Technological advances in the United States have made fracking a cost-effective alternative to absolute reliance on Middle East oil.
However, as the United States gains independence in the energy market, the country is also becoming more dependent on other countries for metal production. Especially when it comes to metals needed for industry and defense.
For instance, the United States currently imports around 79% of the titanium used in the production of civilian and military aircraft, as well as other important commercial uses.
But here’s where this gets downright frightening.
Meaning two American defense firms are currently at the mercy of Vladimir Putin.
Politics Gone Wrong
VSMPO is a subsidiary of Rostec, the government-owned defense conglomerate whose CEO, Sergey Chemezov, is on the U.S. sanctions list.
So should Russian President Vladimir Putin decide it’s time to escalate the sanctions war by restricting the West’s access to high-grade titanium sponge, America could find itself in quite a bind.
Now, you’d think that since titanium is such an important commodity to the United States, we’d have a huge stockpile of the metal stored somewhere, just in case.
And prior to 2005, you would have been correct…
Incredibly, that was the year the National Defense Stockpile sold off its entire titanium reserve (34,800 metric tons in all) to fund the establishment of the World War II Memorial – leaving the United States with no emergency supply of the valuable metal.
But despite government ineptitude, global industries are taking steps to guarantee adequate supplies of titanium and other important metals.
The “Titan of Titanium’s” Aggressive Expansion Plans…
On Monday, shares of RTI International Metals (RTI) blasted up by 39.3% after metals leader Alcoa (AA) announced that it would acquire the titanium supplier in a stock-for-stock transaction with a $1.5-billion enterprise value.
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The acquisition significantly increases Alcoa’s reach into the aerospace and automotive markets. It also comes on the heels of Alcoa’s recently completed acquisition of privately held Tital, a German manufacturer of titanium and aluminum structural castings for aircraft engines and airframes.
And just four months ago, Alcoa acquired Firth Rixson, a jet engine components manufacturer.
Considering Alcoa’s rampant buying spree, CEO Klaus Kleinfeld has dubbed the company the “titan of titanium” in a CNBC interview – while also adding that titanium is the fastest-growing metal used in aerospace production.
So what does all of this expansion mean for you?
A Solid Deal for Investors
Alcoa’s purchase of RTI International Metals bodes well for investors. The deal will see net synergies of about $100 million in 2019, driven primarily by procurement and productivity improvements – once the deal closes in the next three to six months.
Better yet, Alcoa said it expects titanium spending to grow about 5% each year for the next five years – driven by high growth, along with next-generation civilian and military aircraft programs.
Even more great news…
With Alcoa’s recent announcement that it would look to close, curtail, or sell up to 14% of its existing smelting capacity as it shifts its focus from traditional operations, the company makes a compelling case for investors.
Alcoa is no longer interested in just being known as an aluminum company, and its acquisitions activity is positioning the company as a best-in-class performer in the high-end metals industry.
And with the continuing transition towards higher-valued product offerings with titanium, Alcoa stock will soar on the wings of aerospace.