2005: Equipment makers grapple with titanium squeeze
By Mike Mazur
During the past year, equipment manufacturers have endured an escalation in titanium prices. And soon, golfers may be sharing the burden.
Many clubmakers say their costs for buying titanium metalwood heads have increased roughly 10 percent to 30 percent as global consumption of the versatile metal increases. There is debate whether prices will soar even more, but most experts agree that the current demand for titanium will keep its cost inflated for at least the next two years.
That means equipment manufacturers, who until now have absorbed the rising costs, likely will raise prices of future product introductions. And if the shortage intensifies, it is possible that club companies, especially smaller ones, may be forced to switch to alternative materials, or perhaps, even revert to steel.
“(Manufacturers) are going to have to think about what they can offer at $299 and what profit they can generate,” says Benoit Vincent, chief technical officer at TaylorMade. “I’m expecting either they’ll raise prices . . . or they’ll have to decrease the value of what they’re going to (offer).”
The price hike for titanium can be attributed primarily to the aerospace industry. Boeing and Airbus, in a race to develop lighter planes to offset rising fuel costs, are consuming massive amounts of the material. Airplane manufacturers also are largely responsible for the run up on the price of carbon composites, or graphite. The material, widely used for shafts and increasingly in clubheads, is a key ingredient in lightweight aircraft as well (Golfweek, May 7).
Other factors are contributing to the titanium shortage. The Chinese government is purchasing the metal at unprecedented levels in its effort to build a modern nation, and the U.S. defense industry earlier this year replenished its strategic supply of titanium reserves.
Such heightened demand is sending a shockwave throughout the complex titanium supply chain. Some foundries, which cast heads for equipment companies, say their cost to purchase 6-4 titanium alloy has tripled to $16 per pound from $5 per pound during the past 12 months.
Ruger Investment Casting has had to endure such increases, but so far hasn’t struggled to secure the titanium supply it needs, says Norm Depeau, the company’s director of sales and marketing. But some experts caution that could change.
Nearly 50 percent of the world’s titanium “sponge” facilities – which produce raw titanium – are “sold out” for the next three to four years, according to John Sheehan, president of Sheehan Technical Consulting, whose clientele includes club manufacturers and Chinese foundries.
Some relief, however, is on the way. John Odle, executive vice president of RTI International Metals Inc., says efforts to increase global production capability by 20 percent to 30 percent are ongoing.
Until such efforts kick in, equipment makers are left to monitor their bottom lines and contemplate price increases of their own.
Joe Douglas, Ping’s director of materials, says his Asian suppliers this year raised prices “marginally” for the company’s new G5 heads. And TaylorMade reports it has absorbed an increase of less than 10 percent.
Cleveland’s suppliers boosted titanium prices between 20 percent to 30 percent over the past two years, according to Mark Christensen, the company’s metalwoods marketing manager. And he expects the inflation to continue.
As a result, Cleveland is considering raising next year the price of its Launcher Comp driver, which fuses titanium and graphite, to $399 from $379.
“The $299 price point, which is where the majority of the market is for all titanium, is getting tougher and tougher to hit,” Christensen says. “I foresee someone will be the first to blink. And then the (other manufacturers will) follow suit. Then you’ll have a new price point. Whether it’s $319 or $329 or more, who knows?”
If supply truly becomes scarce, Sheehan says manufacturers may need to reconsider clubhead composition.
“The smaller or intermediate companies might start moving away from titanium and designing in other directions,” he says. “Steel is an option. And I think you could see some degree of resurgence of aluminum and composite materials.”
The search for a titanium alternative could lead to an unexpected industry blessing, says Ping’s Douglas.
“Having been in the supply chain business for over 30 years, whenever there have been shortages. . . the world invents a different kind of material that works just as well,” he says. “I suspect the golf industry would do that, too.”