Titanium remains one of the best structural materials.

Ukrainian Titanium: To be or not to be?

Leonid TEPLOV, Vitaliy GNATUSH

Attentively reading the article “Titanium, magnesium, silicon, and
germanium” by Vladislav Telin, Director General with Zaporozhje Titanium and Magnesium
Works (ZTMW), in the March issue of “Metals Market”, one can only compliment
significant efforts of the ZTMW management to survive in the present financial and
economic crisis, as well as to outset production of such a strategically important
commodity as titanium sponge. Up to the date, the ZTMW has manufactured circa 4 ths. tons
of titanium sponge. Yet, only 10% of the mentioned amount was sold. Only the following
Ukrainian producers evinced interest in the ZTMW product: “DneproSpetsStal” of
Zaporozhje, the Titanium Institute, and the Research and Technical Center of Paton
Institute. Titanium sponge consignment, shipped to British consumers, was sent back to
Ukraine because the purchaser claimed dissatisfaction with quality.

During the press conference at the end of May, Evgeniy Kartashov, the Head
of Zaporozhje Regional State Administration, informed that the ZTMW presently stockpiled
titanium sponge for more than USD 3 mln.

Why did this product, considered to be exportable, now become unclaimed?
Specialists with the enterprise say that this occurred due to low prices for titanium
sponge on the world market. For example, the price for TG 100 (12×70 mm) titanium sponge
on the European market varies within the range from USD/kg 6.20 –7.00 (as of January) to
USD/kg 6.00 – 6.60 (as of June). To compare, one kilogram of rolled titanium is worth
USD 13-25.

The ZTMW failed in its efforts to seal contracts to foundry of titanium
sponge into ingots to be further imported back to Ukraine with aim of manufacturing end
products (Ukraine does not have any large producers of titanium ingots).

The State Program “Ukrainian Titanium” envisions that smelting and
rolling facilities will be established only on the second and third stages.

Despite the fact that Ukrainian titanium sponge is unclaimed by the
consumers yet, titanium remains one of the most efficient structural materials. High
corrosion resistance, low density, and thermal conductivity ensure its wide utilization in
the air-space and shipbuilding industries.

Until the middle of the past decade, the main consumers of titanium were
military-industrial complex enterprises of the ex-USSR and NATO countries. After the end
of the Cold War and collapse of the Soviet Union, volume of orders for military
engineering reduced significantly. As a result, demand for semifinished titanium products
and alloys shrank as well. The market reacted by curtailing output volumes on sponge,
ingots, and semifinished items made of titanium, as well as by price decrease for titanium
products. Price lowering allowed increasing utilization of titanium products in civil
industries. Constant growth in production and consumption of titanium has been observed
starting 1992.

In the late 80s, taking into consideration unfavorable market conjuncture
and high ecological hazard, such companies as "RMI" (USA), “Showa” (Japan),
and “Deeside” (UK) stopped titanium sponge output and laid up production capacities.
Presently, only six big producers of titanium sponge operate on the world market:
"TIMET" and "OREMET" (USA), “Sitix” and “Toho” (Japan),
"AVISMA" (Berezniki, Russia) and "Ust-Kamenogorsk Titanium and Magnesium
Works " (Ust-Kamenogorsk, Kazakhstan). However, due to the increase in consumption by
civil sectors, in 1996-97, the volume of titanium sponge production grew as high as
1.4-1.7 times against the year 1995 (see table below). Information taken from the
“Titanium and Its Markets” Conference, held in San Antonio, Texas, USA, on February
15-17, 1998, and from U.S. Geological Survey.

Global output of titanium sponge

The table shows that significant reserves of production capacities for
titanium sponge are concentrated in the USA, Russia and, particularly, in Kazakhstan. It
is important to outline that titanium sponge production was 52.0 ths. tons in 1998, but,
taking into account the US potential, it is approximately 73.6-81.5 ths. tons.
Consequently, stability in the world production of titanium sponge originated back in
1997-98, while the capacity reserve varies from 40 to 60 ths. tons.

Where does the sponge go?

