Demand Driven Inflation: Titanium and Carbon-Fiber

"Pat Hus, chief executive of Titus Cycles in Tempe, Ariz., says that whenever he hears that a supplier has carbon fiber in stock, he picks up the phone and buys it immediately, often paying up to three times what he paid a year ago. "If we don’t move that day, it’s gone," he says."

Yes, you read that correctly. Manufacturers of products made of Carbon-Fiber are paying 300% higher prices than they were 12 months ago. Manufacturers of the strong lightweight material are catering more to their bigger customers, and jacking up the prices for the smaller ones.

The prime culprit? A combination of the weak dollar and high fuel prices. That’s been driving a replacement cycle in aircraft. The emphasis on fuel efficiency means lots of carbon fiber is beibng sucked up by the aerospace industry. Good for Boeing, not so good for "the makers of sailboats, lacrosse sticks, tennis rackets, jewelry and bone
screws — who are paying 25% more for raw materials"
than did not too long ago. They are passing along the costs to their consumers.

How much is being passed along? Consider:

-Trek Bicycle Corp., Cannondale Bicycle Corp., and Serotta Competition Bicycles, are considering 5% to 25% price increases.
-Seven Cycles raised prices 10% this year, and expects another rise for 2006-2007 models.
– Luis Leguia saw prices rise on their carbon fiber cellos 12%
-455 Deep Bore Golf Clubs raised prices 30% to their distributor, who passed along a 3% increase to consumers   
-Titan Pro Defense raised the costs of their LaCrosse sticks 9%

Granted, none of these items are essentials. (If they were  we would have to report the CPI data without them — as in CPI ex Food and Energy).

But they are similar to other manaufactured products that are facing the same choice with input costs associated with rising prices of lumber, steel, aluminum, energy, and petrochemicals: Pass along the increase, and risk losing some revenues, or eat the increase and see margins take a hit.

Titanium and Carbon Fiber: What’s Going Up In Price

Courtesy of WSJ

Carbon Fiber maker Zoltek Companies says they "keep prices lower for
bigger customers by raising prices for smaller ones, such as bike and
golf-club makers, who constitute 15% of his company’s business. "We
really jack up the price" for smaller customers, he says. He’s passed
on more of the 60% to 100% increases to sporting-goods customers."

In an odd and indirect way, Trek is subsidizing Boeing.


Why Bike Prices Are Shifting Higher
Strong Aircraft Orders Lift Cost Of Titanium, Other Materials;
9% More for Lacrosse Sticks

WSJ, August 1, 2006; Page D1

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What's been said:

Discussions found on the web:
  1. Emmanuel commented on Aug 1

    Knowing that you like cars too, Mr. Ritholtz, perhaps some of that demand is made up by the current vogue of having “sportier” titanium and carbon fiber as auto interior materials instead of wood.

  2. Craig H commented on Aug 1

    I bought a titanium bike 7 years ago and I still get catalogs from the mail order place. I got a new catalog last week and was shocked at how expensive the frames had gotten. Now I understand why.

    I’m glad that titanium frames outlast their riders. It’s a purchase I’d rather not repeat at today’s prices.

  3. FliteTime commented on Aug 1

    Um, excuse me? Does anyone have ANY idea what the lead time is to design a Boeing airliner? They are not suddenly re-tooling to make 737’s out of carbon fiber or titanium, they are ALREADY making CERTAIN PARTS out of this EXPENSIVE material. Parts such as high-stress & high fatigue points, fan blades, and in some structure.

    About 95% of ALL airplanes are made of aluminum. Think about that the next time you crush your Coke can. There is, of course, the Raytheon Premier 1, which has a full-graphite fuselage and wings. But how well is that plane doing (I really don’t know)? The Raytheon Starship was also all-composite, and it had consistant problems despite its beauty.

    Analysts talk about the costs of squeezing oil out sand is affordable now because oil is so high. Well, the cost of putting graphite and Ti on an aircraft need to be justified by the high price of fuel. Frankly, I don’t see that the cost is high-enough yet, except to be used SPARINGLY.

