20 June 2011 00:00 [Source: ICB]
Prices have been rising steeply thanks to short supply and increased demand. There is no let up in sight
The supply of high-quality titanium dioxide (TiO2) may remain restricted until at least 2015, and prices could continue soaring throughout the intervening period, market players warn.
Having suffered in the last recession, titanium dioxide players do not want to get caught out again
The problem is that the majority of Chinese plants use an older, less efficient, more environmentally unsound sulphate process to produce TiO2. Producers outside Asia tend to use chlorine technology, which results in a purer product with a tighter range of particle size.
While there are significant plant expansions planned in China in the second half of 2011, this will not help European and US customers that require high-grade material. There are many applications for which Asian imports can be used, mostly for lower quality, general purpose products, according to a couple of European buyers.
Several customers seem so desperate for material that they are willing to compromise and work around the shortcomings, saying that while there are issues with quality, it is nothing that they cannot live with. "People have learnt to be more flexible to deal with the realities of the market," states one defiant buyer.
QUALITY AND CONSISTENCY
Others disagree, however, as it is not just quality, but consistency that seems to trouble European buyers about some Asian supply.
There has been the odd story of buyers opening crates delivered by Asian sellers, only to find the material not of the agreed specification. These tales are few and far between, however some Chinese purchasers even say that they prefer to source product from major international suppliers to guarantee reliability.
European buyers complain that Asian prices are similar to what domestic producers charge once duty and freight are included. However, some buyers are willing to buy the material as supply is so short. "Chinese material is lower quality, has longer lead times and no price advantage, so why bother?" a European trader asks.
One European manufacturer says that the volume of Asian imports is three to four times higher than last year. However, prices remain bullish worldwide.
In Asia, US groupsKronos, Tronox and DuPont have announced price increases of $300/tonne (€199/tonne), $400/tonne and $500/tonne, respectively, for third-quarter contracts. Prices are currently $3,300-3,500/tonne CFR (cost, insurance, freight).
In the US, DuPont and Cristal intend to raise TiO2 prices by 10 cents/lb effective September 1, only 60 days after April initiatives of 15 cents/lb are widely expected to be implemented on 1 July. Current domestic TiO2 prices are $1.40-1.54/lb FD (free delivered) North America, as assessed by ICIS.
European producers are targeting hikes of up to €250/tonne on third-quarter contracts, and many anticipate similar-sized rises in the fourth quarter. Prices have already soared by 29% since the first quarter of 2010, to reach €2.50-2.75/kg FD NWE (northwest Europe).
Many feel that prices in Europe could hit €3/kg by the end of the year, and some say they are paying that much already.
TIO2 FEEDSTOCK SHORTAGES
Sellers in all regions are confident of achieving their price initiatives and say that the increases are necessary because of shortages in raw materials titanium ore and ilmenite. One added that the rise in feedstock costs has actually been greater than the hikes seen in TiO2.
A couple of producers make the argument that TiO2 prices had been very low for years, especially compared with other pigments, and that now they are able to claw some margin back.
This reasoning has done little to satisfy downstream paints, paper and plastics producers, which have all complained about the severity of the increases and their inability to pass on these costs.
"We can't cope with the hikes and the potential to cope with them has gone," laments one paints manufacturer. "The hikes have been too high and too fast."
Several customers, paints producers that use up to 40% TiO2 in their formulations, are investing more and more in trying to find ways to reduce their reliance on the high-priced material.
Several have tried to use fillers and extenders, such as calcium carbonates, but at most this can reduce TiO2 use by about only 10% until quality of the final product is compromised.
Other companies, such as Dow Chemical, have recently introduced products that can reduce TiO2 use by 10-20% in architectural paints formulations.
Dow's Evoque pre-composite polymer, which is based on acrylic polymer chemistry, can reduce TiO2 use by binding with the pigment for better dispersion, making TiO2 more resistant to clumping in paint formulation, says Joan Schuller, vice president and general manager for Dow Coating Materials, North America.
Despite these advances, there will be little respite moving ahead until new capacities are brought on line, which would take more than three years to build.
Producers outside Asia seem reluctant to undertake this task because of severe feedstock shortages. Even if the facilities were there to produce more TiO2, without the raw materials it makes no difference, according to manufacturers.
Producers say they are running as close to maximum capacity as they can, and have tried several debottlenecking measures, but supply remains short. "We've tried everything to squeeze additional increases, but produced nothing significant," one supplier says.
One trader suggests another reason why manufacturers might be hesitant to expand or build new production units. The market was long and prices fairly weak for a number of years. Then, when recession hit in 2008/09, several plants in Europe and the US were forced to close. Now that demand is recovering, there is not enough capacity to cope, but sellers do not want history to repeat itself.
The only major producer to take the plunge so far is US-based major DuPont, which plans to expand capacity by 350,000 tonnes/year by the end of 2014.
The expansion plan includes a $550m investment to add a 200,000 tonne/year TiO2 line at DuPont's production site in Altamira, Mexico. Meanwhile, it will work on facility upgrades at its TiO2 sites in the US, Mexico and Taiwan to yield an additional 150,000 tonnes/year of capacity, it says. TiO2 buyers welcome the news, but say it will do them no good in the short term.
"It's a strong signal for rest of the market but it will have no effect for a couple of years," says one European customer, although it adds: "It is good to see someone decide to expand."
Even when customers do finally see the benefits of the expansion it won't be enough to bridge the supply gap at the rate the market is expanding.
GLOBAL DEMAND KEEPS GROWING
Current world demand for TiO2 is estimated at 4.9m-5m tonnes, and annual growth is predicted to be anywhere between 2.7%, with the fastest growth in Asia (6.4%) and other developing nations such as Latin America (5%). Meanwhile, Europe is predicted to grow annually by 1.9%, a source at German distributor Brenntag said.
At this rate, an extra 132,300-135,000 tonnes will be needed each year to satisfy consumers' needs. Analysts at Deutsch Bank also did the calculation and saw the DuPont expansion as insufficient. They estimate high quality TiO2 demand at 4m tonnes and predict 3-4% growth per year (120,000-160,000 tonnes/year), adding that the expansion represents about 9% of global capacity and two-and-a-half years of growth.
"The overall situation for 2012 remains critical," says one buyer.
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