Dongfang Securities: The supply and demand for titanium concentrate may continue to trend towards looseness, with price declines releasing profit space for downstream

According to the Zhitong Finance APP, Dongfang Securities released a research report stating that the supply-demand gap for upstream titanium concentrate is expected to continue to narrow in the medium term. The easing of raw material supply may lead to a decrease in costs for titanium processing companies, thereby increasing their profit margins. The downstream applications for titanium materials and titanium alloys are broad, with rising demand in aerospace, 3C, and other fields likely to open up market space for companies positioned in related industries. Relevant targets include TIANGONG INT'L (00826), Jintian Titanium Industry (688750.SH), and BAOTI (600456.SH).

Key Points from Dongfang Securities:

Upstream titanium concentrate supply may ease, and price declines are expected to benefit downstream titanium material companies

In recent years, titanium concentrate production has declined, and the midstream titanium dioxide and sponge titanium smelting capacities have expanded rapidly, resulting in a supply-demand gap in the upstream market. The market generally believes that titanium concentrate prices will remain high. However, the actual situation is that the supply-demand gap has not led to an increase in titanium concentrate prices. The firm believes this may be due to increased inventory at titanium concentrate production companies, leading to a hidden oversupply that cannot be fully accounted for. After observing the marginal changes in the supply-demand dynamics of titanium concentrate in the medium term, the firm predicts that the supply-demand gap for upstream titanium concentrate will narrow from 2025 to 2027, and the easing of supply may lead to continued price declines, benefiting downstream titanium material companies from reduced production costs due to lower raw material prices, further releasing profit margins.

Supply: Titanium concentrate production has declined in recent years, and medium-term expansion may continue

In recent years, due to the closure of old mines in Australia and slow progress in exploring new mines, global titanium concentrate reserves have declined, with a 25.3% year-on-year decrease expected in 2024. According to statistics, medium-term titanium ore production may continue to increase, with an estimated supply of 9.84 million, 10.27 million, and 10.71 million tons of titanium concentrate from 2025 to 2027, with year-on-year growth rates of 4.7%, 4.4%, and 4.3%, respectively.

Demand: Medium-term demand for titanium concentrate may slow with the pace of midstream smelting expansion

The midstream products in the titanium industry chain are titanium dioxide and sponge titanium, with sponge titanium being the raw material for processing downstream titanium materials. In recent years, China's production of titanium dioxide and sponge titanium has continued to expand, but declining demand has led to oversupply. Looking ahead, overseas titanium dioxide production capacity is expected to contract overall, while domestic capacity continues to expand; however, the overall growth rate of global titanium dioxide production capacity is declining. Sponge titanium capacity expansion projects are mainly in China, and it is estimated that the growth rate of production may significantly slow from 2025 to 2027.

Price: Upstream titanium concentrate supply may ease, and price declines are expected to release downstream profit margins

According to the firm's estimates, from 2025 to 2027, the growth rate of demand for titanium concentrate is expected to be lower than that of supply, indicating that the supply-demand gap for titanium concentrate is likely to continue to narrow, and there is still room for price declines. With the expectation of declining titanium concentrate prices in the medium term, downstream titanium material companies are expected to benefit from reduced production costs due to lower raw material prices, further opening up profit margins.

Risk Warning

Risks of titanium concentrate project expansion falling short of expectations; risks of titanium dioxide and sponge titanium project expansion exceeding expectations; risks of macroeconomic fluctuations; risks of changes in assumptions and omissions in capacity statistics affecting calculation results