Mike Stone, Tim Hepher

WASHINGTON/PARIS – Western companies are increasing their stocks of titanium in preparation for a possible trade war between Russia, China and the West.

Russia’s military has assembled tens of thousands near Ukraine’s border to press for an improved security arrangement in Europe. The U.S. officials and European officials have threatened severe sanctions should Russia invade.

In case Moscow responds, Western industrial firms are now reviewing their Russian supply chain for Russian parts.

For decades, Titanium has been used in various parts and commercial jet engines.

However, its popularity has increased with lightweight aircraft such as the Boeing 787 (NYSE:) and Airbus A350. They are now able to carry 14-15% more weight than an empty plane.

Raytheon Technologies’ chief financial officer, Neil Mitchill (NYSE:), said that Raytheon Technologies, the largest global aerospace contractor, was monitoring the developments and was working to secure its supply chain for the next 12 months.

Pratt and Whitney, the maker of jet engines, stated it had at least two sources of titanium and other important raw materials. They did not offer further details.

Boeing is heavily dependent on VSMPO-AVISMA’s Russian titanium giant VSMPO, Chief Executive David Calhoun announced Wednesday that the company was “protected” for a time, but not permanently.

Sources in the industry claim that Western companies are increasing their inventory or diversifying supply sources since Russia sanctioned it for annexed Crimea.

The pandemic has reduced the number of jets being built, which gives them more opportunities to accumulate reserves.

A senior European industry source stated that “During the Crimea Crisis, everyone created safety stocks as well as second sources of titanium. But eventually (on sanctions), nothing happened.”

Reuters has not been able to contact any aerospace companies about their titanium stock levels.

STATEGIC ASSET

Titanium was once a Cold War weapon used for building spy planes and submarines. It is now widely considered a case study in economic interdependence within strategic sectors such as civil aerospace.

Boeing renewed its two-decade-old partnership with VSMPO/AVISMA at the Dubai Airshow, November. It also agreed to keep it as its biggest titanium supplier.

Global demand for titanium is 25%, with the world’s largest producer providing 25 percent of that supply. Titanium, which can be used in nuclear power and light-weight but sturdy metals as well as corrosion resistance, also finds its way into every aspect of life.

They also agreed that they would increase their joint venture use of the Urals’ Titanium Valley.

VSMPO AVISMA also has long-term contracts with Brazil’s Embraer, Airbus, and Brazil’s Embraer.

Airbus claimed it was closely monitoring the situation.

Embraer stated that VSMPO AVISMA was not available for comment.

Airbus stated that it relies only on Russia for 50% of its titanium needs. A U.S. Industry source however said VSMPO/AVISMA met a third.

VSMPO/AVISMA is a strong supporter of aerospace, despite all efforts to diversify.

A draft Russian law was proposed in 2018 to restrict titanium exports as a response to Western sanctions. The country’s trade ministry was quoted as saying that the plan was blocked in order to avoid losing steady foreign buyers.

Even so, it’s difficult to predict what could happen to a trade war should tensions flare up. The stakes increase as the United States is threatening to attack a crucial Russian gas pipeline.

S&P said last year Russia might limit exports of strategic materials due to tensions, but this was not the likeliest case.

It is unlikely that the West will stop trade because it can take years to certify alternative suppliers.

VSMPO AVISMA restrictions were imposed by the U.S. Commerce Department on December 20, 2020. They were only reversed three days later.

VSMPO-AVISMA was targeted to target a strategic asset that has strong ties to Russia’s defence industry. However, it quickly backfired on Western aerospace firms, according industry sources.

Planemakers may still have to pay higher titanium prices.

Richard Aboulafia (Managing Director of AeroDynamic Advisory) stated that “rather than iron-clad sanction, it’s more likely supply constraints would increase prices broadly.”

Inflation fears are compounded by the fact that commercial jets can be more expensive and may become the most vulnerable. He said, “The military side can outbid anybody.”

Defense firms in the United States are protected from direct supply impacts because contractors using Russian raw materials are generally discouraged by the Pentagon.

“Most seasoned government contractors are well aware of the perils of doing business with Russia,” said Franklin Turner, a government contracts lawyer at McCarter & English.