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MONTHLY BuoimMkfa/iew IN - F E D E R A L R E S E R V E BANK of C L E V E L A N D )* THIS ISSUE Titanium: A New Growth Industry . . . 3 Department Store Trade Since 1953 . . 7 ^ u k c t 9 5 5 mm■ : Thousands of Short Tons EXPECTED CAPACITY OF TITANIUM SPONGE P L A N T S 'v* f a5* Sf — ' ir\ ii Titanium sponge plants now under construction will boost this infant industry's 7957 produc tion potential to about four times the 1954 output, making it one of the most rapidly growing in• dustries in the country today. 4 / / — / TIT ANIUM SPONGE PRODUCTION 1948 1950 1952 / 1954 1957 Additional copies of the M O N TH LY BUSINESS REVIEW may be obtained from the Research De partment, Federal Reserve Bank of Cleveland, Cleveland 1, Ohio. Permission is granted to repro duce any material in this publication. Titanium: A New Growth Industry of jet and supersonic aircraft, where the light it a n iu m is the newest member of the ness of titanium permits the planes to cover structural metals family — a small but lustily growing youngster. As with any infant,greater distances at higher speeds. Titanium’s excellent corrosion resistance new traits are being discovered almost daily provides the metal’s chief attraction to civilian and it is becoming increasingly easier to han users at present. Small quantities are being dle and to understand as it gets older. But, the used in various marine applications, in the metals family still has much to learn about chemical and food industries, and for various their precocious child. orthopedic devices. The high cost of the metal Actually, titanium is “ new” only in that currently limits its civilian uses, but as prices methods of reducing the mineral into metallic come down, broader nondefense markets seem form have been developed on a commercial assured for such a versatile material. scale within the past few years. Titanium di oxides have been used commercially for over Titanium Ores 20 years to provide the whiteness in paints, papers and other products. However, produc Titanium is the fourth most plentiful struc tion of titanium in metallic form has focused tural metallic element in the earth’s crust, attention upon its lightness, strength and re being exceeded only by iron, aluminum, and sistance to corrosion. magnesium. Although it is present in prac As recently as 1950, the titanium industry’s tically all crystalline rocks and in many output was measured in pounds. But, by 1954, minerals, only a few minerals contain sufficient production of titanium sponge metal totaled titanium to have economic importance. 5,300 short tons as compared with about 3 tons The principal titanium ores are rutile in 1948. Defense goals call for a 35,000-ton (TiOz) and ilmenite (F eT i03). Rutile is the capacity by 1957. In other words, titanium richer ore, but ilmenite is the more plentiful. could mature rapidly into a full-fledged mem Pure rutile contains about 60 percent titanium ber of the metals family. while ilmenite contains from 20 percent to 30 percent titanium. Uses and A dvan tage s of Titanium In the United States, ilmenite is presently recovered from deposits in New York, Idaho, Titanium is a baby born of defense needs. It Virginia and Florida. Substantial amounts of is as strong as steel but weighs only about half ilmenite concentrates are also imported from as much. It is six times stronger than alumi India and Canada. Rutile, however, is pro num, yet weighs only 60 percent more. It has duced in this country only from the beach excellent resistance to corrosion, completely sands of Florida. Australia is the sole foreign withstanding attacks by salt water and many supplier of rutile at present, but one of the other chemicals. It is ductile and retains its major steel companies of this Federal Reserve strength at temperatures up to 800° F. District is developing extensive rutile de Many applications of titanium are still in posits in Southern Mexico that appear to be the experimental stage. Its major use to date the richest yet uncovered in the Western has been in the structural members and skins Hemisphere. T 3 M aking Titanium Sponge All of the titanium sponge(1) produced com mercially today is made by the magnesium reduction of titanium tetrachloride, called the Kroll process after the Luxemburg scientist who first developed it. Basically, the transition from ore to sponge is accomplished in three stages. First, the ore is concentrated to at least 90 percent pure titanium dioxide by chemical or other beneficiation means. Secondly, the concentrated ore is reduced by chlorination of the titanium dioxide to titanium tetrachloride, a colorless liquid in its pure form. Finally, the titanium tetrachloride is reduced with molten mag nesium, in an argon or helium atmosphere, to sponge metal. The sponge, about 99.5% titanium, is the raw material which is melted into ingots and processed into mill products. (1) Sponge is a small, ance to coral rock. Sponge is produced commercially in this country in only two plants at present, having a combined capacity of 7,200 short tons a year. Plants now under