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Aerospace Metals Market

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‘Up, Up and Away!’ The outlook for air travel, and production of new aircraft, promises a robust market for suppliers of aerospace materials for at least the next decade. By Myra Pinkham, Contributing Editor It’s an exciting time to serve the commercial aerospace industry, metals suppliers agree. With orders for new aircraft backlogged for seven to eight years, many industry observers are optimistic that demand will stay “up, up and away” for some time to come. But nothing is absolutely certain, warns industry analyst Richard Aboulafia, vice president of the Teal Group, Fairfax, Va. Calling the commercial aerospace industry possibly the strongest segment in both the domestic and global economies, he notes that a bubble may be forming—one that could burst if some unforeseen economic calamity causes widespread cancellation of promised aircraft orders. “There could be a real danger,” he says. Others are far more optimistic, not just about the near term but even the more distant future. With industry forecasts of about 10 percent compound annual growth for the commercial aerospace sector in the next several years, “even the bears have become bullish,” says James Callan, president of Castle Metals Aerospace, Oakbrook, Ill. During his company’s second-quarter earnings conference call in July, Klaus Kleinfeld, chairman and chief executive officer of Alcoa Inc., called the 8,300 unit commercial aircraft backlog “pretty amazing.” While the rate of new orders has slowed slightly in the second half, along with most economic activity, the backlogs at both major airframe manufacturers--Boeing Commercial Airplanes and Airbus Industrie—have not diminished. Demand for both single-aisle and twin-aisle aircraft will continue to be strong for some time, says Keith Harvey, senior vice president of aerospace and distribution sales and marketing for Kaiser Aluminum Corp., Foothill Ranch, Calif. So far, 2012 has been an “up, up and away year” for aerospace metals suppliers, says Bob Mraz, vice president of sales and marketing for TW Metals Inc., Exton, Pa. “We have been able to sell just about all the aerospace grade metal we could get our hands on.” That activity is not expected to ease anytime soon. Aboulafia forecasts a few more years of modest growth until the arrival of the next generation narrow body aircraft in 2016-17, at which time demand for metals is likely to accelerate. “There could be a little dip between 2015 and 2016 with airlines waiting for the new generation aircraft before they place new orders, but material suppliers won’t feel that dip in growth until 2014,” he says. Even then, the change will be slight. “Even with the dip, builds will be higher than the numbers we are seeing today,” Aboulafia predicts. Economic growth in India, China, elsewhere in Asia, the Middle East, South America and Africa has spawned increased flying by the public in the third world. Industry forecasts call for air traffic to increase globally at a compound annual rate of 4-5 percent through 2030. “There has been a lot of discussion of an aerospace super cycle driven by the growth of wealth in developing nations,” says Mark Kamon, senior vice president commercial for the specialty alloy operations of Carpenter Technology Corp., Wyomissing, Pa. Carriers in the developed world, many of which are flying an older, less fuel efficient fleet, also have been buying more aircraft, partly because of the rising cost of jet fuel. “No one is forecasting oil prices to go much lower than $100 per barrel in the near future,” notes Harvey. Aboulafia says there has been a “run out” of certain “offending aircraft” such as the MD-800 and the DC-9, with their older, fuel-guzzling engines. Newer generation aircraft, with the latest jet engine technology, tend to be more efficient, greener and quieter. Lloyd O’Carroll, senior vice president for research at Davenport & Co., Richmond, Va., writes in the latest Davenport Quarterly Aluminum Outlook report that he expects global deliveries of aircraft to rise 12.5 percent to 1,310 planes this year and another 9.5 percent to 1,435 planes in 2013. Pointing to a trend that favors metal suppliers, he expects wide body aircraft orders to grow faster than narrow bodies, with twin-aisle planes likely to grow about 20 percent per year from 2011 to 2016, compared to only 6 percent for single-aisle planes. Aluminum shipments to the aerospace market will increase 16 percent this year, to 660 million pounds, and another 9 percent next year, to 719 million pounds, O’Carroll predicts. Shipments of other aerospace metals, including titanium, nickel-based alloys and high-performance stainless steels are also on the rise. Boeing has stated its intention to work down its titanium inventories, which got out of line with the three-year delay of its 787 Dreamliner—an aircraft seen critical