Bill Leavelle Bill Leavelle Director Director Castle Metals - - PDF document

The Aerospace & Defense Forum South Bay Chapter April 8, 2015 1

Bill Leavelle Bill Leavelle – Director Director Castle Metals Aerospace Castle Metals Aerospace

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• Presentation is for Aerospace & Defense

Presentation is for Aerospace & Defense Forum Members Only. Forum Members Only.

• It Is Not To Be Released, Distributed, Copied

It Is Not To Be Released, Distributed, Copied Or Disseminated To Outside Parties (News Or Disseminated To Outside Parties (News Media, Non Aerospace & Defense Forum Media, Non Aerospace & Defense Forum Companies) Without The Prior Consent Of Companies) Without The Prior Consent Of Castle Metals Aerospace. Castle Metals Aerospace.

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• Introduction

Introduction

• Market

Market Undercurrents Undercurrents

• Effect of Market

Effect of Market Forces and Disruptions Forces and Disruptions

• Aluminum Fundamentals & KPI’s

Aluminum Fundamentals & KPI’s

• Titanium Fundamentals & KPI’s

Titanium Fundamentals & KPI’s

• Nickel Fundamentals & KPI’s

Nickel Fundamentals & KPI’s

• Aircraft Alloy Bar Fundamentals & KPI’s

Aircraft Alloy Bar Fundamentals & KPI’s

• Market Predictions

Market Predictions

• Summation

Summation

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Source: Bill Bihlman- ‘Aerolytics’

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Source: Bill Bihlman- ‘Aerolytics’

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Source: Sanford Bernstein Research

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Indonesian Gov’t. Ban on Export of Nickel Ore:

demanding Foreign Investment in Down-stream processing within country’s borders.

Further Consolidation in the Specialty Metals

Market including: Alcoa Purchase of RTI Alcoa Purchase of Firth Rixon PCC Purchase of Timet, Special Metals, & Caledonian Alloys/SOS.

Continued Political Uncertainty in Russia

and the Ukraine

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New Titanium Sponge Capacity in India (Adding to

Over-Supply)

China Titanium Smelters running at 40% and losing

• money. (30-35% of Global Supply)

VSMPO represents 30% of Global Supply (Russia) High Reliance on Titanium Scrap in New Ingot

Production (50-55% Recycled Content) driving Scrap prices higher.

Lack of Long Term EX-IM Bank guarantee adds

uncertainty.

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Consolidation in the “End User” = Airlines Oligopoly in Aircraft OEM’s Raw Material Consolidation

Older, “Traditional” Producers (Alcoa/ATI/CRS) have different philosophies regarding Asset Utilization than newer entrants (PCC) More likely to idle capacity than to try to “Sell” their way out of bad market.

Greater ‘Directed Supply’ means less flexibility and

generally longer lead times.

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All are ‘forces’ which are aligning against

the Tier II, III, IV suppliers, and could impact profitability.

The New “Reality”: Continuous Cost Cutting and Pricing Pressure is here to stay. Raw Material Suppliers moving up the Supply Chain: Laser Cutting / Water Jet Cutting / Machining (RTI purchase of Remmele Eng.) Machining Companies performing Component Assembly Overall Consolidation of the Supply Chain.

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Four North American

Producers of Hard Alloy “A&D” Aluminum Plate Products

Kaiser, Aleris, Alcoa &

Constellium

Airframe OEM’s both

have Multi-Year Fixed/Firm Aluminum Plate Contracts with all Four Producers

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Aero Aluminum Plate =

Hectic Times Ahead

Three Separate 5% Price

Increases in last 18 months

CAGR = 9-1/2%

2014 -2018

20 week average Lead-time

for Aerospace Plate / Sheet (Up 120% in 15 months)

Longer for the Odd &

Unusual Grades / Sizes

Aluminum Extrusions =

‘Status Quo’

No Major Price Increases 4 weeks for Small Press

Extrusions

5-8 weeks for Medium

Press Extrusions

18-30 Weeks for Large

Press Extrusions

Daily P1020 Ingot at

$.99/lb. (No Shortages)

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Aluminum Manufacturing Capacity – currently

@ 78.1% (80-82% is considered ‘Full’ capacity)

Mill Shipments – Heat Treat Plate(Aero & Auto

specifically) Up/Down YoY & M/M

Service Center Inventory level in Days of

Supply:

90 DSI +/- is ok. >120 DSI is good for you, but bad for us. (Mostly) <=75 DSI is bad for you, but good for us. (Mostly) LME Pricing of Primary Ingot (P1020)

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Global Producer Market,

more so than Aluminum.

VSMPO = World’s

Largest @ 30% (Russia)

China has 16 Large

Producers – Largest Aerospace = Baoti

North American Major

Producers = Timet, ATI, RTI, Carpenter.

Price of Ingot unchanged

since June of 2014 at $8.60/lb.

Outlook in “Pounds

Shipped” is for 3% Growth in 2015.

Commercial Aerospace = 45% General Industrial = 35% Military and Defense

= 10%

Medical and Commercial

= 8%

Other

= 2%

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Titanium Sponge Capacity Expansion in India &

China, resulting in an oversupply situation.

Commercial Build Rate increases and Demand from

Titanium “Intensive” Aircraft (787/A350/A380)

Defense Program Build Rate Increases (F35

Lightning II) and Foreign Sales of F-15 Strike Eagle

Increased Scrap ‘Revert’ Contracts and decreased

production of Oil & Gas products/applications

Rising Price of 6AL4V Scrap (Base =

$3.50/lb.)

Demand improving in Power Generation,

Desalination, and other Industrial Markets.

Boeing and United Technologies purchase

forward to mitigate risk in Supply Chain.(Greater than 6 months supply)

Sponge Operating Rate of greater than 50%.

(Recycled Scrap = 50%-55% of Melt for new Ingot).

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Realm of the “Engine Guys” UTAS – Goodrich Pratt & Whitney Rolls Royce GE CFM ITP IHI KHI MHI High Barriers to Entry… Deep Desire for Firm Pricing to Year 2030

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Very few Major North American Producers –

ATI, Special Metals, Carpenter.

Pricing HIGHLY dependent on the prevailing

‘Trading’ price of Alloy Elements:

Nickel Alloy Chrome Molybdenum Natural Gas / Energy Component Difficult to predict, and difficult to hedge pricing. All traded on the LME and other exchanges. RMS = Raw Material Surcharge

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Market is EXTREMELY TIGHT! Producing Mills are routinely 4-8 weeks late

They are all “horrible”… And they don’t care about you! They don’t care that they are Horrible… They have been that way for almost 20 years. (Old technology) X (Union workforce) = Disaster!! (It’s a Sellers Market) Consolidation of the Aerospace Alloy Mills = “BORG”! Resistance is Futile… We will Assimilate you!

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Aircraft Alloy – LTA’s don’t mean much.. P.O.’s are a little

• better. Best to buy ahead and expect “Lateness not

Greatness”…

Aluminum Plate – don’t get caught short. LTA’s are

worthwhile if you live up to your agreement.

Titanium – Aerospace Grades have extended lead-times due

to processing. Availability is not an Issue.

Nickel Sheet – Your supplier should be lowering your

transactional price. Best Suppliers will ‘Dollar average’ and lower existing contract pricing. Bottom is close…

Aluminum Extrusion – Life is Good! No Worries unless buying

Large Press items.

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