We posed two questions to C. Jeffrey Wise of Titanium Industries to gain knowledge on titanium from a supplier’s perspective. His responses follow.
BONEZONE: Specifically, what causes the price fluctuations and availability of titanium?
C. Jeffrey Wise: Price fluctuations for titanium are both cost and market driven. Producers have done a reasonably good job of managing “controllable” costs such as labor rates, healthcare, capital expenditures, etc., which fall more under their guidance. From a cost perspective, rutile and illmenite (raw ores that allow production of titanium sponge) availability and price, sponge capacity utilization, scrap cost, alloying elemental cost and energy have all played a part in driving cost both up and down at various points in the market cycle. Since 2008, many of these cost components been largely stabilized with the global downturn in GDP, the continuing economic crisis and producer capacity expansions.
From a market demand perspective, tightness in any production arena due to increased demand for both or either aerospace or industrial titanium, including medical grades, can allow and demand producers to raise prices based upon generally longer lead-times and decreased availability. As an example, some estimates of total sponge capacity utilization was at 100% in 2005, while aerospace sponge capacity utilization was in excess of 94% beginning 2005 through 2007. This tightening of supply and extension of lead-times generated higher prices primarily due to market demand during this time frame.
It should be noted that increasing or decreasing production rates on a titanium sponge plant can take three to six months to accomplish due to the nature and complexity of interlocking production processes. That means that a recognition of change in demand by any producer will not be recognized in output production rates until much later.
The global titanium industry also did a very good job during this time of increasing sponge capacity to mitigate this sponge shortage issue for future demand years.
BONEZONE: What can the sourcing and procurement executives at orthopaedic device companies best do to help manage the supply and cost?
C. Jeffrey Wise: Supply chain uncertainty can force design with alternate, somewhat less desirable materials, slow adoption of new material, may slow development timelines, require manufacture with alternative product forms, place pressure on device manufacturers for larger safety stock, cause overestimation of overall needs and slow product timelines. The net impact is distortion of market demand.
FDA does not regulate raw material suppliers; they regulate device manufacturers. Device manufacturers are responsible for material suppliers, and have accordingly and appropriately developed specifications, processes and audit schedules to address that control. Quality-approved supply from companies that can support the design cycle and follow it through to production is critical for long-term success.
Choosing the correct partner that will be timely and candid in advising of changes in the market cycle and help protect against fluctuations is a key step in supply chain optimization. Consideration should be given to evaluation of a long-term agreement with a global reach for supply to help insulate from both lead-time and price volatility.
OEM’s reach into South America, Asia and Eastern Europe for both marketing and manufacturing channels demands suppliers that are with them in every part of the world. Additionally, tracking and understanding historical price trends regarding ingot, alloying elements and scrap prices can offer insight into changing market conditions.
Titanium Industries, Inc.