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Global conflict in multiple locations has defense spending on the rise, though sourcing material remains a challenge.

There is no question that with all the conflicts taking place throughout the world, both U.S. and global defense spending has been, and will continue to be, quite strong. But meeting the growing requirements for the wide array of military equipment and munitions has been somewhat challenging given the tight supply. Therefore, extended lead times have been commonplace for the various metals and other materials used in these defense-related applications. 

On the other hand, it is uncertain what impact the recent push for more drones will have upon material suppliers given they tend to contain less metal than other types of defense equipment, including defense aircraft and armored vehicles. 

“When we look across all defense spending, we are seeing very robust activity with overall procurement increases that are about 10 to 25 percent more than historical levels,” notes Bob Mraz, vice president of sales and marketing for TW Metals, which is one of the two direct vendors to the U.S. government’s Defense Logistics Agency for their Total Logistics Solution metals contracts. He points out that not only is demand strong for sales to the prime defense contractors but also for maintenance, repair and overhaul activities at Air Force bases, Navy shipyards and military arsenals all over the world. 

Mraz, who just moved on to parent company O’Neal Industries after more than 50 years with TW Metals, says defense-related research and development activity is up at least 50 percent, with new technologies such as artificial intelligence driving a lot of the changes. “In previous conflicts a lot of dumb bombs were used but now we are seeing more smart bombs,” which, while more expensive, tend to hit their targets with greater accuracy,” he observes.

It isn’t surprising there have been increases in virtually every type of defense spending. “If you ask yourself if the world is becoming a safer place, the answer is probably ‘No,’” Mraz says. “And in order to assure national security for both ourselves and our allies we need to be stronger and more capable militarily.”

According to Viv Helwig, president of Vested Metals, there has been a particular focus on such near-term threat deterrents as unmanned aerial vehicles and drones, missiles and other artillery replenishments, anti-aircraft systems, armored vehicles and Navy and nuclear system components. He also notes there has been a growing push for the usage and adoption of artificial intelligence in defense systems and components. 

James Mossgraber, vice president and general manager of T&T Materials, notes this situation has changed dramatically over the past few years due to a number of military conflicts, most notably the Russian invasion of Ukraine and Israel’s war in Gaza following Hamas’ invasion on Oct. 7. Also, Jerry Bashir, president and CEO of Falcon Aerospace, says there could be violence elsewhere, including the potential for China to seek to take back Taiwan.

“The global defense market is very hot right now,” says Jeremiah Gertler, a senior analyst for Teal Group, attributing a lot of that to the fact that many countries, especially European countries, have been sending their older equipment to Ukraine and are now buying new equipment to replace that. 

Meanwhile, he says, it has been harder to get a handle on U.S. defense spending and what is being planned and purchased for the array of defense-related programs. This is because, as of early March, Congress had not yet passed its fiscal 2024 defense budget – which if it followed the normal pattern should have been passed late last year. It had, however, been expected to be approved by March 22 as part of Congress’ effort to prevent a government shutdown. 

Similarly, it wasn’t until March 11 that the Biden administration released the initial proposal for its fiscal 2025 budget, which included a recommended 1.8  percent year-on-year increase in defense spending to $849.8 billion. That outlay, according to a statement by Defense Secretary Lloyd J. Austin III, will better position the country to deter aggression against the U.S. and its allies and partners. However, it is uncertain how much of that increase will hold given that, as a whole, the federal budget proposal was met by much resistance, particularly from Republican lawmakers. 

Also, even before that proposal was announced there had been some indications there would be resistance, maintains Phil Gibbs, a senior equity analyst for KeyBanc Capital Markets. This includes some talk about reducing the 2025 budget for the F-35 Joint Strike Fighter by as much as 20 percent. 

This, however, is somewhat contradictory to those who see it continuing to grow. For example, Helwig says that not only does he expect the fiscal 2025 budget to be over $800 billion for the first time, but he believes the United States is not far from having its first $1 trillion-plus defense budget. 

Mike Stengel, a principal with AeroDynamic Advisory, says this comes as the world’s major powers have moved from a posture focused upon counterinsurgency to much more conventional near-peer threats, with both the U.S. and other NATO members onboard with this kind of defense spending. 

In mid-March, it was widely expected the U.S. would be sending Ukraine a number of Army Tactical Missile Systems as part of a new $300 million military aid package. This includes additional anti-personnel/anti-materiel missiles, as well as artillery rounds and additional rounds for howitzers and guided multiple launch rocket systems. 

President Joe Biden, however, said that while it will be helpful, he didn’t feel this was enough and he urged Congress to pass the pending $90 billion supplemental bill to provide Ukraine, as well as Israel/Gaza and Taiwan, with military aid over the longer term. 

