Understanding ‘Corrections’ in Ti Powder Market As Industries Grapple with Pandemic-Driven Downturn

Understanding ‘Corrections’ in Titanium Powder Market As Industries Grapple with a Pandemic-Driven Downturn

By Art Kracke, President, AAK Consulting LLC

If the titanium alloy powder market were the stock market, we would say it’s undergoing a severe correction. Stock market corrections are often caused by what has been termed as over exuberance. The pandemic-initiated correction exposed over exuberance in the form of a rush to add titanium alloy powder capacity by titanium and non-titanium producers.

Corrections, while painful, are thought of as cleansing events which help return markets to a healthier condition. In this case the “cleansing” actions include reduction of excess capacity, closing of unneeded atomizers, and businesses exiting the titanium alloy powder market as their business case expectations became unrealistic. Demand is down, but not equally across markets.

What caused the over exuberance in the titanium alloy powder market? It was driven by many causes including:

• Suppliers of mill products responding to their customers’ changing requirements

• External competitive pressures such as keeping up with competitors

• Internal pressures and FOMO (fear of missing out)

• Aggressive additive manufacturing industry growth forecasts

• The extraordinary amount of publicity showered on additive manufacturing

Constraints in Medical, Aerospace Markets The related technologies for titanium alloy powder and additive manufacturing are touted by many industry observers as having vast potential for part production in medical, aerospace, and other markets. Not surprisingly, Covid-19 has altered the industry dynamics during 2020. Consumption for orthopedic implants was severely constrained for a few months. The timeframe differs by geographical location. Implant surgeries, such as hip and knee replacements, were deemed to be elective surgeries therefore non-essential and were stopped when shelter-in-place orders, or lockdown orders, were implemented. Logic says the demand for implant surgeries became pent-up and the delayed surgeries will occur, with urgency. The moderating factor is surgical capacity. The physical discomfort experienced by patients and the financial discomfort experienced by hospitals and doctors will drive market recovery. Commercial aerospace consumption is a different story. Demand began declining when the Boeing 737MAX and its engines stopped production. Then the pandemic hit. The downturn, by most estimates, is the deepest the commercial aerospace industry has ever encountered.

As reported in the recent Aerospace Edition of TITANIUM TODAY, the International Air Transport Association (IATA), the Montreal-based the trade association, predicted international airlines will lose $84 billion this year. Alexandre de Juniac, IATA, director general and chief executive officer, offered the perspective in a June press statement: “Financially, 2020 will go down as the worst year in the history of aviation.” The decline in aerospace reduced short-term consumption and demand of all titanium products, including powder. It’s this author’s view that this downturn has not damaged the long-term growth opportunity for titanium alloy powder.

The Difference Between Consumption, Demand This would be a good time to briefly define consumption and demand. Consumption is what is used, demand is what is purchased. At first this distinction may appear like semantics, but at this point in the titanium and titanium alloy powder markets, the distinction is significant. Consumption declines in a downturn and inventories are consumed. While this is occurring, demand for new orders and shipments can collapse. Demand can go to zero while inventories are consumed and lead times for new products are reduced. Where are the inventory corrections occurring during this downturn for the titanium alloy powder?

• At original equipment manufacturers, where consumption is low and lead times for new orders are short

• At powder producers, as orders decline

• From the reduction of excess inventories throughout the supply chain

• From liquidation of inventories by businesses shutting down powder capacity or exiting the market

Looking Forward Based upon conditions in September 2020, and continuing with the stock market analogy, will the titanium alloy powder correction become a bear market? No one knows for certain, but in my view the answer is no. In my opinion, the disruptions are a correction, not a bear market. The benefits offered by additive manufacturing and the superior properties of titanium alloys will drive recovery, and then propel growth for generations.Experienced, qualified suppliers offering superior powder quality will be the least impacted by the pandemic, the first to recover,and will continue growing their businesses. Recovery could begin as soon as 2021, leading to growth of demand for titanium alloy powder in 2022. The long-term growth opportunity is unchanged.My estimation is consumption of titanium alloy powder market in 2020 will finish the year roughly flat with consumption in 2019. However, demand is a different story. Inventory reductions by powder producers and consuming businesses will reduce consumption. How much? A reasonable estimate could be 25 to 30 percent.

Additive manufacturing technology keeps getting broader and deeper, with equipment and process technologies, along with developments in powder technology, moving at a rapid rate. Additive manufacturing represents a suite of technologies and production methods, not just one process, and the related technologies for powder production can have a major impact for the titanium industry—namely to reduce the overall cost and improve the performance of titanium components. It can offer three important potential impact areas for the titanium industry: the ability to replace mill products; erosion of billet consumption; and new applications. The design flexibility of additive manufacturing can also open doors to new global markets for titanium. In light of today’s difficult market conditions and the uncertainty being faced, some may think this is a best-case projection. They may be right, but I have confidence that our free marketplace and the companies associated with titanium alloy powder will respond quickly and correctly. Recovery will begin sooner than many expect.