TitaniumIn recent years, many people have been shunning stocks and investing in gold, usually thought to be a safe play for troubled times. But gold is looking somewhat tarnished lately. From its high of around $1,920 an ounce in September, it has lost almost 18% as of June 11. Other metals have followed a similar downward trend.

Yet there's a shiny glimmer amidst the investment dross, a metal that for the moment appears to be a winning alternative to the favorite of King Midas: Behold titanium, whose outlook is robust thanks to a big uptick in the aerospace industry.

The Deflating Gold Bubble

Right now, gold is falling so steadily even alchemists must be getting disgruntled. Certainly investors in it are groaning. Gold futures dropped another 6% in May to continue a four-month streak of losses.

"Gold is a bubble, and I think the bubble continues to unwind," said John Mothersole, the lead nonferrous metals analyst with IHS Global Insight's Pricing and Purchasing Service. "Unless you believe in the Mayan calendar cycle, gold is a bad decision."

The tumble that gold prices have taken can be traced in part to a decline in the rupee-dollar exchange rate that began in the third quarter of 2011. India is the largest consumer market for gold in the world, and the drop in the purchasing power of the rupee has big effects.

"The price of gold has just shot up dramatically for someone in India, and in the consumption market basket, that means a big decline in demand," Mothersole explained.

Aerospace Is Looking Up

On the other side of the coin, though, you have the projections for titanium. Aerospace manufacturing is in a healthy growth phase, and that means a rapidly rising demand for the strong, lightweight metal.

The Boeing (BA) 787 Dreamliner is in production with a delivery goal of 10 planes a month. Over at rival Airbus, the troubles and delays plaguing the A350 have been resolved, and that widebody aircraft will go into commercial production by 2014.

Both planes use loads of titanium, which gives the market for the metal significant buoyancy. After the typically volatile titanium market hit bottom in 2010, it rallied, with U.S. mill product shipments clearing 100 million pounds for the first time ever. That figure is projected to reach 110 million pounds this year, according to the IHS Global Insights April titanium report. And there could be double-digit price gains to boot.

"You're got record backlogs at Boeing and Airbus, so unless you get cancellations -- but that's inconceivable -- there will be real product shipments of titanium sheets, tubes and pipe product, such that shipments look to set records over the next two to three years," Mothersole said.

Meanwhile, China is looking to hop on the large plane bandwagon too: It hopes to have its first Comac C919s ready for delivery in 2016. And Beijing is directing significant investments into commercial space exploration.

Coupled with those civilian uses, there's a big military industrial need for titanium. Over the next few years, Lockheed Martin (LMT) will be building hundreds of F-35 fighter jets for the U.S. and a host of friendly foreign powers.


Getting In on the Action

So how can the average investor tap into this perfect storm for a rare and useful metal?

The easiest way is by investing in either of two publicly traded companies -- Timet Titanium Metals (TIE) or RTI International Metals (RTI). It's otherwise difficult to isolate an investment in titanium: You can't buy a titanium futures contract, and a general metals exchange-traded fund would also include flagging gold and temperamental copper. Timet closed Monday at $10.96 a share, and RTI ended the day at $20.46.

While the prices for those stocks have trended downward recently, Goldman Sachs (GS) has endorsed RTI as a good bet come 2013 based mostly on the outlook of aerospace.

"RTI remains bullish on the medium- to long-term trends in the aerospace sector, in line with our expectations," wrote Sal Tharani, a Goldman research analyst, in May.

The Additional Advantages Of Titanium

Thanks to the slowdown in aircraft production caused by the Great Recession, the titanium industry has had time to catch its collective breath and lay in a supply to meet newly rising demand. The previous pattern for titanium had been demand growing rapidly on the wings of a cyclical aerospace industry until it exceeded the supply: In those scenarios, prices shot skyward, then crashed.

This time around, with inventory stashed away and 2 billion tons of titanium available worldwide, there's less concern over supply, and the versatility of the metal will protect its position in the marketplace.

"Titanium is very corrosion resistant and you have a good strength-to-weight ratio," said Kuni Chen, a U.S. metals and mining industry analyst at CRT Capital Group. "It's used not only in high-end applications aerospace, but also nuclear power plants and oil and gas drilling."

