The demand for high-end titanium materials is increasing and the industry is picking up
On the evening of July 16, the titanium industry leader Baoti Co., Ltd. released a performance forecast for the first half of 2019. It is expected to achieve a net profit of about 110 million yuan attributable to shareholders of listed companies, an increase of about 76 million yuan compared with the same period last year, a year-on-year increase of about 223.53%.
In addition to Baoji Titanium, there are more than 560 titanium processing enterprises in the jurisdiction of Baoji City, Shaanxi Province, and their production of titanium products accounts for more than 80% of the country. Because of the developed titanium industry, Baoji, Shaanxi Province was named "China Titanium Valley".
A reporter from China Securities News recently visited Baoji, Shaanxi. During field investigations, many titanium production companies said that starting from September 2018, with the price increase of sponge titanium and the release of downstream orders, they felt that “life is getting better”. Most companies have sufficient orders on hand, and it has become the norm to work overtime. The downstream demand for high-end titanium material is superimposed on the improvement of civilian demand, which has boosted the continued improvement of the performance of titanium industry companies.
High demand for high-end titanium
The recovery of the titanium industry has been reflected in the 2018 annual reports of listed companies. In 2018, many financial data of high-end titanium material manufacturing companies such as Baoti Co., Ltd., Western Materials, and Western Superconducting have improved. After entering 2019, the performance of the above companies has maintained high growth. Take Baoti Co., Ltd. as an example. In the first quarter of 2019, the company achieved operating income of 1.150 billion yuan, an increase of 65.5% over the same period of the previous year; it achieved a net profit of 29.432 million yuan attributable to the parent, turning losses into profits.
The gross profit margin of titanium products of Western Materials, a high-end titanium sheet manufacturer, increased from 14.07% in the previous year to 21.37% in 2018. Western Materials stated that it will strive to seize high-value-added titanium products for chemical and power use, continue to strengthen the development of military titanium alloy products, and compete for the high-end titanium alloy market; the proportion of high-value-added product revenue in the revenue of titanium products has increased, from 39.41% to 39.41% 60.89%, which promoted the increase in the gross profit margin of the company’s titanium products.
A reporter from China Securities News visited Baoti and learned that, as a leading company in the titanium industry, Baoti's products cover a complete industrial chain from sponge titanium to titanium products, and have a wide range of applications. The R&D field of Baoti Co., Ltd. covers all links of the titanium material industry chain, has long-term technological accumulation in all links, and has formulated a variety of national or industry technical standards for titanium alloy materials. At present, BaoTi has an annual production capacity of 10,000 tons of sponge titanium, 30,000 tons of titanium ingots, and 20,000 tons of titanium materials. In 2018, the output of titanium products was 14,500 tons, and the sales volume of titanium products was 10,000 tons.
Since the beginning of this year, with the successive increase in military and downstream key equipment models and deep-sea detectors, the demand for high-end titanium materials has been significantly boosted. For civilian use, downstream chemical and petrochemical refining titanium materials will usher in a new round of demand peaks along with the investment in large refining and chemical base projects. The reporter learned that Baoti's current orders are saturated, and its number of orders on hand has exceeded the orders for the whole year of 2018.
Science and technology innovation board company Western Superconductor is also a high-end titanium manufacturer. The high-end titanium alloy materials produced by Western Superconductor are mainly used in the aviation field, including aircraft structural parts, fasteners and engine parts. The 2018 annual report shows that the company has a production capacity of 4,950 tons/year of titanium materials, mainly bars and wires. In 2018, the company's military revenue accounted for 72%. In the first quarter of 2019, benefiting from the growth of downstream demand, Western Superconductor achieved double-digit growth in performance, achieving operating income of 345 million yuan, an increase of 46.48% year-on-year; net profit attributable to shareholders of listed companies was 35.878 million yuan, an increase of 13.86% year-on-year.
Many people in the titanium industry told reporters that the main difference between China's titanium consumption structure and the world is in the aviation sector. Globally, aviation titanium materials always account for about 50% of the total demand for titanium materials, while the proportion of domestic aviation titanium materials is only 16.3%. The aviation titanium materials market has great potential. With the upgrading of domestic military aircraft and the installation of new models, as well as the release of production capacity of commercial aircraft after passing the airworthiness certification, the market for high-end titanium alloy materials is broad in the future.
Guojin Securities pointed out that the increase in revenue from titanium products was mainly due to the increase in the proportion of high-value-added military products; in the first half of the year, despite the increase in the price of main cost sponge titanium, the company's product gross profit rate continued to increase, confirming the strong contribution of military titanium materials. Guojin Securities believes that demand for military titanium materials will double in three years.
Titanium prices remain high
It is understood that there are two main production lines in the titanium industry, one is titanium concentrate-titanium sponge-titanium ingot-titanium material, and the other is the chemical line of titanium concentrate-titanium dioxide. In the titanium industry line, sponge titanium is the core raw material of the titanium industry. Through the reprocessing of sponge titanium, various metal products are made for use in aerospace and other fields.
It is worth noting that, in the face of the industry's recovery, the price of titanium sponge, an upstream raw material, has started to rise since September 2018. According to data from Baichuan Information, the mainstream price of grade 0 sponge titanium this week was 70,000 yuan/ton, an increase of 8.82% from the beginning of 2019.
Along with the increase in raw material prices, the industry leader Baoti recently announced a price adjustment. Due to the sharp increase in the price of sponge titanium and the continuous increase in environmental protection costs, the company decided to increase the original price of the entire line of products by 10%. The price of follow-up products will be adjusted in a timely manner based on the price fluctuations of main raw materials such as titanium sponge.
In the titanium production process, the price of sponge titanium and the ex-factory price of titanium are positively correlated. Due to the increase in the price of upstream sponge titanium, most titanium manufacturers have to adjust prices to balance profits. A person from a small and medium-sized titanium manufacturer in Baoji told the reporter, “Now the price of sponge titanium has risen sharply. The upstream price has risen by 10,000 yuan per ton, and we have to increase it by 5,000 yuan for customers. Customers understand the temporary price increase.”
A person close to upstream titanium sponge told a reporter from the China Securities Journal that titanium sponge is in short supply now, and many companies that previously stopped production are now starting to resume production, and everyone is watching the price. In addition, some leading sponge titanium companies took the lead in price adjustment, which is easily transmitted to some small companies, and everyone has adjusted their prices. But now the environmental protection inspectors are under greater pressure, and the overall supply of sponge titanium is in a tightly balanced state.
According to relevant research reports, the overall titanium sponge market is currently improving. Domestic companies have started relatively stable operations, and companies have relatively smooth delivery of goods. Most companies even have no inventory. On the one hand, environmental inspections have caused the increase in production costs, the price of titanium tetrachloride has continued to rise, and the price of raw materials has continued to rise, supporting the maintenance of high prices of sponge titanium; on the other hand, the recent market demand is relatively strong, and the sponge titanium market supply is relatively tight. The domestic titanium material market may continue to operate stably.
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