In case you missed it, the titanium sector had a bubble and a blowup in the last few months.I don't follow the group very closely but I believe this is the poster-child for the pure plays. The run up was spectacular and the decline that followed was nasty, especially for people in at the wrong time.
While I have not studied the fundamentals I believe the demand for titanium is increasing because of all the titanium credit card solicitations we receive, ahem.
Something like a titanium pure play, similar to a rhodium pure play if there is such a thing, is a very narrow bet within a fairly broad theme. No matter the result of the trade, this is a much riskier way to go.
I think the broader themes can be enough for most long-term investors to capture the effect. Over the last couple of years most mining stocks or other commodity related investments are generally up a lot and I doubt too many people would say the risk taken in reckless.
You can see on the chart that starting in late April a lot more money flowed into the name for the final blowoff. This type of pattern repeats over and over and seems to always end the same so watch out.
I'm sure someone will leave a comment about the fundamental case for increased titanium demand because of airplanes and I'll concede the fundies but this post is about trades that take on more risk without necessarily offering the chance for substantially better returns to justify the risk.
5 comments:
Roger,
The main use of titanium is as a pigment for white paint. So titanium demand is very driven by the need to paint things white (general economic activity)
The biggest sort of play on titanium that is the TIE/NL/KRO/VHI complex (There is a very weird corporate structure here with NL owning a large portion of Kronos, and Valhi owning most of NL, Kronos, and more titanium interests via TIMET).
I'm not sure if anyone really understands the corporate structure, it's basicly a monster layered holding company structure. My guess is that this was done to isolate NL's old lead liabilities from the titanium oxide business, and to create alot of leverage for VHI.
& I believe Titanium is produced from Ilmenite - a Black Beach-Sand - major exports from Bunbury region of Western Australia
- from black sand to white paint :)
I made good money shorting TIE at $90 based on the candlestick it formed suggesting a top at a time that this market appeared rather weak. Short from $90 to $70 pre-split. Made for a nice portfolio hedge, and actually reduced my risk.
The whole VHI thing is really funny, because NL (f/k/a National Lead) was one of the biggest producers of TiO2 for paint making, since Ti02 was the big competator for white lead.
Kronos (NL's TiO2 business)got spun out, so VHI which owns 85% of NL, owns fairly all of Kronos so owning Timet is logical thing to own to boot.
The process of making Titanium metal is a step or two off from the process of making TiO2.
I bought TIE in October on news of increasing market caps among titanium industry co.'s. Since then it has split twice and I sold late April and netted 230%! My best return yet. I didn't see this runup as a bubble, but once it burst, it was more apparent.
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