These dynamics present both opportunities and challenges to those throughout the defense industry’s supply chain. 

“It is widely known that our domestic defense industrial base is lacking the capacity and supply chain flexibility to support the needed stockpile replenishment and buildup of the arsenal,” Helwig states. 

Mraz points out the defense industry has certain advantages over other end-use markets for some metals suppliers, particularly specialty metals distributors. One, he says, is because it isn’t driven by the economy, but by the need for national security. Another reason is because the federal government has the ability to print its own money, “so it tends to do what they have to do and amazingly always seems to have the budget to pay for it.”

While there is no doubt that companies that produce the metals used by the defense industry are benefiting from this increased demand, Gibbs points out there is currently a perfect storm of tightness with commercial applications as those markets are also strong. 

“Their assets are fungible and shared between commercial aerospace and defense applications,” so when they have maxed out their capacity to meet orders by the commercial industry at the same time the government needs it for defense, the result is long lead times for those metals. Gibbs says that obviously the mills give the government preference when it needs the metal, but they still haven’t been able to get metal to prime defense contracts as quickly as they would like. 

“Given this, there has been, more than ever, a focus to determine what metals need to be used for defense vs. commercial aerospace applications, so they can be tracked and supported in a way to be sure that defense always has the proverbial seat at the table,” he says.

But that is hard to do with uncertainty about changes in the amount of metals the Defense Department is looking to use, especially in its aircraft. As metals tend to be more detectable than some other materials such as composites, Teal’s Gertler says there has been some shift in thinking. “Today the DOD is less interested in the incumbency of existing suppliers than in new ideas.” He notes that in addition to the detectability issue, the DOD is looking for new solutions, including those using metals, composites and ceramics, that are lighter weight and more high-temperature resistant. 

This, Stengel says, comes amid a plethora of new clean sheet military aircraft platforms on the horizon. For example, the B-21 Raider next generation fighter, the Bell V-280, T-7 trainer and E-7 Wedgetail are all expected to come into service by 2030. Also, he notes the DOD has been “flirting” with such new concepts as the Collaborative Combat Aircraft, which would boost survivability while also attempting to lower procurement and fielding costs. 

With the growth in demand, T&T Materials’ Mossgraber says domestic mill lead times for many metals used in defense applications have been expanding exponentially and don’t meet the requirements of the defense prime contractors. 

This, Mraz notes, comes after about two years ago there had been “a tsunami of demand and just a trickle of supply.” He says that while that crisis is now over and that lead times for some metals have started to come in somewhat, they are still quite long. 

Lead times for certain titanium products are particularly long – as much as 70 weeks compared with about 10 to 14 months previously. This isn’t surprising given that, as Mossgraber explains, prior to the recent sanctions a lot of titanium sponge had come from Russia, which has presented a lot of challenges to U.S. and European titanium producers in the wake of the country’s invasion of Ukraine and the sanctions that followed. 

That, Bashir says, is because even though the U.S. defense sector didn’t use Russian titanium, the titanium they do use is in tighter supply given the competition from commercial applications. And that has resulted in much higher prices for both titanium and, therefore, aircraft. This is not just because of the tight supply, but because Russian titanium was cheaper than the material from the United States and Europe. 

He also notes that lead times for such specialty steels as nickel alloys and vacuum induction and remelt material have also increased to 65 to120 weeks from 25 to 30 weeks, with most domestic mills being on allocation or controlled-order entry. 

Mraz points out that even some standard stainless steel product lead times are currently about 40 weeks, up from about 10 to 12 weeks with those for certain specialty stainless steel grades more than five to six months.

Aerospace aluminum lead times have also extended, Mraz says, particularly those for aluminum extrusions, with large press extrusion lead times stretching out about a year. He says that at the same time lead times for other forms of aerospace aluminum, like tubing, plate and sheet, have extended to about 24 to 26 weeks. 

“It is clear that the defense sector will be an increasing market for years to come,” Gibbs says, “But it is currently uncertain for which programs and what materials they will use.” For example, while there is clearly a push to use more drones, he pointed out that they don’t contain a lot of metal or carbon fiber – not like armored vehicles and full-sized defense aircraft. 

One exception could be the Air Force’s Collaborative Combat Aircraft program, which, Gertler says would result in the deployment of unmanned drones that are the size of fighter aircraft that are to fly alongside manned fighters. 

“I believe that we are in a super cycle and that we will see double-digit increases over the next couple of years,” Mraz says. For that reason, Mossgraber says, it will continue to be challenging for metal suppliers – both mills and distributors – to meet the requirements of the defense industry. 

That is expected to be the case for both major avenues of defense spending, new military equipment and MRO work. 

[Caption:]
A V-BAT unmanned aerial system recovers aboard the USS Carter Hall.  (Photo courtesy Department of Defense)