Sponge produced in the USA and China is almost completely consumed within
these countries, but in Japan and Russia more than a half of manufactured titanium sponge
is exported to the world markets. In 1994-1997, structure of American import of titanium
sponge was as follows: Russia contributed 55%, Japan – 32%, Kazakhstan – 5%, and China
– 4%. During this period, sponge import increased from 6.47 to 16.1 ths. tons (1997),
but plunged to 13.2 ths. tons in 1998.

After merger of JSC “VSMPO” and JSC “AVISMA”, Russia possesses 43%
of titanium production capacities on the world market. Major Russian titanium and titanium
products’ consumers are the leading manufacturers and distributors ("Timet",
"Shultz Steel Co.", "Tico Titanium", and "Titania Spa.");
major air-space firms in the USA and Europe ("Boeing" and "Airbus
Industries"); manufacturers of equipment for power engineering, oil extraction and
refining; big trading houses and ingot suppliers.

In the meantime, despite such solid clients, JSC “VSMPO” gained 22%
lower profits in 1998 than in 1997 due to decrease in both titanium sponge prices and
production volumes.

OJSC “Ust-Kamenogorsk Titanium and Magnesium Works” (UKTMW) has a
distinguished position on the market because it exports almost all the sponge produced.
After privatization (Belgian company "Speciality Metals Company S.A." acquired a
65.67% stake in the enterprise) and receiving investments, the Works shows significant
increase in production volumes. Furthermore, the UKTMW installed new equipment, which
allows higher output of sponge grades TG-90 and TG-100. By the results of 1998, the
company saw increase in production volumes by 1.2 times; yet, net profit of the OJSC
decreased by 28.2% as compared to 1997.

Structure and demand for titanium products

In the USA, air-space industry utilizes approximately 70% of semifinished
titanium products; in addition, the share of civil aircraft industry is more than two
thirds. In “Boeing-777”, 5-7% of components are made of titanium, while in aircraft
engines portion of titanium products reaches 20-30% of the gross weight. It is less than
in military airplanes, where titanium accounts for 25-30%, but the volume of orders for
civil airliners is significantly higher. “Boeing” has announced its plans to build
16,160 new airplanes by the year 2016 (including replacement of 4,060 deteriorated
aircraft), while up till now, only 11,500 new planes have been manufactured.

The titanium boom ceased in 1998 due to the financial crisis in Asia.
Southeast Asian countries decreased and withdrew some of their orders for civil aircraft
manufactured by American “Boeing” and European “Airbus Industries”. According to
the estimates by experts, in the nearest 20 years, the portion of Asian orders in business
of both companies was planned to reach 30%. Cancellation of orders caused decrease in
titanium sponge and scrap imports in the USA. As a result, JSC “VSMPO” reduced sales
of marketable products by 24% (in USD amount) in 1998, comparing to 1997. However, JSC
“VSMPO” supplied 65% of its exported products to the USA in 1998. The biggest American
titanium producer “Timet” anticipates cutback in output by 15% in 1999 comparing to
1998. The same situation is expected in Europe.

In Japan, up to 16% of titanium products and alloys are used in chemical
industry (for reservoirs, pipelines and stop valves); up to 10% – for manufacturing of
heat exchangers; up to 14% – in power engineering; up to 20% – in commerce; up to 14%
– in consumer goods production, and up to 2.6% – in construction. Civil industries
account for some 90% of domestic titanium consumption. Japan exports titanium products for
the power industry, chemical industry, and heat exchangers’ production.

In Western European countries, distribution of titanium consumption is
intermediate between Japan and the USA. It is important to outline such areas of
application as sports industry (clubs and bicycles), medicine (artificial limbs) and
consumer goods (watch cases and eyeglass frames). Titanium utilization is expanding due to
construction of offshore oil & gas platforms. The airspace industry consumes
approximately 9 ths. tons of titanium, including 5,000 tons used for engines, 3,500 tons
for airplanes, and 500 tons for rockets and satellites. Supposed, in the nearest 3-5
years, demand for titanium in Western Europe will remain on the same level or will rise
somewhat, but not for more than by 10%.