And it will continue to play an ever increasing role in intricate industries such as the medical devices field.

"For medical devices, titanium plays an important role because it's biologically inert," Mothersole said. "It's strong and light. you can fashion all things with it like catheters and artificial knees and joints."

Finally, in terms of pricing, it's not as sensitive to exchange rates as copper or gold. That's because titanium is already used in expensive projects from the get-go.

"You have to look at the cost of the raw material in terms of the end-market application," Chen said. "There could be a $200 million aircraft, and so if there's $10 million of titanium [in it], it's a relatively small amount -- a drop in the ocean -- and small changes [in price] won't sway buyers either way."



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33 Comments

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James Benjamin

Actually Midas ended up hating gold as he could not eat drink or love without the object of his desire transforming.

Gold is not an ALL or NOTHING type of asset. It is an insurance policy that puts a check on the excess of others whether they be bankers or bureaucrats. Gold is not a bubble, it is responding to excesses that took over twenty years to gestate.

It has an irresistible and compelling reason for inclusion in all portfolios not as an investment, but as a parachute, if the high flying schemes built on credit falter.

Last time I looked the central banks of the world prefer gold to titanium.

Unless one has a knowledge of the history of money, finance, debt and risk management, I would be wary about taking advice about the best metal to act as a monetary asset.

June 16 2012 at 6:53 PM Report abuse rate up rate down Reply
mouse

What "uptick" in aerospace? All the aerospace engineers in our circle are unemployed.

June 16 2012 at 8:24 AM Report abuse rate up rate down Reply
jhbonz

Adjusted for inflation gold/silver are kicking butt. What is the Dow worth in 2008 dollars? $9000? The stock market is a con game. You are paying taxes on gains that aren't really gains after inflation (8%) .

June 16 2012 at 6:16 AM Report abuse rate up rate down Reply
jhbonz

Total propaganda. Gold/silver have been held down by the government "shorting" those metals. This government is manipulating the stock market and metals and currency since Ronald Reagan created "The Presidents Working Group" or "Plunge Protection Team". The corporation owned media helps with this because their stocks are in trouble. Gold should be around $5000.00 per oz. They can't suppress forever though and both metals will rocket.

June 16 2012 at 6:12 AM Report abuse rate up rate down Reply
M

So titanium is the latest metal du jour?
And "...with inventory stashed away and 2 billion tons of titanium available worldwide...", how exactly do you think there is money to be made here? Didn't the Hunt brothers try that in the silver market in the 1980's?

Also, there were investment funds that bought "retired" jet passenger planes as scrap, stored them in the desert, and sold the parts off, including the jet turbine engines... And you may recall the airline industries are hardly expanding, but replacing older planes for fuel economy and as the airframes deteriorate with age and usage.

June 16 2012 at 4:07 AM Report abuse rate up rate down Reply
Silvio

macin

June 16 2012 at 2:46 AM Report abuse rate up rate down Reply
cqdeed

Anytime you see a bunch of ads on TV trying to sell you gold that means the people with lots and lots of gold are trying to unload theirs because they know the price has about topped out and is about to fall. And sure enough, the price may continue to rise for a little while but then the bottom falls out. I've watched it happen several times over the years. I suspect the same happens with other metals too.

June 16 2012 at 1:48 AM Report abuse -1 rate up rate down Reply
HAT1701D

They need to watch putting so much stock on the F-35 sales. It's so far behind schedule and so far over budget it just might get axed.

June 16 2012 at 1:30 AM Report abuse rate up rate down Reply
voegelid

I am a machinist, and one of the things we are seeing more of from one of our customers is titanium parts for yachts. These are very high end boats used in racing. Our company is not known for making parts for boats as our specialty is hydraulics but we will make anything that we can fit in our machines. The yacht builders were using aluminum alloys, but the competition is so great that switching to titanium in many instances is also driving the cost up. It's very expensive and time consuming to machine.

June 16 2012 at 12:02 AM Report abuse +1 rate up rate down Reply
petezavackidc

Gold will survive strong for longer than all of us. Media hype is so good at making you pause, isn't it?

June 15 2012 at 11:44 PM Report abuse rate up rate down Reply