09 July 2001 00:00 [Source: ICB Americas]The specter of an uncertain global economy is haunting the titanium dioxide (TiO2) industry as demand continues to fall even below producers' already reduced expectations. Producers have slashed operating rates and, in one case, idled a plant altogether. Inventories are above recent averages, and usual gains from the seasonal uptick from architectural coatings have not been seen.
In response to weak demand and as part of its plan to accelerate cost savings, Millennium Chemicals Inc. will idle its 44,000-metric-ton-per-year, sulfate-process TiO2 plant in Hawkins Point, Md., on September 1. (CMR 7/2/01, pg. 2). The idled plant primarily serves the US paper industry. Millennium says customers will not be impacted by the closing since they will be provided product from other facilities. The mothballing will lower global manufacturing cost per metric ton. Millennium's 50,000-ton chloride-process plant at Hawkins Point continues to operate.
"I cannot say I'm surprised," says Cameron Beattie, senior analyst for Harriman Chemsult Ltd. "If you can mothball a whole unit rather than run a few plants at 95 percent, that is always the best option," he adds.
Despite the idling, Millennium claims its overall TiO2 output will scarcely be affected as it has recently re-rated the capacity at its Kemerton, Australia, and Ashtabula, Ohio, chloride-process facilities. Thanks to minor debottleneckings, capacity at the two plants has increased by 10,000 and 12,000 metric tons, respectively. Millennium's annual TiO2 capacity is now 690,000 metric tons, just 3 percent less than before these actions. Of that 690,000 tons, 73 percent now uses chloride-process technology.
Industry-wide, year-to-date production of TiO2 is down 9 percent, according to the US Census Bureau. Although stocks of TiO2 fell from April's eight-year high of more than 174,000 tons, they are still above comfort levels for the industry. "May inventories, at 49 days of US consumption, are three days above the 18-month moving average of 46 days," notes J.P. Morgan Securities analyst Don Carson.
Traditionally, the TiO2 industry sees a run-up in consumption during the spring as demand for architectural coatings rises with the weather in the Northern Hemisphere. However, this year, that uptick is not really evident. "It might be there, but it's concealed by the overall decline in demand," says Mr. Beattie.
Besides a slowdown in demand, producers are also wrestling with the declining value of the euro, which has fallen roughly 8 cents versus the dollar since March. This hurts the industry two ways. US companies producing TiO2 in Europe sell their product in euros, but many of their raw materials, such as energy and ore, are priced in dollars. Also, a slumping euro means less exports from the US as the cheaper price encourages buying in Europe.
With demand off and the euro falling, pricing for TiO2 has slipped as well. At the beginning of the year, producers launched several increases in Europe and the Asia-Pacific region. The success of these increases is up in the air, and it is believed that even if successful, producers have already given back any increases. As discussions of third quarter pricing heat up, buyers anticipate a further reduction in pricing. "All I'm hearing from buyers is that they expect to get better pricing," says Mr. Beattie.
Despite softening prices, several producers are expanding their operations through debottleneckings. In addition to Millennium's recently completed expansions, Kemira is boosting capacity at its Pori, Finland, facility by 10,000 metric tons, bringing its nameplate to 130,000 tons. The additional capacity, which will cost á21 million ($17.8 million), is due on stream in 2003 and will be achieved through expansions to several process stages.
Just last year, Kemira sold its two other TiO2 plants to Kerr-McGee Corp. At the time, Kemira said the Pori unit, which uses ilmenite ore, was the most profitable of the three. The company expects to make the same level of operating profit from the facility as it did from all three plants.
Kerr-McGee is now in the process of lowering production costs at the two plants, located in Savannah, Ga., and Botlek, the Netherlands, that it acquired from Kemira. Also, the company is expanding its Kwinana TiO2 plant in West Perth, Australia. Kerr-McGee will spend $10 million to add 10 percent of capacity bringing the unit's nameplate to 95,000 tons. This expansion is due on stream later this year.
Kerr-McGee also purchased Bayer's 20 percent stake in their TiO2 joint venture for á25 million. The venture, set up two years ago, comprises Bayer's former TiO2 business, which Kerr-McGee purchased 80 percent of with an option to acquire the other 20 percent following the end of 2000. The business has two plants in Krefeld-Uerdingen, Germany, and Antwerp, Belgium.
Huntsman Tioxide has also launched a series of expansions. The company is expanding its plant in Huelva, Spain, by 17,000 tons. The new capacity is due on stream in the fourth quarter of 2002 and is expected to cost $40 million.
Huntsman is also boosting the capacity of its Teesside, UK, site by 40 percent. The $72 million project will bring the nameplate to 100,000 tons by building a new unit and removing an older one. In Malaysia, Huntsman has invested roughly $10 million to raise capacity by 6,000 tons to 60,000 tons.
Huntsman is also undertaking a $49 million supply-chain improvement project called Hermes, to optimize operations from purchasing through to customer service and transact electronically with customers and suppliers.
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