerospace industry. Sumitomo, it has revised down its production guidance this year. Then Vale Cobalt may be subject to Trump tariffs on Canadian goods. We don't know. And then Glencore Nikkelverk has been sold forward on long-term contracts quite regularly. So these three main producers cater mainly to the U.S. and the wider aerospace market, and they all have experienced disruption.

Ronan: Okay. And looking at the current state of play, obviously, we're wondering about potential U.S. tariffs on China and potential countermeasures. But the reality of the situation is that this kind of trade tension is very much been in play for some time. China has imposed recently enhanced export controls on dual-use items. So how is this affecting supply chains that are critical to the aerospace industry?

Cristina: Yes. As you say, we've seen an escalation. So in mid-November, China unveiled an export control list of around 700 items, which include various non-ferrous like hafnium, along with the specialty alloys of aluminum, titanium, and tungsten. Basically, now exporters are required to submit documents verifying who is the end user and what's the end use of the items. They have to prove that these metals are not going to be used in the military sector, basically. And I have been told that this requirement brings significant challenges for companies because sometimes they lack insight into whether the products might be used in the U.S. for military applications or for civil applications. So smelters find it difficult to navigate these changes.

And this might lead to higher prices because, for instance, in the case of hafnium, which is used in airplane turbines. Hafnium already require an export license from China, but now China has been more demanding and asked for more detailed information. And we've seen that at least three licenses from European traders have been revoked and others are facing requests for additional information. This comes at a time in which aerospace consumers are starting to inquire again. In the case of hafnium, we see a supply-demand imbalance. Even though prices are somewhat stable now, they could rise if less material from China enters Europe, especially because demand is expected to increase in sectors other than aerospace. Semiconductors, nuclear technologies might compete for volumes with aerospace, further impacting prices.

Ronan: Thanks very much for that, Cristina. And thanks very much to Samuel and Alex for your insights as well. That concludes the podcast. For more information on our prices and all the rest of our news and analysis coverage, please visit www.argusmedia.com/en. Thank you very much.