We use cookies to understand how you use our site and to improve your experience. This includes personalizing content and advertising. To learn more, click here. By continuing to use our site, you accept our use of cookies, revised Privacy Policy and Terms of Service.
You are being directed to ZacksTrade, a division of LBMZ Securities and licensed broker-dealer. ZacksTrade and Zacks.com are separate companies. The web link between the two companies is not a solicitation or offer to invest in a particular security or type of security. ZacksTrade does not endorse or adopt any particular investment strategy, any analyst opinion/rating/report or any approach to evaluating individual securities.
If you wish to go to ZacksTrade, click OK. If you do not, click Cancel.
Will Titanium Sanctions Against Russia Hurt Aerospace Stocks?
Read MoreHide Full Article
The United States and many other nations have been cornering Russia lately by imposing a few import bans and other sanctions, in response to the ongoing Russia-Ukraine conflict. Currently, there is a possibility of the U.S. administration revoking permanent normal trade relations (PNTR) with Russia, which if materializes will make import of a handful of items like titanium quite expensive for the U.S. manufacturers.
Although other major consumers of titanium like Europe exempted the element from the sanctions currently imposed by their government on the Russian imports, the intensifying war crisis might force them to follow the United States. With Titanium being a vital element of any aerostructure, possible sanctions on the imports of the same may hurt aerospace majors like Boeing (BA - Free Report) ,Embraer (ERJ - Free Report) and Airbus (EADSY - Free Report) .
Titanium and its alloys boast properties that are most suitable for any aerostructure. Notably, Russia enjoys a dominant position in the supply of Titanium, globally. Particular, Russia-based VSMPO-AVISMA Corporation is the world's largest titanium producer and is the major supplier of this key metal to aerospace giants like Boeing, Airbus and Embraer. However, post the Russian invasion of Ukraine, many international companies ceased their collaboration with VSMPO-AVISMA, inducing in accessibility to the key metal in the long haul.
Implication of PNTR Revocation & Other Possibilities
The possible withdrawal of Russia’s PNTR will increase the tariffs on the Russian goods entering the United States. Specifically for titanium, the duty rate will jump from 15% to 45%, eventually trickling down to the U.S. aerospace companies that procure the metal from the Russian manufacturers. This will push up the metal price and consequently, their expenses, hurting their operational performance in turn.
While other nations are yet to declare a particular sanction on the titanium import from Russia, sanctions on other luxury goods’ imports might enrage and provoke Russia to stop supplying the element to countries like Europe and Brazil. With VSMPO-AVISMA producing almost half of the world’s titanium, this will cause a global imbalance in the titanium supply, affecting the aerospace manufacturers worldwide.
Aerospace Stocks to Take a Hit
Considering the aforementioned factors, the aerospace stocks that might get into trouble are:
Boeing: VSMPO-AVISMA is the largest titanium supplier of Boeing’s commercial jet production. However, following the sanctions on Russian companies amid the ongoing Russia-Ukraine conflict, BA ceased purchasing titanium from the company.
In this context, it is imperative to mention that the titanium parts from VSMPO-AVISMA, used in Boeing’s fleet of 737, 767, 787, 777 and 777X airplanes, may not face any near-term shortage, primarily owing to BA’s significant titanium inventory level. However, if PNTR is revoked, the aerospace entity will incur high raw material expenses, which may dent itsoperational efficiency.
Embraer: This Brazilian jet maker relies on VSMPO-AVISMA for all its titanium requirements for aircraft manufacturing. Although ERJ clarified that it may not face any near-term challenges related to supply-chain issue with titanium on sufficient inventory levels, a prolonged sanction on the Russian companies may weigh on its operations.
Also, Embraer may contemplate alternative sources of obtaining the key metal, which may increase its overall cost.
Airbus: Airbus outsources almost half of its titanium from VSMPO-AVISMA. It procures raw materials as well as semi-finished metal products from the Russian company for smooth flow of its operations.
Though EADSY has not halted its purchases from Russia, the supply-chain constraint for titanium following the Russia-Ukraine tiff and Europe mulling over imposing further sanctions on the country if the war intensifies, remains a bottleneck for Airbus in the long run.
