08 June 1998 00:00 [Source: ICB Americas]By Alex Tullo
In the latest restructuring in the titanium dioxide industry, Millennium Chemicals Inc. has signed an agreement to buy Bayer SA's and Constructora Andrade Guttierrez SA's interests in Titananio do Brazil SA (Tibras), representing 72 percent of Tibras' outstanding equity.
The move will give Millennium 99 percent Tibras' voting shares, 60,000 metric tons of TiO2 capacity per year and a mineral sands mine with more than 2 million metric tons of recoverable reserves. Millennium is not disclosing the cost of the transaction, but a spokesman says the company paid cash and assumed debt to finance the acquisition.
Included in the purchase is a 60,000-ton sulfate-based plant in Salvador, Brazil, as well as a mine that produces 100,000 tons of titanium ore and 16,000 tons of zircon each year in Mataraca. The two plants are located along the Northeast coastline.
With this addition, a UK expansion and the assets acquired from Rhone-Poulenc Chimie SA last year, Millennium will have 712,000 metric tons of TiO2 capacity by the beginning of 1999.
During the past five years, Tibras has invested more than $125 million in the Brazilian business, and Millennium will further strengthen the sites as demand warrants. "Both the TiO2 plant and the ore mine have significant opportunities for cost reduction, debottlenecking and expansion," the company says.
A spokesman adds that Millennium is not planning to convert the TiO2 plant to chloride-based technology--the company runs a sulfate-based plant in Baltimore, Md.
Tibras is the only Latin American producer of TiO2, according to Millennium. It has a 50 percent share of the Brazilian market, which is half of the Latin American market and growing at a 5.2 percent annual rate. Other producers have to pay a 21 percent duty to import TiO2 into the region.
"Tibras is an important and exciting acquisition for our company," says Robert E. Lee, Millennium's president and CEO. "Millennium now has TiO2 manufacturing operations on four continents."
Millennium is not the only company planning to expand. Kerr-McGee Chemical Corporation, standing behind its chloride technology, is breaking ground this week on an expansion at its Hamilton, Miss., plant.
The project will raise the company's capacity by 30,000 short tons per year and is scheduled to come on stream in the fourth quarter of 1999. The company has not disclosed the cost of the expansion.
Ben Corona, Kerr-McGee's vice-president of sales and marketing, says the 30,000-ton expansion that came on at the plant last summer is now running at full capacity. He says the company's proprietary variation on the chloride process gives it a low-cost position through higher yields and quality.
Jim Fisher, an analyst at International Business Management Associates, says Kerr-McGee already has some added capacity as a result of its process and that further construction done at the site will be minor.
North American producers are also aiming for uniform pricing throughout the continent. Tioxide Americas initiated a C7 cent (5 cent) increase for most grades of TiO2, excluding paper grades, which will go up C5 cents, slated for June 1. Kronos and Kemira followed with a C7 cent initiative on the same schedule.
Meanwhile, Millennium Inorganic Chemicals has a C10 cent increase on the table for its Tiona product line slated for June 15. Two durable specialty grades, RCL-6 and RCL-628, will go up by C12 cents on June 15.
Producers attribute the Canadian increases to the declining Canadian dollar and say they are raising prices to keep Canadian levels in step with the rest of North America. Kerr-McGee has not followed the Canadian numeration but says it is considering a price hike.
"There should be a North American pricing scenario," says John Collingwood, president and CEO of Tioxide Americas, which has a 28 to 30 share of the Canadian market.
"With the decline of the Canadian dollar, there was a need north and south of the border to keep pricing the same," he says. "In a tight market, we have to make those sorts of adjustments." He adds that while the market has recovered from its low in 1996, it has yet to return to reinvestment levels.
Millennium says strained supply and high demand, in addition to currency exchange rates, is responsible for the increase.
Another producer blames poor margins, along with the uncertainty that comes from restructure, for the lack of new capacity. Of the major producers, only Kerr-McGee is moving forward with expansions in North America.
Mr. Fisher adds that while there has been an initiative in Canada to keep North American prices in step, the likelihood of a North American price increase during the rest of the year is not as high as it seemed a few months ago. He cites year-to-date pigment consumption, which has only grown by 0.2 percent during the past year, reaching 406,000 short tons, according to US Department of Commerce.
Meanwhile, Mr. Fisher says production has increased by 10,000 short tons this year, and inventories have grown by 9,500 short tons. Kerr-McGee's Mr. Corona says inventories are currently 30 days.
Mr. Fisher adds that the US economy is showing signs of softening, according to leading indicators. In April, new housing starts dropped 2 percent below revised March rates of 1.575 million units. March housing starts were 3 percent lower than February's levels.
Still, industry watchers speculate that there will be an attempt to raise prices. Prices have already been climbing in 1998, says Mr. Fisher. The 5 cent February 1 price increase initiated by DuPont has been fully implemented, he says, pushing prices to 94.3 cents in April. Prices in May rose an additional 1 cent per pound to 95.3 cents.
But Mr. Fisher cautions that prices at these levels are not enough to meet reinvestment levels. Prices are currently just over $2,000 per ton. For reinvestment, the industry needs $2,300 to $2,400 per ton.
MDI--Bayer Corporation's polymer division has announced it will increase prices of its Mondur MDI products by 6c. per pound, effective July 1. The company cites higher demand and rising environmental and transportation costs as reasons for the increase.
POLYSTYRENE--Dow Chemical Company has increased the prices of its Styron polystyrene resins by 2c. per pound (C6c. per kilo), effective July 1. The increase will affect prices of general purpose, standard impact and ignition-resistant Styron resins.
"This price increase is being driven by both current supply-demand balances and, longer term, the very strong demand growth of 1997 continuing into 1998," says Bob Beil, North American commercial director of Dow's polystyrene business.
So far, Fina and Nova are following the price increase, but Chevron Chemical Company has decided not to raise prices.
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