Osaka Titanium Technologies Co. (5726), the world’s second-largest producer of titanium sponge, is considering buying a stake in a mine or securing a new ore supply deal as demand for its product gains.
“Raw material costs are a rising problem for us,” President Shozo Nishizawa said in an interview in Tokyo. “I’m studying schemes we could use to secure titanium ore.”
The Amagasaki-based company secured significant increases in annual export prices for 2012 as costs jumped, he said, declining to elaborate, citing an industry policy. It will take at least two or three years for Osaka Titanium’s margins to improve as supply tightens, Nomura Securities Co. said in a Nov. 14 report.
Average prices of titanium ore have climbed as much 70 percent in the year beginning April 1 and may increase next year as supply fails to keep pace with demand, Nishizawa said. Osaka Titanium and its bigger Russian rival OAO VSMPO-Avisma compete with pigment makers to buy the ore.
The company wants to buy stakes in mines or sign long-term supply agreements with owners of projects in Africa and South America where development projects are under way, Nishizawa said. As a minority user of titanium ore, it isn’t easy to find new supplies of high-quality ore, he added.
Tronox Inc., the pigment producer that exited bankruptcy in February, in September agreed to buy controlling interests in mineral operations from Exxaro Resources Ltd. (EXX) to become the largest integrated maker of titanium dioxide. DuPont Co. plans to expand capacity to produce pigment by 350,000 tons, or 6 percent of global pigment demand, by 2014, Nomura said.
Pigment makers account for 90 percent of titanium ore consumption. Osaka Titanium produces titanium sponge, which is refined to make the lightweight and corrosion-resistant metal used in planes built by Boeing Co. (BA) and Airbus SAS. Boeing signed a $26 billion agreement with Emirates for as many as 70 777 aircraft on Nov. 13, its biggest order.
Osaka Titanium currently sources about 30 percent of its ore from Rio Tinto Group’s Canadian operations and about 50 percent from India, he said. The company buys more than 10 percent of its supply on the spot market and may expand that to about 20 percent next year, Nishizawa said.
The company needs more ore to feed its expansion to 40,000 metric tons a year by the end of December. Titanium is also used in desalination plants, golf clubs and roofing and highway support beams.
The company’s overseas customers include Titanium Metals Corp. (TIE), the Dallas-based supplier of the metal to Boeing. Osaka Titanium also supplies titanium sponge to shareholders Sumitomo Metal Industries Ltd. (5405) and Kobe Steel Ltd. (5406)