Europe's Ti02 producers battle high feedstock costs and faltering demand

Tough times ahead

29 January 2008 17:15  [Source: ICB]

Europe's titanium dioxide (Ti02) producers, battered by rising feedstock costs, have pushed for price hikes. But the dramatic downturn in US housing activity has thwarted their ambitions

Fiona Bond/London

THE RISING cost of energy and raw materials had been at the forefront of European titanium dioxide (TiO2) suppliers' minds as the new year dawned.

Following a lull in prices during the latter part of 2007, sellers have deemed higher prices imperative to sustainable growth.

Producers were looking to implement a step-by-step increase as the volatile global economic situation rendered agreeing on a three-month price at the outset, difficult. Suppliers previously announced targets of around €80-100/tonne ($117-146/tonne) for first-quarter business, in a bid to recoup lost margins over 2007 and to meet higher upstream costs expected during the first half of 2008.

Despite a constant flow of price announcements throughout the year, however, producers failed to attain significant increases and buyers reported a general downward trend.

Suppliers now look set to achieve closer to €30/tonne on first-quarter contracts, with many buyers still wary that factors, which dominated the industry in 2007, persist.

During the course of the previous year, producers' ambitions to push up prices seemed increasingly unrealistic, as a downward spiral in the North American market greatly impacted European dynamics.

The weakening economy and housing market resulted in a flurry of imports to Europe, where demand and price levels are stronger. Although freight rates and duty has to be considered, many consumers described the influx as an attractive alternative to domestic product.

Indeed, buyers now place much emphasis on global economic uncertainty in contract price discussions for the start of 2008, displaying confidence that little rapid change will be seen and noting that the threat of recession in the US could result in a further slump in demand.

However, the future of imports is difficult to gauge, and depends on whether increases can be ­successfully implemented across North America. Suppliers are hungrily ­pursuing higher prices in the region of $80-100/tonne, and are hopeful that the smell of success in Asia will help to boost their positions.

A price gap, estimated to be around $200/tonne, currently exists between US and European product, and European suppliers are hopeful that a reduction in the gap will hinder the extent of material directed toward Europe in 2008.

In turn, the markets of Eastern Europe and Asia-Pacific are flourishing under a new lease of economic prosperity. A buzz of excitement surrounds the rate of development, and global TiO2 demand for this year is predicted to exceed 2007 levels by 2%. Major players in the Western Europe market are confident that the paint industry in countries such as Russia and the Ukraine will thrive and aid European consumption ­levels, supporting suppliers' future price initiatives.

The vibrant movement of material across South America, notably Brazil, coupled with immense success at initial increases of more than $100/tonne in Asia at the start of the year, has lead to predictions that the TiO2 market will continue to globalize.

Middle East markets are also considered to be following suit, with buying interest gathering pace in Saudi Arabia. Certainly there is hope among sellers that price strength in one area of the world will buoy ­spirits across other parts.

Asian TiO2 offers have risen by $50-100/tonne for the first quarter, pushed up by increasing input costs. Major producers had nominated price increases of $150-200/tonne, citing rising costs such as ore, energy and transportation as the cause of the hike, but this has not been ­achievable. Prices reached $2,050-2,400/tonne cost and freight (CFR) Asia.

Producers say the scale and ­volatility of input cost increases are at unprecedented levels and their businesses can not continue to absorb the costs, therefore, they urgently need to pass on these increases to avoid further erosion of profitability.

"The price increases are implemented in most Asian markets. Producers are much more aggressively pushing for prices increases in Q1 this year, compared with previous quarters. As a result, $100/tonne or higher increases have become common, compared to previous quarters," says a major producer.

Manufacturers expect demand in most Asian markets to continue to grow strongly in 2008, except individual markets such as Japan, where the government has imposed restrictions on building permits.

Recent company acquisitions have sent waves of anticipation through the market. The completion of the £8bn ($15.6bn) Dutch ­coatings maker Akzo Nobel's takeover of UK-based ICI was announced at the start of the year. This closely followed the ­acquisition of SigmaKalon the worldwide ­coatings producer, by US-based PPG Industries at an estimated cost of $3.2bn.

The transformation of both companies, which are expected to be consolidated in 2008, will be closely watched by market spectators, with opinion divided over whether the impact will be positive or negative.

Fiona Bond is ICIS pricing's reporter covering recycled polyethylene terephthalate (PET), trichloroethylene (TCE), perchloroethylene, biodiesel, TiO2, purified terephthalic acid (PTA), acetic acid and vinyl acetate (monomer) (VAM). ICIS pricing Singapore's Yao Wang also contributed to this story. For more pricing information, go to www.icispricing.com For more on TIO2, go to http://www.icis.com/v2/chemicals/intelligence.aspx





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