| Summary |
 Australia is a leading producer of ilmenite (20 per cent of world production in 2006), rutile (44 per cent) and synthetic rutile (86 per cent). Australia’s exports of these commodities were valued at $0.7 billion in 2006-07. Rutile and synthetic rutile are used to produce titanium tetrachloride (TiCl4), a key input in the titanium metal industry.
The objective in this study is to examine the role of government in supporting a titanium metal research and development (R&D)project and the potential development of a titanium metal industry in Australia. Under the ‘light metals flagship’, the Commonwealth Scientific and Industrial Research Organisation (CSIRO) has developed a process, called TiRO, to produce titanium powder. The next stage in the project is a pilot plant to test and debug the TiRO process. The plant is likely to be located in Western Australia in close proximity to major resource deposits and related processing facilities.
The approach taken in this study is to present information that will assist the Australian Government in its assessment of whether to support the TiRO/CSIRO R&D project to the pilot plant stage. An economic assessment of the pilot plant project cannot provide the Australian Government with an unambiguous policy recommendation because the final assessment of policy options relies to some extent on the subjective judgment of the government. Should the government decide to invest in the TiRO pilot plant project, this is likely to enhance prospects for the development of a titanium metal industry in Australia through the commercialisation of the TiRO process or, if this technology proves to be not viable, by importing a successful technology. |
| Technology and market developments |
Titanium metal production uses the Kroll process under which titanium sponge is produced as an intermediate product. Relatively high production and fabrication costs have limited the use of titanium metal to specialty applications where its physical properties, such as strength, appearance, weight and biocompatibility, justify its high cost relative to other metals. Twenty organisations, including CSIRO, are currently conducting R&D projects into continuous processes for the production of titanium metal.
Since 2001, when the Australian Government previously examined the potential to establish an Australian titanium metal industry, there has been a significant turnaround in the world titanium market. Recent strong growth in world consumption of titanium mill products has been supplied by increased production and stock drawdown. World titanium sponge production increased at an average annual rate of 11.6 per cent between 2000 and 2006, and the industry’s capacity utilisation rate has increased from 60 per cent in 2000 to 95 per cent in 2006.
Governments in both the United States and CIS countries have depleted government stockpiles of titanium sponge. Reflecting these market developments, the real US price of titanium sponge increased at an average rate of 12.5 per cent a year between 2000 and 2006.
Major end use applications of titanium mill products include industry (49 per cent of world consumption in 2005), commercial aerospace (31 per cent), military (10 per cent, of which 7 per cent is military aerospace), consumer (8 per cent) and medical (2 per cent). The main consumers of titanium mill products are north America (30 per cent of world consumption in 2005), the European Union (24 per cent), China (15 per cent) and Japan (12 per cent).
Six countries produce titanium sponge — Japan (30 per cent of world production in 2006), the Russian Federation (24 per cent), Kazakhstan (19 per cent), China (11 per cent), the United States (9 per cent) and the Ukraine (8 per cent).
Over the period 2005–11, world consumption of titanium mill products is projected to increase strongly at an average annual rate of around 6.8 per cent. Significant investment in new productive capacity, required to satisfy increased titanium demand, will be based on the Kroll process. Major projected sources of growth in world titanium demand are industrial and aerospace applications. Strong growth is also projected for titanium consumption and production in China over the medium term. |
| The technology innovation process |
Key stages in the technology innovation process include technology R&D, adoption and transfer. Private investors assess the profitability of potential investment projects throughout the technology innovation process taking into account the risks associated with the activity. Technical risk tends to be high at the R&D stage and diminishes as the new technology is demonstrated and commercialised. Unit production costs tend to be reduced through ‘proving up’ the technology, by the experience acquired in applying the technology (learning by doing benefits) and as the technology is used on a large scale (economies of scale).
The economic rationale for consideration of government intervention in the technology innovation process is based on the presence of market failure, including positive externalities and risk. Positive externalities occur in the technology innovation process since the investment undertaken by one firm tends to provide unpriced benefits to other firms. Technology push policy options encourage R&D activity by providing greater economic incentives for private investment in R&D by reducing the costs and/or risks of the activity (including, for example, patents and tax incentives) and through direct support for public investment in R&D (including publicly funded R&D projects and public–private partnership arrangements).
The development and deployment of technologies that reduce titanium metal production costs would enhance the cost competitiveness of titanium in the world titanium market relative to substitutes such as steel and aluminium. Technology adoption is likely to lower industry costs, reduce the world price of titanium and increase titanium consumption in several end use applications including, most importantly, industrial, consumer and medical applications.
In this report, three long run growth scenarios for world titanium consumption are presented to indicate the future possible impact of technology adoption. Between 2011 and 2025, world titanium consumption is projected to increase at an average annual rate of:
4 per cent in the low growth scenario— no technology adoption
7 per cent in the medium growth scenario — limited technology adoption
10 per cent in the high growth scenario — moderate technology adoption. In this scenario, technology development and deployment has a greater impact on the long run growth path for world titanium consumption but the penetration of titanium into new end use applications is still assumed to be limited. |
| TiRO pilot plant project in australia |
In a recent assessment by ACIL Tasman, the pilot plant project to test and debug the TiRO process developed by CSIRO is valued at $126 million in present value terms. This valuation incorporates an 11 per cent probability that a commercial plant will be established with a profit of $1.3 billion in present value terms.
In assessing the role of government, it is important to distinguish between the profitability assessment by a private investor and the expected net return to society. Positive externalities and risk cause a divergence between private and social net returns. The ACIL Tasman estimate indicates that the direct net economic benefits of the pilot plant project are expected to be positive. There are also likely to be significant indirect net economic benefits from the pilot plant project.
Australia’s participation in the TiRO pilot plant project increases the probability that the international research effort will be successful in discovering a major new technology that reduces production costs in the titanium metal industry. For example, an international research effort comprising twenty independent R&D projects, each with a probability of success of 10 per cent, has an overall 88 per cent probability of discovering a major new technology.
If Australia is successful in commercialising the TiRO process, economic benefits may include: the development of a titanium metal industry in Australia, royalty payments from intellectual property rights, increased competition in the world titanium market and increased diversification in the geographic location of titanium production facilities.
If the TiRO process is not successful at the pilot plant or demonstration plant stage, an alternative path to the development of an Australian titanium metal industry may be to import a successful technology.
Overall, investment in the TiRO pilot plant project, possibly through a public–private partnership arrangement, is likely to enhance prospects for the development of a titanium metal industry in Australia. |
