Of course, once explained the answers are obvious. The planes we see flying above us, whether military or commercial, are pretty old and inefficient. New fuel-efficient and eco-friendly ones are badly needed. And that is why we’ve noted this in our diary, because new planes use a lot of titanium… and this commodity is becoming increasingly more valuable.

US giant Boeing is pretty optimistic in its current market outlook. It sees new planes making up 80 percent of the 36,400 airplanes that will be in service in 2026.

Both Boeing and Europe’s giant, Airbus, see huge demand for planes coming from Asia-Pacific. The market is described as dividing up on the lines of 31% Asia-Pacific, 27% North America and 24% Europe. Then by 2026 the emerging countries of Argentina, Brazil, South Africa, with around 3bn people, will also want more planes.

Titanium is magic for aircraft manufacturers. It is corrosion resistant and has the highest strength to weight ratio of any metal. It is as strong as steel but 45% lighter. It occurs in the earth with a number of mineral deposits, principally rutile and ilmenite.

It was discovered in Cornwall in 1791 by amateur geologist and pastor William Gregor, then vicar of Creed parish. Uses have been found for it at a slowly increasing rate. Now it is more fully appreciated, supply is forecast to stay steady (or fall) but demand is expected to rise sharply.

As usual China’s position is key

The titanium minerals market was in deficit last year. As usual with metals and minerals, China’s position is key. It is no longer an exporter. Plus energy shortages in South Africa, producer of 27% of the market, are cutting supplies from there.

While the US has been using less, China has been using more. And whilst titanium’s toughness makes it such a popular alloy for metals, it also goes into paints, coatings and plastics – where its anti-corrosive properties are a winner.

Asia is the fastest growing market with projections of future growth rates of 6-7% a year. China, which has a demand of 650,000 tonnes per year, is seeing growth rates of 10% a year and above – according to producers. The largest amount of titanium consumption is in paints and coatings, followed by plastics. Analysts forecast that China will represent 17% of global consumption by 2010-2011.

India is the next power house with growth rates of 8-10% per year while demand in southeast Asia is growing at a healthy 4-6% per year. Vietnam also has strong growth but from a small base.

Prices of Chinese imports of ilmenite, the main feedstock for titanium, have risen by around 50% so far this year. With global demand for titanium minerals expected to rise by 3.6% this year on average, more price rises seem on the cards. Apparently, a lift of 1% in Chinese GDP results in a 2.2% lift in titanium consumption.

A little Irish one to watch

A little producer that we’ve been watching, although it is still very early days, is actually an Irish company, quoted in Dublin and on AIM. This is Kenmare Resources. Last year it produced 86,000 tonnes of ilmenite, but this is forecast by broker Canaccord to leap to 541,000 tonnes this year and 747,000 next.

So that means, says Canaccord, that it should soon be making reasonable profits — from losses of nearly US$10m last year – to break even this year, and then on to profits of US$19m in 2009, with US$79m in 2010.

By Erin Hamilton and Isabel Turner

Source: Titanium Is Flying High

A US energy economist has a neat explanation as to why this is happening – and it fits exactly with my view of the world. It’s all about population growth leading to energy shortages – and he believes it’s hitting oil-producing nations hard.

Writing in the Financial Times, Ohio Northern University Energy Economist AF Alhajji, said that Opec’s vanishing excess capacity was now keeping the oil price above $100. He argued that Gulf States’ power crises were now a primary driver of the oil price.

Excess capacity too

Alhajji argued that when considering total oil stocks, you must include inventories in industrial nations PLUS excess capacity in producer states. We all seem to focus on US oil inventories – but we should be looking at capacity in producing nations too.

Despite rising inventories; vanishing capacity in Gulf nations makes total global oil stocks so small that this has been the main driver keeping the oil price above $100, he argued.

So, based on this analysis, when we are considering global oil stocks, oil EXPORTS from these countries are the most important factor – NOT total oil production.

Rising living standards, soaring populations and urbanisation is increasing demand in oil-rich nations. They are using their own oil to supply their soaring energy needs. This would also explain why Opec has been reluctant to increase production… it simply can’t because of its own power shortages.

In March, the Middle East Economic Digest warned of an imminent power and water crisis across the Gulf. It said there was a serious supply and demand imbalance caused by a lack of infrastructure investment earlier in the decade.

The GCC is currently building a Gulf power grid that will connect the six member states, paving the way for a regional electricity market. The grid will not come online until 2009, however.

So, a temporary change in the dollar’s fortunes has revealed that fundamentals are taking over as the main driver. Cheap oil really has gone forever.
Regards

For Garry Writes