INSIGHT: TiO2 prices hit new highs, overcoming weak US demand

12 August 2010 17:42  [Source: ICIS news]

By Al Greenwood

TiO2 prices break recordsHOUSTON (ICIS)--Titanium dioxide (TiO2) prices have overcome weak demand in the US - hitting all-time highs as consumers have restocked and demand has soared in developing countries.

The prospects for TiO2 had appeared dismal as paint demand for US housing and automobiles showed no signs of any incipient recovery.

"TiO2 was hit more than anybody else with automotive and housing. That was the worst of worst," said James Reeves, a partner with the US consultancy 3R Associates.

TiO2 producers and consumers saw the same trend - and overreacted, said Jim Fisher, president of International Business Management Associates (IBMA), another US consultancy.

The industry adopted enterprise resource planning (ERP) models to manage inventories. "I think people started using them seriously for the first time in 2008, 2009, and may have overreacted," Fisher said. "I think that happened all the way through the supply chain."

Reeves said, "Everybody ran their stocks down very low."

When customers began to replenish inventories, they learned that producers cut TiO2 capacity to maintain working capital, Fisher said.

"There was widespread concern by producers that the downturn in demand seen in late 2008 would be longer and deeper than actually occurred." 

Fisher estimates that 10-15% of TiO2 capacity was idled. In some cases, those cuts were permanent.

Huntsman closed its 40,000 tonne/year plant at Grimsby, UK. Cristal Global is closing its Hawkins Point plant in Baltimore, Maryland, a site that has been idle since March of last year. Cristal also closed its 65,000 tonne/year TiO2 plant in Le Havre, France.

Tronox, a bankrupt TiO2 producer, idled its 110,000 tonne/year plant in Savannah, Georgia, removing critical equipment that would prevent it from making pigment.

Among the temporary shutdowns, many producers had trouble restarting operations in the early part of the year, Fisher said.

Earlier this summer, Cristal partially lifted a force majeure declaration at its Stallingborough plant in the UK, after a 5 March leak caused a shutdown.

Meanwhile, demand never really fell in developing countries, and has remained strong this year. "China is still the driver for pigment production globally," Fisher said. "Latin America is pretty strong, Brazil in particular. Argentina and Chile are doing very well."

A pigment maker attributed that region’s demand strength, in part, to stable currencies and low inflation. Another predicted annual growth of about 10% in Latin America over the next several years.

For China, infrastructure and housing was driving much of that demand for pigment. And although the economy is still sluggish in the US and western Europe, TiO2 customers there are still restocking, a process that could end some time this year, Fisher said.

Average prices in Europe rose from a low point €2.16/kg on 5 October 2007 to a new high of €2.50/kg on 25 June, as assessed by ICIS. Before, the previous high, €2.35/kg, was last reached in April 2001.

In the US, average prices reached $1.31/lb on 2 July, breaking the previous high of $1.18/lb in autumn 2006. Prices had been 99 cents/lb as recently as November 2007.

In Asia, prices reached a record $2,550-2,700/tonne CFR (cost & freight) Asia on 30 July, an increase of 13% from prices a year ago and up 8-10% from the start of this year.

On top of those highs, producers are announcing new price initiatives.

The change in fortunes for TiO2 have pushed the stock price of Kronos above $35 on the New York Stock Exchange, up nearly 85% from roughly $19 at the start of July.  

Producers continued to say this week that they were running at full or nearly-full rates but still unable to build inventory.

Moreover, one TiO2 producer said European demand was improving, and buyers are concerned about future supply.

Looking ahead, new plants will open in Asia, which could pressure prices in North America and Europe.

"Supply/demand - it is not nearly strong enough to sustain really high prices for the next year or two," Fisher said. But he suggested that producers will still maintain some of their price gains.

($1 = €0.78)

Additional reporting by Larry Terry

For more on TiO2 visit ICIS chemical intelligence
To discuss issues facing the chemical industry go to ICIS connect

By: Al Greenwood
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