Sunday, 3 February 2008

Titanium: the new strategic gold

by Ajai Shukla
Business Standard: 01 Feb 2008
Dateline: Hyderabad

The Defence Materials Research Laboratory (DMRL) in Hyderabad heard with some interest the government’s announcement, on Wednesday, that the mining and production of titanium would be thrown open to industries entirely funded by Foreign Direct Investment (FDI). DMRL has developed the technology to extract pure titanium, an expensive metal, which is increasingly used in the manufacture of aerospace components. India has the world’s fifth-largest deposits of titanium ore, mainly ilmenite, which occurs naturally in the beach sands of southern India.

The DMRL (a Defence R&D Organisation, or DRDO, laboratory) develops “strategic” materials, which feed into India’s defence production. The production of titanium, as strong as steel but with just half the weight, is one of DMRL’s most important successes. Having developed the extraction technology, DMRL has transferred it to a state PSU, Kerala Minerals and Metals Limited (KMML). KMML is set to manufacture India’s entire requirement of 200-500 tons a year of titanium.

But India’s demand is miniscule, compared with the global market for titanium. Boeing, America’s largest aircraft manufacturer, constructs 15% by weight of all its aircraft from that metal. It’s newest airliner, the Boeing 787 Dreamliner, with its emphasis on lower weight, uses even more titanium. Boeing has recently signed a $4 billion deal with Russian company, VSMPO-AVISMA, for titanium forgings; the Russian government-controlled company already supplies 40% of Boeing’s titanium needs. It is an uncomfortable dependence for the US defence major; India provides an alternative source of titanium.

But the Indian worm seems likely to go to the Russian early bird, VSMPO-AVISMA. DMRL Director, Dr G Malakondaiah, explains that the titanium extraction technology developed by DMRL works well for small volumes, but the mass production needed to become a global supplier requires a different technology. VSMPO-AVISMA has that expertise; the company announced in Moscow last year that it will be setting up two titanium subsidiaries in India. It has signed a letter of intent with KMML to manufacture 10,000 tons of titanium per year; VSMPO-AVISMA will buy the entire output. The second subsidiary is likely to come up in partnership with another PSU, Mishra Dhatu Nigam (MIDHANI) in Andhra Pradesh, to manufacture 40,000 tons of titanium per year.

Russian defence minister, Sergei Ivanov, confirmed, during his visit to India last year, that the payment for the titanium exported from India is likely to be adjusted against India’s $1 billion debt on the rupee-rouble account. 

Indian metals major, Tata Steel, has also moved into titanium production, though not the manufacture of metal. The Tatas intend to produce 60,000 tons per year of titanium dioxide, used in manufacturing paints. Despite having over 20% of the world’s known reserves of ilmenite, India imports 70,000 tons per year of titanium dioxide. But after signing an MoU with the Tamil Nadu government, for prospecting over 80 square kilometres in the state, the Tata project has run into trouble over land acquisition for the plant. 16,000 acres are needed in Tirunelveli and Tuticorin districts, but the project has been halted by litigation over its environmental impact. 

Titanium is currently selling for about Rs 500 per kilogram, and global demand is rising. Besides the spate of orders placed on commercial aircraft manufacturers, the US defence industry is also facing a growing need for titanium. With the highest strength to density ratio of all metals, titanium is being used for armouring light vehicles like Humvees, to provide protection to troops from roadside bombs. The new government policy of allowing 100% FDI in the manufacturing of titanium will evoke an enthusiastic response.

9 comments:

Photonman said...

'...adjusted against India’s $1 billion debt on the rupee-rouble account.'

This is interesting. Do we still owe the Russians money? What about all the defence purchases made in the '90s?

Abhiman said...

Mr. Shukla, it is unclear why FDI is needed to tap this sector, when Indian infrastructure investors should be able to raise similar amounts, given India's high growth that has enriched many firms and capital investors. Companies like Vedanta, L&T, GMR, Tata etc. may be keen on titanium mining.

Foreign companies must not be given entire rights to mines. They can be facilitators or financiers in the purchase of mining equipment, transportation of the produce and distribution. Exploration rights must be owned by the state only, as private rights often ensue rights to mines if a yield location is discovered.

Thank you.

Anonymous said...

india is the most stupid country in the world not to hoard this strategic material but willy nilly export it. learn from russia and process the damn ore after importing it, dont sell it..its not infinite.

Anonymous said...

