That would depend upon whom one speaks to, as I recently learned. Last week I had a chance to visit with an aerospace service center that primarily sells titanium products. And when I posed that question the answer I got came along the lines of "it's great if you take a long view." Of course a supplier's good news might mean the long-term price trend for titanium will increase. We'll examine a few supply and demand factors because that helps set the stage for both the short and long-term.

50% of titanium demand comes from the aerospace industry. According to Thyssen Krup both Airbus' A380 and Boeing's 787 Dreamliner include between 130 and 150 tons of titanium fabricated components per unit. In addition, titanium makes up 20% of the weight of modern jumbos according to the same article. Thyssen expects the titanium market to grow by 5% through 2011, primarily because of aircraft demand that has not yet even peaked for both the big aircraft manufacturers. In addition to commercial airlines, military aircraft demand also drives titanium usage. Because of the metal's importance to the US military, the Department of Defense regularly examines the supply market for this metal to better understand price fluctuations, risk and to get a better handle around costs. For this reason, the Air Force commissioned a study from the Rand Corporation Rand Corporation that is well worth reading if titanium represents a key material in your metal portfolio.

The study contains plenty of interesting data but the study authors suggest three variables as having the most relevance to future titanium demand. These variables include:

1."realization of the capacity expansion plans by titanium suppliers, including American and Chinese producers
2. the Boeing 787 build-rate and demand from other titanium -intensive aircraft

3. continued Chinese economic growth and Chinese consumption of steel, titanium and other metals that are related to world titanium demand and supply conditions"

Other demand drivers certainly matter but those likely comprise the biggest. The supply side of the equation involves a quick look back in time. Price spikes for titanium sponge and scrap occurred in 2005 and 2006. The chart below starts in 2006 but shows the price spike:

Ferro-titanium prices also skyrocketed from 2003-2005 on the back of rising carbon and stainless demand. Add to that the fact that the US strategic stockpile had been depleted and titanium production had declined 22% according to the Rand study, it's no surprise that prices increased. However, titanium production will likely double by next year to 217,970 tons which would double the capacity, according to the Rand study. The key to titanium prices, like most metals, relates to that supply/demand balance. Let's look at Boeing as a proxy for what is happening throughout the aerospace industry.

Let's say Boeing builds 140 plans during its peak production year, 2013 (for the 787 Dreamliner - the backlog already contains 800 orders). At 130-150 tons of fabricated titanium per plane, that accounts for a multiple of the actual tonnage (18,200 - 21,000 tons) of the 217,970 tons available annually. Yes we have to calculate a scrap factor but once we add in Airbus and other aircraft producers consuming large amounts of titanium, China demand etc, it's easy to see why titanium service centers seem upbeat about the long term scenario.

We'll follow-up this piece with some thoughts on sourcing strategies for this category in the coming days.