The titanium industry of China is expected to develop rather rapidly and by
the year 2010 may reach the volume of production for titanium sponge of 10 ths. tons and 6
ths. tons for wrought semifinished product.

Titanium utilization analysis in air-space and civil industries shows that,
taking into consideration high competition with other structural materials, the most
important criterion of success is the price. Mainly price lowering at the end of the 80s
provided increase in titanium production volumes and wide usage. Thus, reduction or even
retaining the same level of prices for semifinished titanium products is essential for
successful industry development in the XXI century. However, such a tendency doesn’t
satisfy Ukrainian titanium sponge producers. With very high expenses, especially for
power, the ZTMW must sell its sponge on the international markets at very low,
disadvantageous prices. The ZTMW hopes that titanium sponge cost may be lessened by
employing the Program for Regional Economic Stabilization in Zaporozhje region currently
under way.

The world has set the way for solving this problem long ago – save on
taxes and slash marketing expenses by concentrating production and establishing vertically
integrated companies. For example, "TIMET" corporation, titanium sponge and
semifinished products manufacturer, purchased "THT" plant for electron beam
titanium ingot melting and integrated with "IMI" (UK), "Cezus"
(France), "Vallimet" and "W.G. Melt Shop" (USA).
“Allegheny-Teledyne” (USA) group of companies specializing in semifinished products
and super alloys manufacturing acquired "OREMET" titanium sponge producer (USA)
for USD 560 mln.

Another way of lowering titanium ingots’ and semifinished products’
production costs is to expand processing of titanium production wastes, which constitute
some 70% of the sponge. American scientists consider the best possibility for titanium
waste and alloys utilization to be the technology of electron beam titanium ingot melting
with intermediate vessel, which maintains the necessary quantity of melted ingots from
waste. Currently, at special premises of "THT" company (USA), another electron
beam furnace with titanium ingot output capacity of 9.5 ths. tons per year is under
construction,. "OREMET" company puts into service electron beam furnace with
titanium ingot output of 10 ths. tons per year. “Galt Alloys” (USA) assembles two
plasma-arc furnaces for waste processing into consumable billets with yearly output
capacity of 5.5 ths. tons.

Analysis of the international trends indicates that the ZTMW will not
accomplish to survive alone. The main objectives now are to close the cycle of titanium
rolling and casting and to bring it up to production of finished products for mechanical
engineering, chemical, oil & gas industries, consumer goods production.

What do we have?

Ukraine has almost everything to become a titanium country:

• powerful intellectual potential;

• sufficient raw material deposits;

• titanium sponge production;

• technologies and equipment for small-lot ingot production;

• rolling mill accessories for plate and tube manufacturing;

• titanium foundry.

Priority directions for titanium production growth are set in the special
program for titanium industry development and in the Conception for Ukraine’s Metallurgic
Complex Development until the year 2010. They provide for not only resumption of sponge
titanium production, but also for establishing titanium rolling, implementing and
increasing capacities for titanium pigmentary dioxide production for paint and varnish
industry.

According to scientists’ evaluations, 15 ths. tons of titanium sponge
will be manufactured in Ukraine by the year 2005 and 25 ths. tons by 2010. Meanwhile, the
ZTMW plans to attain the projected output of 6.2 ths. tons in 1999.

Who needs this commodity?

Consumption sector for titanium products in Ukraine is rather wide and
utilizes approximately 1,000-1,500 tons per year, according to the specialists. It is used
for such products as aircraft engines, regenerative air heaters for thermoelectric power
plants, and consumer goods. Yet, who is finally capable of uniting efforts of titanium
manufacturers and consumers? If all these problems are solved, we can have our own
finished titanium products. Then our products will not remain in warehouses for long. Yet,
everything is somewhat different so far.

Since the titanium industry is of high priority for Ukraine, the Editorial
Board of “Metals Market” intends to conduct a round-table meeting “Titanium of
Ukraine” with all the interested parties: manufacturers, consumers, managers,
legislators, and scientists. We are looking forward to your proposals.

• "Rynok metallov" ("Metals Market")