Rubbish.. After the fall of the Soviet Union , the soviets released huge number of tons of this material in the global markets and prices fell.. In fact,there is a well known museum in Spain , which is considered an architectural marvel. It has titanium plates on the exterior which became possible after the prices fell and the russians dumped it.

The supply is not the problem. No way in hell anyone will run out of titanium ore. It is just that the refining costs are so high , it becomes prohibitively expensive to make it.

Ajai said...

You're right about the fall of prices starting in the 1990s. But what you're wrong on is the demand-supply issue.

Usage of titanium is on the rise. It's being used in everything from golf clubs, Formula-1 racing cars, and of course aircraft, missiles and spaceships, wherever weight is a huge factor.

If better refining prices were to bring down titanium prices to even twice that of steel, it would largely replace steel in many, many defence platforms.

And Abhiman, L&T etc can dig out large quantities of ore. But they don't have the technology for commercial scale refining. Even small scale refining technology has taken DMRL years to develop.

So... enter the Russians!!

Anonymous said...

Ajai,

The the uses of Titanium that you mentioned have always been there. and yes, you are right about the increase in demand , if there is a process breakthrough.. However, I am not sure that the VSMPO has any proprietary break through process. There is one new electrochemical process called FFC from Cambridge university that promises to be a significant breakthrough. That is why I posted that previous mail about how you are not going to run out of ore, but that commercially producing titanium would be incredibly expensive in response to why India should "hoard" the ore (as if it is the supply of ore that is the problem)

Titanium has it's niche in areas which require materials to keep their stregth in high temperatures and have impact resistance (jet engines, armor etc). But for other applications, it faces very strong competition from composites, which are of orders of magnitude cheaper. Even for the applications you talked about. . race car, golf clubs, fishing rods etc, Titanium is so "yesterday's" technology. Go to a store today and look around, all of them will have composites. Look at the tennis rackets of top pros in the early late 70s, 80s.. it will be aluminum/ titanium..Then late 80s.early 90s, it is all composites.. Ever recall Boris Becker playing with a Titanium racket ? For that you have to go back to Connors /Borg & McEnroe era.

Nothing new here. It is classic business strategy / Porters five force kind of thing, where a cheaper substitute is displacing a more expensive product. I think unless Titanium costs falls to the level of composites, that effect will continue in most generic areas.

I don't know what is it that the DRDO has developed that is so earth shattering (I am sure you know the details better). But if anyone wants to do something fundamentally different in Titanium and change the economics, you need a radical new process like FFC . So whoever licenses that process and perfects it and gets it to work best will be the winner in my opinon.

-Vina

Ajai said...

An interesting point... only a new production process will change the economics of titanium.

But I'm not entirely convinced about titanium being "yesteryear" technology. Why then has Boeing just signed a $4billion deal with VSMPO for providing titanium forgings for the Boeings that it is still producing?

DMRL hasn't come up with any transformational technology. It's industrial age stuff. Which is why India is opening up for 100% foreign equity in titanium production.

Anonymous said...

Can't know exactly Boeing signed the contract with the Russians for 787. However I would guess that the reasons are largely economical and not technical.

The key here is that Boeing needs bars,flanges, forging etc and other structural elements and not titanium metal. If Boeing decided to increase percentage of titanium in new airplanes and replace certain structural elements, it would be as simple as ordering that. There are huge investments that have to be made in manufacturing plants and processes to scale up to the demand. If the Russians already have that in place (from Soviet era), it is easy to tap those and save huge investment costs and risk in making those titanium structural elements.

Maybe VSMPO does have a key "natural" advantage in producing the metal (like best ore,titanium and magnesium co-located , whatever).dont't know.For that you need to speak with some top equity analyst or specialist consultant who covers metals, esp titanium to get the exactly what it is. (London /NY would be a better bet. The Bombay guys will have no clue about Titanium, but they could get a report from the right guy for you though).

Never said that Titanium is "yesteryears" in everyplace. only most places. Titanium does have it's strong niche.

Do wikepedia search on RB211 and check why that engine bankrupted Rolls Royce.. Also look up wikepedia for GE90.. Next time you fly a 777 , look at the size of that engine and notice,that even though the GE90 has a composite fan, there is a protective titanium sheath in the leading edge of the fan.. you know why.

My personal guess on single biggest need for increased demand for Titanium in India.. --> Brahmos and follow ups. Titanium is the only material that works above Mach 2.5 or so. Aluminium loses strength at such temperatures.

Broadsword said...

Interesting stuff... thanks very much for your post. Will follow up with people at Defexpo this week... maybe one of them has an answer.

Take care