One Month Price Performance
Image Source: Zacks Investment Research
Unique Zacks Analysis of Your Chosen Ticker
Pick one free report - opportunity may be withdrawn at any time
Image: Bigstock
Will Titanium Sanctions Against Russia Hurt Aerospace Stocks?
The United States and many other nations have been cornering Russia lately by imposing a few import bans and other sanctions, in response to the ongoing Russia-Ukraine conflict. Currently, there is a possibility of the U.S. administration revoking permanent normal trade relations (PNTR) with Russia, which if materializes will make import of a handful of items like titanium quite expensive for the U.S. manufacturers.
Although other major consumers of titanium like Europe exempted the element from the sanctions currently imposed by their government on the Russian imports, the intensifying war crisis might force them to follow the United States. With Titanium being a vital element of any aerostructure, possible sanctions on the imports of the same may hurt aerospace majors like Boeing (BA - Free Report) ,Embraer (ERJ - Free Report) and Airbus (EADSY - Free Report) .
While Airbus currently carries a Zacks Rank #2 (Buy), Boeing and Embraer carry a Zacks Rank #3 (Hold) each.You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Involvement of Titanium in Aerospace
Titanium and its alloys boast properties that are most suitable for any aerostructure. Notably, Russia enjoys a dominant position in the supply of Titanium, globally. Particular, Russia-based VSMPO-AVISMA Corporation is the world's largest titanium producer and is the major supplier of this key metal to aerospace giants like Boeing, Airbus and Embraer. However, post the Russian invasion of Ukraine, many international companies ceased their collaboration with VSMPO-AVISMA, inducing in accessibility to the key metal in the long haul.
Implication of PNTR Revocation & Other Possibilities
The possible withdrawal of Russia’s PNTR will increase the tariffs on the Russian goods entering the United States. Specifically for titanium, the duty rate will jump from 15% to 45%, eventually trickling down to the U.S. aerospace companies that procure the metal from the Russian manufacturers. This will push up the metal price and consequently, their expenses, hurting their operational performance in turn.
While other nations are yet to declare a particular sanction on the titanium import from Russia, sanctions on other luxury goods’ imports might enrage and provoke Russia to stop supplying the element to countries like Europe and Brazil. With VSMPO-AVISMA producing almost half of the world’s titanium, this will cause a global imbalance in the titanium supply, affecting the aerospace manufacturers worldwide.
Aerospace Stocks to Take a Hit
Considering the aforementioned factors, the aerospace stocks that might get into trouble are:
Boeing: VSMPO-AVISMA is the largest titanium supplier of Boeing’s commercial jet production. However, following the sanctions on Russian companies amid the ongoing Russia-Ukraine conflict, BA ceased purchasing titanium from the company.
In this context, it is imperative to mention that the titanium parts from VSMPO-AVISMA, used in Boeing’s fleet of 737, 767, 787, 777 and 777X airplanes, may not face any near-term shortage, primarily owing to BA’s significant titanium inventory level. However, if PNTR is revoked, the aerospace entity will incur high raw material expenses, which may dent itsoperational efficiency.
Embraer: This Brazilian jet maker relies on VSMPO-AVISMA for all its titanium requirements for aircraft manufacturing. Although ERJ clarified that it may not face any near-term challenges related to supply-chain issue with titanium on sufficient inventory levels, a prolonged sanction on the Russian companies may weigh on its operations.
Also, Embraer may contemplate alternative sources of obtaining the key metal, which may increase its overall cost.
Airbus: Airbus outsources almost half of its titanium from VSMPO-AVISMA. It procures raw materials as well as semi-finished metal products from the Russian company for smooth flow of its operations.
Though EADSY has not halted its purchases from Russia, the supply-chain constraint for titanium following the Russia-Ukraine tiff and Europe mulling over imposing further sanctions on the country if the war intensifies, remains a bottleneck for Airbus in the long run.
One Month Price Performance
Image Source: Zacks Investment Research