construction will bring the industry’s capacity to 22,500 short tons by 1957. The location of plants in operation or under construction is shown below. PLANT LOCATION Newport, Del. Henderson, Nev. Chattanooga, Tenn. Midland, Mich. Ashtabula, Ohio ANNUAL CAPACITY (short tons) CO M PLETION DATE 3,600 3,600 April 1954 October 1954 6,000 1,800 7,500 M id -1955 M id -1956 1957 All the foregoing plants utilize the Kroll re duction process (or modifications thereof) ex cept the plant being built at Ashtabula. The hard, metallic mass similar in appear latter will produce sponge by the sodium re duction of t i t a n i u m chloride. Five years of THE T IT A N IU M IN D U ST R Y research went into the d e v e l o p m e n t o f the M a y 1955 new reduction process to the pilot plant stage in Niagara Falls, N. Y. Negotiations between the General Services A d m i ni s t ra t i o n and private companies now nearing conclusion re portedly call for an additional 18,200 short tons of titanium sponge capacity. These plans have not been com pleted, however. Domestic sponge out put is supplemented somewhat by imports from Japan. During the first 10 months of 1954, Japanese sponge imports t o t a l e d 136 short tons as compared with domestic produc- 4 tion for the entire year of about 5,300 tons. Melting and Rolling Titanium At temperatures considerably below its melting point, titanium combines readily with oxygen, nitrogen and hydrogen, making it quite brittle. Therefore, melting the sponge into metal is done in special crucibles in an inert gas atmosphere or a vacuum. The sponge may be melted in a water-cooled copper cruci ble by direct-current arcs or in a graphite crucible by exterior induction coils. Ingots up to 3,500 pounds have been formed. After scalping to remove surface imperfec tions, the titanium ingots may be hot forged or hot rolled to intermediate mill shapes. Proper heat control is necessary at all finish ing stages because of the metal’s affinity for contaminating elements at high temperatures. Much of the titanium production to date has been in the form of sheets, rolled on hand sheet mills, and destined mainly for aircraft skins and frames. Continuous hot and cold strip rolling processes are being developed. In addi tion, titanium has been successfully forged, rolled into bar and billet shapes, drawn into wire and welded into tubing. Progress is also being made in hot extrusion of the metal. Only four companies currently produce a variety of titanium mill products. Most of this finishing capacity is located in the Fourth Federal Reserve District. However, no new mills have been built. Rather, melting facili ties have been added near existing steel finish ing capacity which has been modified to handle titanium. For example, stainless steel mills, with little more than a roll change, are used to roll titanium sheet. Titanium sponge is being converted into semi-finished and finished mill products at steel mills in Midland, Pennsylvania, and Niles and Canton, Ohio. These three mills de pend upon the sponge facility at Newport, Delaware, for their raw material. The fourth titanium converter melts its own sponge from its Henderson, Nevada, plant, finishing it on mills in Brackenridge and West Leechburg, Pennsylvania, and Dunkirk and Watervliet, New York. The price of titanium sp onge has been reduced about 25 percent during the past year as new facilities w ere brought into production. Dollars per Pound RANGE OF TITANIUM SPONGE P R IC E S 1948 1949 1950 1951 1952 A 1953 - 1954 1955 Source of data: Bureau of Mines; Steel magazine G row in g Pains Like any rapidly growing infant industry, the titanium industry is beset with a multitude of problems. Many obstacles have already been overcome but many remain. High costs. The most formidable hurdle the titanium industry has to overcome is the high price of its products. Titanium sheets, for ex ample, are currently quoted in Steel magazine at $15 per pound f.o.b. mill, as contrasted with stainless steel sheets which range from 35c to 81c per pound and carbon steel sheets which cost from 4c to 8c per pound. Of course, titanium weighs only about half as much as steel, but titanium remains a very high priced metal even after allowance is made for the difference in density. Sponge prices have dropped considerably, as shown by the accompanying chart. Most of the output prior to April 1954 was in small batches made at pilot plants and priced at $5 and more per pound. With full scale produc 5 tion attained at two plants in 1954 (in April and October) prices dropped twice, falling once again this April. A titanium sponge price of $3 per pound has been predicted by some industry observers. Nevertheless, the present processes of making sponge are expensive and do not hold much hope of making titanium prices competitive with steel or aluminum in the present technological state of the industry. Inconsistent quality. The quality of titani um sponge has been improved considerably in the past few years. Material shipped only three years ago would not be acceptable by today’s standards. Still, complaints of incon sistent quality