TiO2 Market's Outlook Hinges on Economic Recovery

14 April 2003 00:00  [Source: ICB Americas]

The titanium dioxide (TiO2) market remains healthy on a global basis, led by strong growth in China, but the US market is murky because of the risk of a further economic slowdown. Pro-ducers and analysts disagree on the strength of domestic demand, though they all project a healthy year if the economy picks up, and they warn of troubles if the economy falters. Pro-ducers continue to raise prices in virtually all regional markets. However, margins remain lackluster, and analysts say current increases are just offsetting the recent run-up in energy costs and rebuilding prices to their levels prior to their slump at the end of 2001.

"The big story is the economy," says Jim Fisher, president of IBMA, a consultancy based in Hilton Head, S.C. "Price increases are working their way through the system, albeit slowly. Pricing is low, and producers need relief. We anticipate that average selling prices in the US will go up 5 to 6 cents per pound over the next two or three months. Average pricing will go up from the mid- to high-80s [cents per pound] to the high-80s to low-90s."

Although selling prices have al-ready risen in Europe, Mr. Fisher concedes that domestic increases may be deferred if the economy slows. Yet he stresses that "producers will still want to get prices up."

Producers have announced a slew of price increases during the past two months. As reported, Millennium Chemi- cals, Kerr-McGee Pigments and DuPont Titanium Technologies have announced April 1 price increases of $100 per metric ton for their TiO2 pigments sold in the Asia Pacific region. DuPont and Millennium have also announced increases of 4 cents per pound in the US and C6 cents per pound in Canada for the paper market effective April 1. An increase of 6 cents per pound (9 cents in Canada) was effective in February and March and is supported by all major sellers in North America.

Gary Cianfichi, vice president of the global coatings business of Millennium Chemicals, notes that after falling an unprecedented 15 to 20 percent globally for the 18 months prior to mid-2002, TiO2 prices have begun moving up in all regions and end markets. "Producers have announced three to five price in-creases, averaging 6 to 8 percent each, in the various geographic regions of the world, with over half of the announced amounts taking effect to date," he says. "Currently, there are further announced increases of 6 to 8 percent being implemented in most regions of the world for the second quarter. Prices below reinvestment level, and strong market demand conditions are driving TiO2 prices up, although we estimate that prices are still well below levels reached just two years ago."

Mr. Cianfichi considers the TiO2 market "balanced and trending toward tight conditions." He rates global de-mand growth at 6 to 7 percent in 2002 and forecasts growth of roughly 3 percent this year. Global operating rates are around 90 to 95 percent, he says, and TiO2 consumption should grow roughly twice as fast as new capacity, which is being held back by poor profitability throughout the industry.

He rates TiO2 demand for the year-to-date February period as "about equal to last year's demand" during the same period and notes that "given the uncertainties of the global economy, largely impacted by the war in Iraq, this is a rather strong level of demand." A normal seasonal upswing in TiO2 consumption in the second and third quarters could even "result in short-term global availability issues" for many TiO2 products during those quarters, he says.

"Millennium believes that a relatively quick resolution to the Iraq war will likely result in a significant pickup in demand for TiO2 in all markets worldwide," he adds. "Given the current estimated generally low inventory levels of finished TiO2 held by the producers, and with operating rates at high levels, any war resolution economic bounce may well lead to significantly tightened market conditions in the near term."

Regardless of the war in Iraq, Mr. Cianfichi projects a seasonal increase in TiO2 demand during the second and third quarters, driven by higher TiO2 consumption in the paint and coatings market. "Demand for TiO2 has been strongest in the Asia Pacific region during the last few years, and we forecast this region will continue to offer higher TiO2 growth rates than those in other regions," he explains. "Within the Asia Pacific region, TiO2 demand has been strongest in China, where we estimate that demand increased a remarkable 20 percent in 2002. This region is also experiencing the tightest TiO2 supply and demand conditions with some availability issues arising in the first quarter because of this strong demand."

Bruce Zwicker, an industry observer who was formerly a vice president at Millennium Chemicals, sees global demand as fairly robust, led by high growth in the Asia Pacific region, although he rates consumption in North America and Western Europe as not especially strong. "Demand remains very healthy in China," he says. "Latin America is showing improvement over a poor 2002, but Western Europe is less clear. Its growth should be modest and probably only a little better than North America's."

North American TiO2 demand was solid in January, according to Mr. Zwicker, but it dropped off sharply in February and failed to rebound strongly in March. The decorative paint market for TiO2 generally picks up in February or March, he says, but bad weather led to a poor first quarter and is still holding back domestic TiO2 consumption. The housing sector remains strong but is slowing a bit and not growing at last year's pace, and most industrial coatings sectors are still soft. Mr. Zwicker rates North American growth at 2.5 percent last year and expects it to slide to 1 to 2 percent this year. The European market grew 8 to 9 percent in 2002, he says, but its growth should fall to 2 to 3 percent this year. TiO2 growth in Asia Pacific was 10 to 12 percent last year, led by Chinese demand that was "off the charts," and China could post 7 to 10 percent growth this year.

Kerr-McGee Chemical LLC reiterates that it plans to close its synthetic rutile plant in Mobile, Ala., by the end of the year. The company's sales of TiO2 pigments rose by $64 million (+7 percent) in 2002. A volume increase of $149 million was partially offset by a decrease of $85 million caused by weaker sales prices. Those results follow a $103 million (-10 percent) sales decline in 2001. In that year, lower prices resulted in a sales decrease of $61 million, and lower sales volumes caused a drop of $42 million. Kerr-McGee has also begun upgrading its chloride oxidation technology. The capacity of the company's plant in Hamilton, Miss., will reach 225,000 metric tons by the end of the year, and the company's chloride-process plant in Savannah, Ga., will increase to 110,000 metric tons.

NL Industries Inc.'s wholly owned subsidiary, Kronos Inc., reports its average selling price for TiO2 rose during the second, third and fourth quarters of 2002, reversing the pricing decline that began in the first quarter of 2001 and continued through the first quarter of 2002. The company rates the TiO2 market's growth in 2002 at 9 percent, a result of both economic growth and inventory restocking by customers.

For the latest chemical news, data and analysis that directly impacts your business sign up for a free trial to ICIS news - the breaking online news service for the global chemical industry.

Get the facts and analysis behind the headlines from our market leading weekly magazine: sign up to a free trial to ICIS Chemical Business.

Printer Friendly