21 July 1997 00:00 [Source: ICB]
DuPont's Tioxide acquisition has fulfilled the US group's long-held ambition - a manufacturing base for TiO2 in Europe. But this $750m purchase provides so much more - an unassailable leadership position in the European market - with a 37% market share, and the Asian market - where it now has a 30% share. The combined company has just short of 40% of global TiO2 production capacity.
Titanium dioxide has been a poor performer for much of the decade. Prices have been consistently below reinvestment economics, and when DuPont announced its purchase last week, most of the industry, including Tioxide, had been losing money since the second half of 1996 with little respite expected for 1997. So far market prices average below 1996 levels in spite of two consecutive price hikes in the second and third quarters this year, and most TiO2 businesses, apart. from DuPont, expect to be in the red for 1997.
'Both customers and producers win from this move,' was another producer's response. 'DuPont's increased market strength should, in this stronger market, help prices move up to levels where other producers can break even.' Customers win because 'only DuPont will be in a position to reinvest and customers are going to be crying out for material in two years time.' Jim Fisher of US consultancy IBMA believes customers in Europe and Asia will benefit from growing availability of new chloride-based grades and that DuPont will convert some sulphate plants to chloride over time.
The timing could be very good, if prices have now bottomed out. DuPont's Ian Edwards, director of white pigments, Europe, Middle East and Africa, believes they have, and that 7% demand growth and product shortages suggest consultants' estimates of 500 000 tonne/year global overcapacity are much too high. 'There is no spare capacity for the best products. Chloride is sold out,' he claims. However, Fisher warns high global demand growth is largely the result of inventory build ahead of price hikes, and demand could soften by the end of the year.
Tioxide was already the leading player in the European market with 25% plus market share, a chloride-route production base which DuPont can develop, 335 000 tonne/year sulphate production and a strong position in both northern and southern Europe. DuPont already had a 12% market share in Europe based on imported material. Kronos and Millennium area not very close number two and three respectively.
In the Asian marketplace, DuPont and Ishihara each have a 20% market share. Tioxide's is estimated around 10%. The deal once again propels DuPont into a clear leadership position with production facilities in Malaysia and Taiwan.
DuPont also benefits from Tioxide's traditionally strong position in the Middle East and African markets. Both the Asian and Middle East markets have suffered from wide price fluctuations in past years and players expect and hope DuPont's new strength will reduce price swings.
Synergies relate mainly to increased marketing strength and the ability of sales teams to carry the new wider product range, but Edwards also believes the increased purchasing power of the business across the sulphate and chloride technology will also work to their advantage.
|TIO2 PLANT CAPACITIES ('000 TONNE/YEAR)|
|Tioxide - all sulphate process except Greatham and Lake Charles|
|Lake Charles, LA, US||55||(Tioxide 50% stake in 110 000 tonne/
year plant not included in purchase)
|Pyewipe (Grimsby), UK||70|
|Teluk Kalung, Malaysia||50|
|Umbogintwini, S Africa||30||(Tioxide 60% stake in 50 000
|DuPont - all chloride process|
|Antioch, CA, US||40||(closure in October 1997)|
|DeLisle, MS, US||300|
|Edgemoor, DE, US||145|
|New Johnsonville, TN, US||305|
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