plague the industry. The initial quality of the sponge as it leaves the reduction plants is thought to be satisfac tory. Some technical experts believe that the answer to inconsistent ingot quality lies in the integration of sponge producing and melt ing facilities, holding that the moisture pickedup in transit and storage attacks the sponge, causing hydrogen embrittlement of the metal. Scrap use. Scrap losses are high in titanium production and fabrication but re-use in melt ing furnaces is lagging. The Government is actively promoting scrap use since it would help reduce the price of titanium and substi tute for additional sponge capacity. Reducing the titanium ingot to mill prod ucts results in about 40 to 50 percent scrappage, on the average, of which some 10 to 15 percent is nonrecoverable. This may be com pared with a 25 to 30 percent scrap loss at steel mills. Titanium fabricators average 40 percent scrap, ranging from 15 percent on sheet to 85 or 90 percent on forgings. Use of scrap for remelting varies among pro ducers, running from 5 to 25 or 30 percent of the furnace charge. Most of this is generated by the producers themselves. One producer thinks that sponge of higher purity would allow more scrap to be used in the melt. The cost of equipment for handling, clean ing and analyzing titanium scrap is the major obstacle to its re-use. Fabricators tend to mix scrap with other metals so indiscriminately that reclamation is extremely difficult. A De troit dealer who processes titanium scrap puts 6 a price on it of from $0.40 to $1.25 per pound, shipped in boxes rather than freight cars. Open order books. Orders for titanium mill products fall far short of the industry’s capacity. At present, the Government takes 90 percent of the industry’s output, setting aside 10 percent for civilian use. But, consumer de mand, both Government and civilian, would appear to be substantially below previously estimated levels. Shipments of titanium mill products last year, for example, totaled only 1,250 short tons as compared with sponge out put of 5,300 tons. Only about 2y2 percent is currently going to nondefense rated orders and the Government is using only about half of its share. The balance in the form of sponge goes into the Government stockpile. Producers are faced with this dilemma: Expansion programs result in sharp increases in capacity. Engineers (military and civilian) are reluctant to assume that adequate supplies of titanium will be available, but when they see that it is available, they will design accord ingly. However, it takes from 6 months to 3 years for the new specifications to affect pro curement. The civilian engineer is even more reluctant to specify titanium because he is un certain about what will be left after defense needs are met. The fact remains that titanium is a rela tively unknown member of the metal fra ternity. Fabricators are still learning how to work it. It requires new heating, grinding, drilling and other working techniques. These are being learned rapidly. As more comes to be known about the metal, and as industry specifications become more standardized, con sumer acceptance will be translated into effec tive demand. Governm ent A ids to Industry Titanium is an extremely risky venture. The rapid technological advances being made in the industry could make the considerable in vestment in sponge and melting facilities obsolete virtually overnight. In order to assure sufficient titanium capacity to meet military needs, the Government allows rapid tax writeContinued on Page 10 Department Store Trade Since 1953 Fourth District of consumer confidence and however, as measured in percentage terms, was consumer buying has been one of the somewhat greater in this District than for the outstanding features of the current expansionnation, at least by several percentage points. phase of business. Whether or not it was the The recovery, likewise, was more marked in main factor which sparked the recovery last this District. By April 1955, the relative dif year, as some observers assert, there can be no ference had been largely overcome, and sales doubt about the strategic role of consumer in the Fourth District as well as nationwide buying in maintaining the current pace of were comparable with 1953 peaks. business. The months since 1953 have not been easy ones for Fourth District department stores. Department store trade, which encompasses a wide variety of commodity lines (although Behind the current optimistic plus signs are several significant changes in the composition it falls short of the important food and auto sectors) has shared significantly in the retail of sales, inventories and credit. Furthermore, recovery. a prolonged labor dispute in one of the two largest cities of the District (Pittsburgh) had In the Fourth Federal Reserve District, the an adverse influence upon the District’s sales pattern of decline in department store sales totals during 1954. during late 1953 and early 1954, followed by substantial recovery since then, has mirrored the national trend. The extent of the decline, esu rgen ce R Sales and Stocks Fourth D istrict departm ent store sales have been rising since M ay, 7954; how ever, 1953 levels were not reached again until A p ril of this year. Stocks are about at their yea r-a go position. Since last December, sales of Fourth District department stores have been at higher levels than a year ago, but inasmuch as the year-ago period was the bottom of the trade cycle, cur rent plus signs should be interpreted with care. Sales began their downward slide in the latter months of 1953, reaching a bottom at about 10 percent below the 1953 level during the first five months of 1954. (Allowance is made for seasonal variation. See chart.