TiO2 Producers Seek Large Price Increases As Profitability Hovers Near Break-Even Point

11 February 2002 00:00  [Source: ICB Americas]

Titanium dioxide producers are seeking large price increases in all major global markets. Although demand was off substantially in the fourth quarter of 2001, producers say margins are so weak, the industry is only minimally profitable and they have no choice but to call for a price hike.

The increases vary according to producer and region. They are generally for 5 cents per pound in the US, $100 per metric ton in Asia, á150 ($130) per metric ton in Western Europe and $100 per metric ton in Latin America. Because support for the increases appears unanimous, producers and analysts expect them to go through and note that a second round of increases could follow if demand recovers over the next few months. However, the success of the present increases will not be fully clear for 60 to 90 days.

Jim Fisher, president and CEO of IBMA Inc., a consultancy based in Hilton Head Island, S.C., expects the current increases to hold. "The industry has seen tremendous price slippage over the last 12 to 14 months," he says. "Prices started to weaken in the middle of last year. That accelerated in the fourth quarter." He cites weak economic conditions as the main obstacle to the increases. "Every producer is hurting. They all need to get prices up. Some producers have recently been more interested in volume than pricing, but the increase is a done deal if demand picks up."

He adds that "the best thing about 2001 is that it's over." Pigment consumption in the US fell 3.8 percent last year, but the fourth quarter was "like the edge of a cliff." Although the Asian market was propped up by steady growth for TiO2 in China, global demand in 2001 was off 3 to 4 percent. Western European consumption was down between 5 percent and 6 percent, and Latin America, Africa, and Central and Eastern Europe also fared poorly.

Nevertheless, the market price is down to around $1,850 to $1,950 per metric ton in the US after getting as low as $1,750 to $1,780 in Western Europe during 2001, according to Mr. Fisher. A producer concedes there has been a 10 percent year-over-year drop in pricing, but he rates the North American market at $1,900 to $2,100, with large users paying close to the bottom of that range.

Producers concede that buyers may question the increases because of last year's falloff in demand, but they stress that the increases are necessary to rebuild margins. "We're looking for long-term financial health," says Ian Edwards, DuPont's global marketing director for TiO2. "Last year, prices declined significantly everywhere in the world. Because of the weakened demand, producers made concessions on pricing to keep their business. Now people are stretched financially. We're a market leader, and we're far from happy about profitability."

"TiO2 margins are zero or negative in some world regions," adds Bruce Zwicker, vice-president of the global coatings business at Millennium Chemicals. He cites recent earnings releases by producers as "clear indicators" that the industry is no longer healthy. "TiO2 prices slid at year-end 2001 to unprecedented low levels in many world regions," he says. "For over a year, the price has fallen rapidly, resulting in an estimated 11 to 13 percent on average price decline on a US dollar basis, with some regions' pricing decreasing as much as 15 percent, depending on the currency."

Stuart G. Heyes, vice-president of sales in the Nafta region for Huntsman Corp.'s Tioxide business, notes that the company "initiated the increases in Europe due to the sad state of the TiO2 business and because we believe the TiO2 market was in recovery before September 11. This tragic event delayed the recovery, but the underlying situation is that in recent years we have seen less investment in the industry than will be required to meet demand in 2003 to 2004." Mr. Heyes expects the price increases to hold because the industry is suffering from weak margins, the US economy is recovering, and Europe's economy is also expected to pick up soon.

He rates the global market at 3.7 million metric tons. "[It] grows at 2.5 percent through its cycle," he says. "We expect it to be above this in 2002, with a strong recovery in 2003 to 2004." Mr. Heyes adds that over the long-term, the market will continue to grow at GDP rates. However, recent pricing has been insufficient to justify investments in major new capacity, which will be needed by 2003 to 2004, leading to a tight market at that time.

DuPont rates the world market at roughly 4 million tons. It shrank by 4 or 5 percent last year, but with a modest economic recovery in 2002, it should bounce back to its size in 2000. "The markets we sell into are fairly mature," Mr. Edwards says. "TiO2 typically grows at GDP rates, but it tends to lead on the upside and downside of economic cycles. The industry turned down in the summer of 2000, well before the recession hit. Now we're seeing encouraging signs for TiO2. Demand should be recovering as we go into the spring."

Millennium's Mr. Zwicker says shipments of TiO2 declined by 3 to 10 percent in 2001, depending on region, and total global shipments were off 4 to 6 percent. The actual consumption of TiO2 shrunk by a smaller amount, with the difference stemming from a reduction in TiO2 inventories by consumers, especially in the fourth quarter. "Shipments and consumption declined the most in Brazil and Western Europe, both about 8 to 10 percent," he says. "Although final statistics aren't available yet, US TiO2 shipments probably declined 4 to 5 percent. Asia is more difficult to assess, but a decline of at least 2 to 3 occurred, primarily caused by poor conditions in Japan and some Southeast Asian countries."

December TiO2 shipments were soft throughout most of the world because customers reduced their inventories to lower their working capital. As evidence of restocking and improving demand, Mr. Zwicker notes that Millennium's TiO2 orders were 10 to 20 percent higher in January, depending on end use and world region. Assuming that regional economies recover, starting in the second and third quarters of 2001, the growth rate for TiO2 should be "modest to strong," depending on inventory swings and pipeline replenishment.

Mr. Zwicker projects that by 2003, "shipments will be exceptionally strong with the traditional rebound of TiO2. Over the longer-term, average annual TiO2 real consumption will increase about 2 to 2.5 percent, depending on overall global economic growth and consumption growth trends in developing countries."

Tioxide recently completed an expansion of its Malaysian plant, raising it to a nameplate of 56,000 tons per year. The company's ICON 2 expansion in Greatham, UK, will come on stream early in the second half of the year. "For 2002, we will continue streamlining our business processes and implement SAP globally," Mr. Heyes says. "We are putting a much greater emphasis on supply chain efficiency, and all our manufacturing sites have site improvement plans aimed at reducing costs, improving quality and increasing uptime."

Millennium introduced three new coatings products during the past two years and will launch another in 2002. Last year, the company piloted new Web-based services for launch in 2002, improved its perfect order percentage, raised its first-pass, prime quality percentage of production to record levels and boosted productivity per employee. "We're poised for the recovery and have prepared to better serve our customers," says Mr. Zwicker.

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