to titanium demand given its high composite content. “Their burn rate has been going at a faster pace and should get into balance by the end of the year,” says Bill Sales, senior vice president of nonferrous operations for Reliance Steel & Aluminum Co., Los Angeles. Global titanium mill product shipments into the commercial aerospace market are expected to grow at a compound annual rate of 8.4 percent from 2011-2016, including a projected 16.0 percent increase this year and 12.8 percent in 2013, says Richard Leone, a spokesman for RTI International Metals Inc., Niles, Ohio. Weight savings is a big factor, he says, adding that the combination of titanium and composites is a good solution. “Titanium demand tends to grow along with the use of composites because they expand and contract at the same rate, and because they don’t corrode or erode each other [like aluminum].” To what degree aircraft designers will substitute composite materials for metals remains up in the air, Sales says. “Using composites has been more challenging than was originally thought. Also, aluminum mills have been working to reclaim the share they lost by developing new alloys, including aluminum lithium.” Alcoa, for one, recently announced the successful commercialization of a suite of third-generation aluminum lithium alloys, and its R&D continues. “We view composites as the great motivator,” says Alcoa spokesman Kevin Lowery. “The competition helped us to step up the game and to show that we [aluminum] can lower the weight, save fuel and keep costs level. We have seen that as a great opportunity.” Christophe Villemin, president of global aerospace for Paris-based Constellium, says his company also continues to refine its AIRWARE portfolio of aluminum lithium products, including three new ones: AIRWARE I-GAUGE (a thick, low-density alloy plate), AIRWARE I-FORM (a highly formable sheet product) and AIRWARE I-CORE (a high-strength extruded product) introduced at the Farnborough International Airshow in July. Demand for nickel-based alloys and superalloys for jet engines also has been solid, say the experts. “With jet engines becoming more fuel efficient and having more complex, hot-running designs, the need for nickel-based superalloys, which are used because of their strength and heat-resistance properties, have been growing,” notes Carpenter’s Kamon. High-end stainless steels also have found increased application in landing gear and high-temperature uses, replacing parts with cadmium-based coatings. Due to the strength and fatigue resistance of high-end stainless steels, OEMs can use less metal in smaller diameters and lighter gauges for the same mission, Kamon notes. But Callan at Castle Metals does not expect any significant change in the aerospace materials mix, at least in the near term, given the long development time, including testing and approval, required by the aerospace industry. One key risk of moves by the airframe builders to accelerate delivery schedules, such as Boeing’s so-called surge line for 787 production in Everett, Wash., is the ability of the supply chain to ramp up to necessary levels, O’Carroll says. “Lead times—from demand forecasts submitted to aluminum suppliers to the final assembly lines at OEMs—can take up to 2.5 years,” Villemin notes. Both Boeing and Airbus have been focusing on the rate readiness of their suppliers, Harvey says. This includes making sure they have the proper logistics in place and the capacity to deliver products on a timely basis. Among its investments, Kaiser expects to complete a Phase 4 plate expansion at its Trentwood, Wash., rolling mill by year end. Alcoa has increased its capacity in key areas, including aluminum lithium production at its Kitts Green, UK, facility, and at its Upper Burrell, Pa., technology center. It also has broken ground on a greenfield aluminum lithium facility adjacent to its Lafayette, Ind., plant, which will be capable of casting round and rectangular ingot for rolled, extruded and forged applications. The new plant is due to come online by the end of 2014. Constellium has invested in a cast house dedicated to mass production of AIRWARE, as well as a pound stretcher at its Ravenswood, W.Va., facility. It also is in the process of obtaining aerospace qualification for its Sierre, Switzerland, plant and is reworking its manufacturing system to optimize its supply chain, Villemin says. Carpenter is building a new premium alloy facility in Limestone County, Ala., which will include remelting, forging and associated finishing and testing capabilities for the kind of alloys used in aerospace applications, Kamon says. Other producers also have upgraded their aerospace metals capacities and capabilities. “It’s an exciting time to be involved with the aerospace industry,” Callan says. “Even with the slowing of growth in the economy, the backlogs of commercial airliners will allow the aerospace industry to grow—and its metals suppliers to grow with it.”