(1)) Since May 1954, sales have followed an irregular but upward course; however, they did not succeed in reaching the 1953 average level until April of this year. From the peak in May 1953 through the trough and back to the 1953 levels has taken nearly two years. ( i ) The seasonally adjusted index of Fourth District depart ment store sales, which is depicted in two of the accompanying charts, embodies certain tentative revisions of seasonal adjust ment factors, based on data drawn from recent years. An nouncement of the detailed changes in the seasonal patterns is planned for a subsequent issue of this Review. 7 Fluctuations in new orders placed by departm ent stores of this district have been fairly close to the pattern of sales. Sales of hom efurnishings early in 1954 dropped more than 2 0 % below the 7953 average; since then, they have recovered sharply. A p p a rel sales have fluctuated less widely. The brisk Christmas season last year raised the level of sales to its highest point for 1954, and the strong Easter trade in April, after a rather poor March, succeeded in raising the level of adjusted sales to the highest point so far in 1955. The lift of sales in the two holiday seasons provided much of the strength of the recovery that has already been made. The present sales level suggests that during the remainder of 1955 the stores should not find great difficulty in equaling or surpassing the targets of both previous years. A prominent feature of department store trade since 1953 has been the orderly and con servative handling of inventories. Wide fluctuations in end-of-month stocks and peri ods of rapid liquidation have been conspicu ously absent. Inventories (seasonally adjusted) were higher in the latter part of 1953 than they had been during the spring; however, by the end of the first quarter of 1954, the level of stocks had eased about 5 percent from the 1953 aver age level, as may be seen by the colored line of the chart. Since then, stocks have shown little net movement on a seasonally adjusted basis. So far in 1955 they appear conservative in relation to sales. The orderly pattern of stocks since 1953 has held for most of the individual departments of both apparel and homefurnishings. 8 New O rders New orders placed by department stores dipped sharply in late 1953. Since then, they have followed the sales pattern fairly closely, as shown by the accompanying chart.<2) Since last December, new orders have been at a level approximately 5 percent below the 1953 aver age, although in the latest month for which data are available, new orders turned sharply upward and approached the levels reached in the spring of 1953. Apparel and Homefurnishings Sales Not since the scare-buying days of the Korean War have sales trends in homefurnish(2) The “ new order” series shown in the chart is derived by combining information on outstanding orders, inventories and sales as supplied each month by a substantial group of cooperating department stores. The sales index depicted in the same chart is based on a somewhat larger sample of reporting stores. Both series in this particular chart are seasonally adjusted and are smoothed by use of three-months’ moving averages. Latest entry for new orders is the moving-average value for February 1955, based in part on March data. (The sharp up ward movement in new orders during March is thus not fully reflected in the chart.) Latest entry for the sales index is the moving-average value for March, based in part on April data. ings differed from apparel sales as greatly as they did in 1954. Homefurnishings sales in 1953 had followed an even course until Sep tember, but subsequently, sales went into a de cline so that March of 1954 found them 25 percent below the peak reached in the year before, after seasonal adjustment. Apparel sales declined, too, but much less sharply. They reached the bottom of their descent in March 1954 at a level approximately 15 per cent below the 1953 highs. Since the spring of 1954, sales of both home furnishings and apparel have been on an up ward path. Apparel sales recovered much of their lost ground during the strong Christmas season last winter; however, a poor showing during the first quarter of 1955 nearly erased the gains of the previous three months. Very brisk Easter trade finally boosted the apparel departments’ sales above 1953 levels. Sales of homefurnishings so far this year have shown exceptional gains from a year ago. Some of the strength of the plus signs