    It’s just like housing prices went up because interest rates went down. If the aircraft get lighter (thanks to graphite and/or Ti parts), then their price goes WAY up. Boeing is ALEADY a large graphite & Ti consumer, so they get dibs on the supply (kinda like Wal-Mart can jerk around its suppliers). If the supplier comes up short, they might lose their big customer, or a big chunk of his business.

    I do admit, right now I’m working on replacing a tail-section of a helicoptor from aluminum to graphite, with attach fittings made of Titanium. Part of this reason is because it’s going to the Canadian Marine Patrol, and they have this thing about salt-water corrosion. But this helo is going to a government, so price isn’t THAT much of a concern.

    The materials are expensive, but you do get what you pay for.

  4. BDG123 commented on Aug 1

    I’ll take this opportunity to post a bike 4sale. A beautiful Cannondale R3000 with full Dura Ace componentry, selle italia seat and mavic ksyrium wheels. 58cm frame. List price $4195. Sale price $1995. Will ship.

  5. BDG123 commented on Aug 1

    Russians preferred alloys and titanium to aluminum because of its fatigue strength and oxidation resistance. That is why you’ll never see an engine or tail section falling off of a Russian jet.

    Btw, Russia is continuing with its nationalization program and has announced they are nationalizing titanium production. Anyone know who makes most of the global titanium? Anyone? Anyone? Buehler?

  6. cm commented on Aug 1

    Barry: When the purchaser pays three times as much as last year, wouldn’t that be a 200% higher price?

  7. jkw commented on Aug 1

    Fuel prices don’t have to go up much to justify making planes lighter. Remember that an airplane will fly millions of miles before it is retired. So saving 50 pounds of weight could be worth spending several million more on the initial purchase of the plane. The big problem with building things out of carbon-fiber is the manufacturing difficulties. They work wonderfully for small things, but are hard to work with for anything bigger than a person.

    Nothing beats aluminum for oxidization resistance. It is by far the best material for building spaceships or anything else exposed to vacuum and radiation frequently. The fatigue properties are terrible, which is the primary downside to aluminum. When I last took a structural engineering class, I think the cost/strength/weight ratios favored aluminum over titanium for airplanes, but I’m more of a rocket scientist than an aeronautical engineer. And prices change. Maybe Russia has abundant titanium ore and little aluminum. Or maybe they want their airplanes to last more than 3 decades.

  8. scorpio commented on Aug 1

    bot a Schwinn Cruiser Classic in perfect condition for $80 at an estate sale last week from old professor, retired and leaving house for condo, looks like it’s been garaged for life, right down to the woven basket up front. ah, the little victories….

  9. BDG123 commented on Aug 1

    Now I hate to disagree. lol. You may be a rocket scientist but you aren’t a chemical engineer. Aluminum oxidates very easily within the atmosphere to create the powder aluminum oxide. Titanium alloys used in aircraft design are impervious to oxidation.

    Now, I’m not an aircraft designer but my best friend is and he works for NASA. I just called him to see if I knew what I was talking about since it has been more than a few years since this topic has crossed my brain. Titanium is stronger, more rigid, provides more structural strength and can be manipulated much easier than aluminum in the manufacturing process of planes to achieve strength. In addition the cracks and structural problems commercial airlines experience are much less likely to occur in titanium.

    The downside. It’s gawdawful expensive.

  10. royce commented on Aug 1

    Boeing’s new 787 is the carbon fiber machine Barry seems to be referring to, though I don’t think it’s taking up all the capacity out there. Composites account for something like 50% of all the materials in the plane, according to one article I read.

  11. jkw commented on Aug 1

    Aluminum oxide sticks to aluminum, which makes it effectively immune to oxidization. Unlike iron oxide (rust), which falls off. So technically, aluminum oxidizes very easily. But that makes it effectively immune to the bad effects of oxidization because it forms a protective layer of aluminum oxide within seconds of being exposed to air. That aluminum oxide isn’t going anywhere and won’t react with anything. I thought titanium did the same thing, but I could be wrong.

    For airplanes, strength to weight ratios matter, not just strength. That’s why steel is never used. I think titanium is 1.5 to 2 times as good as aluminum on strength/weight, but I might be misremembering. It is effectively lower than that because there is a limit to how thin you can make the structural members, so you can have fully optimized aluminum structures, but you need to leave extra titanium on for manufacturing reasons and buckling resistance. The major disadvantage to aluminum (structurally) is that it has no fatigue limit, so regardless of how low the loads are, it will always wear out eventually. Titanium and steal have fatigue limits, so if the loading is low enough you can cycle them forever and they will never wear out.

