Today the world is in the midst of a major military spending spree caused by terrorist attacks and each country’s need for security and defense.
The United States, which is currently waging major military offenses in Afghanistan and Iraq, has budgeted $556 billion in the current year, which includes repairs and replacement of equipment, as well as new hardware purchases and troops.
The U.S. Pentagon has cleared funding for the purchase of 183 F-22 fighters in the 2007 budget, which, with Congress’ approval, will extend the production line of this model until 2012.
WORLDWIDE WEAPONS. The British, French and German governments are increasing their military spending as well.
The Chinese are increasing their military budget by almost 15 percent, as are the Russians. All of this will cause increased spending by the West.
The African and Mediterranean countries have also joined the military purchasing spree, including Algeria’s $7.5 billion purchase of jet fighters and air defense systems from Russia. Morocco and Libya are also spending.
The Australian government has increased its military budget to $15 billion and guarantees that it will increase every year by 3 percent for the next 10 years. On its shopping list is the F-35 Joint Strike Fighter and M1A1 Abrams tanks as well as four C-17 Globemaster 3 cargo planes.
India’s 2007-2012 military budget will jump about 44 percent to about $142 billion by 2012. This includes 200 fighters as well as tanks, ships and many other items.
The top 15 military spenders are estimated to have spent $869 billion for military supplies in 2005, and the list of buyers goes on.
FRIENDLIER SKIES. The commercial aerospace business’ demand for new airplanes shows no signs of abating. Both Boeing and Airbus are fully booked for many of their aircraft models, like the 787 and A-380, out through 2012.
Airbus currently has a backlog of 2,177 aircraft orders valued at $220 billion. The production delays of the Airbus A-380, because of technology problems, and Boeing’s 787 delays in ramping up production are causing both the titanium and nickel alloys markets to take a pause, while the subcontractors who have ordered metal to produce these planes wait for the actual production to start in earnest in 2007.
There have also been some minor engine manufacturer production push-outs caused by these delays.
The much-awaited production of very light jets by Honda, Adams, Cessna and Embraer will start in 2007 as the majority of these planes have nearly completed or have completed their certification processes.
The current projections are for about 500 of these planes to be manufactured per year, with each plane to be twin-engine. Cessna has firm orders for 300 very light jets and is fully booked into the beginning of 2009. The company has a backlog worth $6.8 billion. Cessna’s other competitors also have orders for 200 to 300 planes each and are also fully booked into 2009.
Domestic airlines such as Delta, American and Continental are all expanding their overseas flights, especially to small destination cities, in order to avoid competition from low-cost carriers and to attract the higher margin business customers.
The flights across the Atlantic are expected to increase in passenger traffic by 29 percent from the 2002 level, reaching 54 million passengers.
United Airlines is concentrating on the Pacific routes, while American Airlines and Continental Airlines are both looking to expand into South America.
The International Air Transportation Association forecasts that the global airline industry will generate $1.9 billion in profits in 2007, its first profitable year after five years of combined losses of $41 billion.
CARGO SNAPSHOT. The demand for large and smaller freighters, especially on the Asian routes, still shows no signs of slowing down in the long term.
Boeing expects that almost 3,000 planes will be added to the freighter fleet during the next 20 years, with 75 percent coming from the conversion of existing 767 and 747 aircraft. The balance of 800 planes will be from new production. The overall freight business increased in 2005 by 25 percent, with North America, Europe and Latin America down slightly and the Asian markets carrying the upside.
The high price of fuel has been a restraining factor for the airline industry. The increased cost of fuel has hampered profits and caused their freight divisions to lose business to ocean carriers when airlines upped pricing to cover fuel costs.
The use of synthetic fuels made from coal, oil, shale and natural gas is getting a new look. The U.S. Defense Department is experimenting with using a 50 percent blend of fuel derived from a process to convert natural gas into a liquid for fuel.
Stainless Reputation |
The news for stainless steel and its constituent alloys was a story of heightened demand throughout 2006. In a presentation to the Bureau of International Recycling (BIR) at its Autumn 2006 Round-Tables, held in Brussels, Michael Wright of ELG Haniel noted that projected year-end numbers for 2006 indicated a global growth rate of 9.4 percent in the production of stainless steel ingots. Production of the alloyed metals group was up throughout the world, with Asia producing 11.3 percent more stainless steel, the United States 8.9 percent and Europe 6.6 percent. "This high capacity utilization has meant increased demand for stainless steel raw materials," Wright told BIR attendees. "The sharp increase in nickel pricing from $13,000 [per metric ton] at the beginning of the year to over $30,000 in September and October has stimulated stainless steel scrap availability, and most mills are able to maintain their scrap ratios," he noted. However, he also said that dramatic increases in nickel pricing were spurred by more than a healthy industrial climate. "This dramatic increase in nickel pricing is to some extent caused by the increase in demand of the stainless steel sector, but the main increase is no doubt due to heavy speculation and institutional investment buying," said Wright. Such investing will almost certainly lead to "a correction phase," Wright predicted, "which will mean an equally dramatic downturn in nickel prices, once the investors decide to switch funds. This in turn will have a dramatic effect on stainless steel raw material prices." |
The South African government approved in 1999 the use of a 50 percent blend of Sasol fuel manufactured from coal by Sasol of South Africa as jet fuel. Sasol is now seeking approval for use of 100 percent of its new type kerosene as fuel. These products are economically feasible with oil prices as low as $40 per barrel.
The American aerospace industry’s orders, shipments and backlogs set another record this year. The total sales in 2006 are projected to be $233 billion, a $14 billion increase from 2005.
The total shipments for 2006 are projected to be $177 billion, a $15 billion increase from the year before.
The industry’s estimated backlog as of June 2006 stood at $280 billion. If one adds these amounts with the other aircraft producers worldwide, one can see the tremendous amount of business lying ahead for metals producers who serve the aerospace industry.
LEVEL ALTITUDE. I expect the price levels of titanium scrap have probably seen their heights and will stay in the current price range, in light of the increased production of titanium sponge by the Japanese, ATI, Timet and the Kazakhstan producer Specialty Metals and Alloys, as well as the increased availability of scrap from current production.
I do not, however, see any further price reduction in light of the current demand for product and some uptick in pricing if the ferrotitanium demand increases in early 2007.
The year 2006 has seen the worldwide steel mill demand for nickel and ferrotitanium as setting the price levels of these commodities and will probably do so in 2007 also.
What we have been seeing is a temporary slowdown of demand for titanium and nickel alloy scrap solely because of the inability of Boeing to ramp up production of the 787 and Airbus’ technical problems for the A-380.
Soon, these problems will be corrected, and we will have smooth sailing ahead, with steady pricing and demand.
The author is president of high-temp alloys, titanium alloys and refractory alloys recycler Universal Metal Corp., Worcester, Mass. The text is an edited version of a presentation he offered to attendees of the Bureau of International Recycling 2006 Autumn Sessions in Brussels.
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