is, of course, due to the depressed levels of early 1954. The adjusted index of homefurnishings sales, through April of this year, has not yet exceeded the average level of 1953 in any month subsequent to that year, with the single exception of January 1955. (Sales in January may have been “ borrowed” , in part, from the traditional February promotions, as a result of an early start in advertising.) Reports for April, after seasonal adjustment, place home furnishings sales only 3 percent below the 1953 average. In the face of a considerable decline in sales volume, prices of homefurnishings showed some downward movement last year, although the average decline for the group appears to have amounted to only about 2 percent from January 1954 to January 1955, judging by official estimates of nationwide trends in de partment store prices.(3) Some individual lines in the group were reduced greatly in price. For example, prices of items sold in the radio and television department declined by an ( 3) Based on the department store inventory price index issued by the Bureau of Labor Statistics, U. S. Department of Labor. These figures do not necessarily apply to prices charged by Fourth District stores, although they are suggestive o f the major trends. Instalm ent-accounts outstandings last Decem ber w ere slightly higher than a year ago. They did not decline by the usual seasonal amounts in January, however, and have rem ained at high levels since then. average of 9 percent during the year, while, on the other hand, average prices of house wares increased slightly. Appliances, along with most other large items such as furniture, declined by 2 percent to 4 percent, according to these estimates of national trends in depart ment store prices. Prices in the apparel and other soft-goods departments of department stores were under less downward pressure dur ing the year and the drop in prices averaged only 1 percent for those departments. Instalment C red it During the spring of 1954, sales transacted on an instalment account basis in the District shrank considerably, not only in absolute dollar volume, but also as a proportion of the declining total sales. The decline in instalment account sales closely matched the drop-off in homefurnishings sales, both as to timing and as to severity. The share of the total represented by chargeaccount sales has not changed much in the in terval since 1953; it has continued to account for approximately half of all sales in the department stores. As a result of the decline 9 in importance of instalment sales, cash sales accounted for an enlarged proportion of total sales during most of 1954. With the recovery in total sales, and homefumishings in particular, the use of credit at department stores has been increasing again. Last December, instalment accounts reached a level 14 percent above the 1953 monthly aver age, although this position must be discounted for seasonal factors. In the early months of 1955, the volume of instalment sales, as well as outstandings, failed to decline by the usual seasonal amount. Outstandings in January 1955 were 15 percent higher than in the yearago month and 19 percent greater than in January 1953. (See chart.) In more recent months, the level of outstandings has remained nearly constant. TITANIUM Continued from Page 6 offs for new facilities and agrees to purchase the bulk of the new plants’ output at market prices. The industry’s research and development costs have also been partly borne by Federal funds. The Bureau of Mines began operat ing a pilot sponge plant in 1945 on an experi mental basis. One of the latest steps in this direction was the establishment of a metal lurgical laboratory at a private, nonprofit re search institute in Columbus, Ohio. Operated under contract with the Defense Department, the new laboratory will act as a clearing house, providing free technical information to indus try on the production and use of titanium in military equipment.(2) Also, the Defense De partment and industry representatives agreed (2) The laboratory is operated by Battelle Memorial Institute. 10 in April on a new program for expanding re search, development and experimental uses of titanium. Progress is expensive. One expert, figuring research, engineering, development and pro duction costs, estimated that the Air Force has spent about $200 a pound for the titanium fly ing in military aircraft today. Military re quirements justify the high costs, but progress made in defense applications of the metal will open new possibilities for civilian uses and help lower its prices. Note on Sources: Technical, statistical and descriptive material were obtained from the following sources: U. S. Bureau o f Mines, Minerals Yearbooks and Mineral Market Re ports; Iron A g e; Steel; and Republic Steel Corpora tion, The Titanium Industry in the United States and Republic Titanium and Titanium Alloys. FOURTH FEDERAL TOLEDO RESERVE DISTRICT ■ C LEVELAND • YOUNGSTOW N OHIO P it t s b u r g h ^ H EELIN G t V . ........ ; C IN C IN N A TI ■ MAIN OFFfCE ★ BRANCH OFFICES
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