    Titanium is harder to work with than aluminum. I don’t know who your friend is, but he must not do any machining. Stronger metals are always harder to work with. They are harder to bend, cut, or drill into. The saw blades and drill bits wear out faster and are more expensive because you have to use something stronger than the metal you are working. Any steel saw can cut aluminum, but most of them cannot cut titanium. The only downside to machining aluminum is that if it gets too hot from the blades it can melt a bit and gum them up.

    Then again, I haven’t done any machining for a few years, so maybe waterjets, laser-cutters, and other such devices have improved to the point where they work well on titanium. Then the machining issues would go away. Except possibly for bending, which is definitely necessary for wings and bodies of planes.

  12. Bob A commented on Aug 1

    Do they keep prices lower for big customers just because they like them??? Or is it because they have made long term pricing agreements…

  13. Stan commented on Aug 1

    Interesting article, but it states “with rising prices of lumber…”. Has anyone looked at the fact that since the fall of 2004, lumber futures are 40% off their peak? Pull the wool on me for one item, and I doubt everything else in the article.

  14. darland commented on Aug 1

    Prices for titanium and carbon frames have come down significantly in the past 10 years as more and more frame manufacturers are using these materials. Remeber when titanium used to be known as “unobtainium”. I do not doubt that ultra high end fabricators like Seven, Merlin, Temple, Roark, etc are experiencing increases in their cost inputs, but they are able to pass it on and (then some) because there is a surplus of poseurs with fat wallets who can afford $5k + rides. There was a time when this was A LOT for a bike. No more. Furthermore, there was a time when only the most high end of frames were made of carbon. Now you can find a sub $2000 carbon road bike without much trouble. Road bikes are not any more driven by the cost of frame material as Nikes are driven by the cost of resin.

  15. Bob commented on Aug 2

    Scorpio said, “Titanium alloys used in aircraft design are impervious to oxidation.”

    I am a jet engine mechanic. We have to test out tools for cadmium because the engine manual states that titanium and cadmium are dissimilar metals. This means oxidization can occur if we use cadmium plated tools on titanium parts of the engine. Oxidization causes unneccessary stresses that could lead to catostrophic failure.

  16. John Navin commented on Aug 6

    I’m a few days late to this conversation, but I wanted you to notice that the CEO of TIE bought $1.3 million worth of his company’s stock on 7/25/06, according to page C13 of the WSJ.

    For what it’s worth…

  17. Larf commented on Aug 8

    We should jsut build pranes out of diamonds. What a great idear. omg lolz.

  18. CyberPoet commented on Nov 21

    What everyone seems to be forgetting is the military-industrial complex’s sudden need for carbon-fiber and titanium by the boat-load due to the ongoing military conflicts (in Iraq, and to a lesser extent, Afghanistan). From body armor to HUMMV blast doors, from replacement aircraft components to missile nose-cones, the military’s need for finished products containing these compounds simply went off the scale compared to peace-time. And because it’s considered “Crucial Wartime Purchases” that the military will buy at any price-point at this instant, the parts manufacturers can afford to over-pay their materials vendors to ensure they get all the materials they want/need. And that has the trickle-down effect of making everyone else who wants to use the same materials/items have to match the same price-point (the one effectively the government is pay, indirectly), unless there is suddenly an extreme glut in the commodity — something not likely to happen as long as the war keeps chewing up parts.

    Want an interestingly insightful view? Read General Smedley Butler’s “War is a Racket” here:
    ** Note: General Butler is the only man to every receive two congressional medals of honor, to the best of my knowledge. The article is dated, but the economic truths involved in it have not changed.

    =-= The CyberPoet

  19. Jon commented on Aug 21

    and if it makes you feel better, Zoltek supplies wind energy companies, not airplanes

  20. Eddio commented on Jan 28

    Linkfest Rules, I have no idea how I got here, does anyone have a webmap? or a web GPS

  21. sheriif commented on Feb 6

    we have huge reserves of Titanium ore in one of our sites that is currently functional in nigeria.

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