As a result of soaring fuel costs, aircraft demand forecasts are being revised... upwards. Yes, that’s the latest news. What has happened to all the green intentions that columnists are trying to inspire?
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.
Production and profits had been expected to ramp up this year, but as so often with these small exploration and mining companies, unexpected start-up and teething problems reared up. Production got delayed and fuel charges have soared. Commercial production is expected by the broker to get going in July.
Share price gains however, will wait on a string of good news. But it has settled for now in the middle of its low/high for the last 12 months of 41-67p.
In his last statement to shareholders in April, chairman Charles Carvill, said that Kenmare had made its first major exports. Six vessels had been loaded off and sent off to all parts of the world — Europe, America and Asia.
In a statement to the Irish Stock Exchange, Charles Carvill said production at its mine in Mozambique had been hit by "considerable problems with certain equipment supplied under the construction contract".
This meant that production had been lower than expected. Following the installation of newer, more robust, equipment, Mr Carvill said, the company was now "set to achieve its targeted production rate, albeit somewhat later than was originally envisaged". The new equipment was installed by the contractor under warranty.
Kenmare has 100 years of reserves
What is interesting about Kenmare is that it reckons to have 100 years of reserves. Prices of ilmenite concentrate are now around US$130 a tonne. As for others of its titanium mineral: Rutile stands at US$500+ and zircon at over US$800.
There are a number of reasons for being cautious about Kenmare, which is why we’re just watching right now. Past hard times have left it with debts of well over US$300m. But, once it gets going, it looks set to become one of the world’s lowest cost producers from its project in Mozambique.
Exploration at its Moma Mozambique mine site is producing ever better news. The geology is improving. Other plus points are that local power supplies are good — from the hydroelectric station in Western Mozambique. And Kenmare has been able to recruit management to take on its own production. So it could step up its production programme and mine more rapidly.
There seems to be significant upsides here. Especially as there’s such pressure on the airline fleets to go greener.
Keep mining.
Erin and Isabel
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