CITIC SEC: Global industrial chain restructuring, coupled with the recovery of downstream military demand, the high-end titanium material industry is expected to return to growth.

CITIC SEC released a research report stating that with the recovery of downstream military demand, the high-end titanium industry is expected to return to growth. The industry's competitive landscape is relatively benign; looking ahead, demand in high-end areas such as aerospace, maritime, and oceanic sectors is expected to be strong. Additionally, with the downward trend of raw materials combined with economies of scale, enterprise profits are expected to expand. Furthermore, against the backdrop of global industrial chain restructuring, domestic high-end titanium companies have the strength to seize opportunities in the international market. The report is optimistic about companies with outstanding research and development capabilities, a good market position in downstream niche areas, and a long-term overseas presence in the high-end titanium industry. Key points from CITIC SEC: The global titanium supply chain is facing restructuring, and the shortage of high-end aerospace titanium is expected to continue in the coming years. Before the Russia-Ukraine conflict, the global titanium industry was centered around Russia as the core supplier, with China rapidly expanding low-end capacity and Europe and America partially reliant on Russia for high-end aerospace titanium supply. However, after the Russia-Ukraine conflict, European and American countries began seeking to reorganize the supply chain to reduce dependency on Russia. However, this process cannot be accomplished overnight. Against the backdrop of a recovering global civil aviation market, the global aerospace titanium supply continues to be scarce. The report estimates that if Russia fades out of the supply chain, the industry's supply gap is expected to exceed 32,000 tons. China's high-end titanium industry concentration is relatively high, and the industry landscape is quietly changing. After years of rapid development, China has formed a complete titanium industry chain. However, intense price competition has emerged in the low-end titanium industry. In the high-end titanium sector, dominated by military demand, industry concentration has been high, but the industry landscape has changed in recent years. Western Superconducting Technologies and Western Metal Materials, affiliated with the Northwest Institute for Nonferrous Metal Research, have gradually expanded their high-end titanium shipments and market share. Hunan Xiangtou Goldsky Titanium Industry Technology has gone public, bringing new production capacity and competitors to the industry. The homogeneity of products among enterprises is not high, and industry competition focuses on product quality. Given the current industry landscape, differences in product form, research and development capabilities, and development history have gradually led to a market structure where Baoji Titanium Industry excels in civil aircraft, Western Superconducting Technologies dominates military aircraft, Western Metal Materials focuses on ships and maritime, and Hunan Xiangtou Goldsky Titanium Industry Technology focuses on dual-flow waterways. Despite some overlap in products in certain areas such as bars, considering the difficulty of developing high-end titanium processing methods and technologies, competition in the overall high-end titanium industry is mainly based on product quality. Therefore, companies with strong research and development capabilities are expected to continue expanding their market share. The profitability of enterprises is at a turning point, as cost reduction combined with economies of scale is expected to amplify profits. An oversupply of sponge titanium in the upstream sector has led to a continuous decline in prices and a decrease in the raw material costs of high-end titanium. With the major companies in the industry implementing their "14th Five-Year Plan" for capacity expansion, demand recovery, and continuous technological advancement, cost control capabilities are expected to significantly improve. Although companies may face a slight decline in military orders in the future, the magnitude is expected to be limited. The report predicts that the gross profit margin of titanium products is expected to expand, and the profitability of enterprises is also at a turning point. The demand for new military aircraft titanium materials is expected to remain strong, and rapid development in underwater equipment is expected to drive titanium demand. Looking ahead, the recovery of military orders is expected to drive demand for high-end titanium materials. In the direction of aerospace, the demand for military aircraft, led by new types of fighter jets, remains strong, and the proportion of titanium used per aircraft is expected to increase. On the military trade side, China's equipment has gained international recognition, and foreign trade orders are expected to break through. The report estimates that by 2025, major models of aircraft production will require approximately 12,000 tons of titanium, corresponding to a demand for over 4,000 tons of titanium for aero-engines. In the maritime sector, the base number of titanium used in ships is low, and the report assumes that every 1% increase in the proportion of titanium used will bring an additional annual demand of 4,000 tons; in the field of underwater equipment, titanium is a superior material for manufacturing pressure-resistant shells, and with the rapid development of China's underwater equipment, the application scope of titanium materials is expected to expand further. By 2027, the domestic demand for titanium for civilian aircraft is expected to exceed 6,200 tons, and there will be incremental demand in marine engineering and high-end civil products. Orders for the domestic large aircraft C919 are pouring in, but current production capacity limitations are constraining its delivery schedule. With the establishment of the second assembly plant for the C919, production capacity is expected to increase significantly. According to the official WeChat account of the Aviation Industry Planning Institute, it is expected that over 100 C919 aircraft will be delivered in 2027. In addition to the production planning for C919 (ARJ-21), the report predicts that the demand for titanium for civilian aircraft in 2027 could reach 6,213 tons, with a CAGR from 2024 to 2027 of 68.5%. Additionally, the report estimates that in the field of seawater desalination, approximately 2,675 tons of titanium are used annually, and in high-end civil product sectors such as chemical engineering, the consumption increment of titanium materials in the PTA field alone will reach 2,250 tons between 2025 and 2026. With a complete independent industry chain and strong product capabilities, China's high-end titanium materials are expected to seize export opportunities. Under the guidance of the strategic policy of independent and controllable development, China has formed the most complete titanium industry chain in the world, with various sectors ranking first globally. Low-end civilian titanium materials have already been exported worldwide. Additionally, the continuous decline in the price of sponge titanium in China has created a price advantage for domestic titanium materials. Furthermore, the rapid development of domestic large aircraft has led to the alignment of the industry chain with international standards. As the C919 gains more recognition from countries and regions, the process of certifying Chinese high-end titanium materials for export is expected to accelerate. In terms of potential market size, the report estimates that if China fills 20% of the gap left by Russia, it could bring a demand for 6,500 tons of high-end titanium materials. Risk factors: risks of macroeconomic fluctuations; risks of intensified market competition; risks of inability to sustain innovation capabilities; risks of significant fluctuations in raw material prices; risks of unexpected changes in industry policies; risks of fluctuations in military orders.Increased risk of tariff; Russia's return to supply chain risk."Bonjour, comment a va aujourd'hui?" "Hello, how are you today?"