N America TiO2 specialty-grade hikes reflect supply-side strength

31 August 2011 20:33  [Source: ICIS news]

HOUSTON (ICIS)--North American titanium dioxide (TiO2) producers are using tight supply conditions to leverage separate price-increase initiatives into more specialised end markets, a market analyst said on Wednesday.

Since the first quarter of 2009, producers have successfully raised prices by 42% for TiO2 used in paints and other general applications.

In August, however, four of the five major domestic producers announced plans to increase the price of TiO2 used in specialty markets such as plastics compounding and laminated paper products.

The latest of those specialties price-hike efforts – from Tronox – proffered an increase of 10 cents/lb ($220/tonne, €152/tonne) effective on 1 September. Previously, similar proposals were announced by Kronos, Cristal and DuPont.

If successful, those prices would be implemented in mid November or early December.

“They’re going back to a former pricing strategy – the one they used in the late `80s when supply-demand conditions were similar,” said analyst Gary Cianfichi, partner at the TiO2 consulting company Ti Insight.

TiO2 manufacturers have been absorbing the extra costs of producing pigment for plastics and many laminates’ products for several years. These products are more expensive and require a slower manufacturing process, he said.

“In my view, the market is strong enough for them to start passing through those costs,” he said.

Global efforts to get premium pricing in specialty markets began to surface early in the year, but such efforts have “firmer legs” now, he added.

Meanwhile, Huntsman’s plan to increase TiO2 prices market-wide by 10 cents/lb, effective on 1 September, is the first broad effort so late this year.

TiO2 contract prices in North America are $1.55–1.69/lb, as assessed by ICIS.

Buyers in all market segments are still frustrated with unabated price gains, but Cianfichi says further increases are inevitable despite talk to the contrary.

“All you’re hearing, in my view, is the normal pre-increase banter,” he said. “But there’s little TiO2 inventory out there. The buyers don’t have leverage. And for the next year, the ore guys who sell to TiO2 manufacturers will be cost pressured.”

TiO2 supply won’t grow fast enough to alleviate buyers’ pain. So the only hope for buyers is that demand slows, he said.

“It’s wishful thinking for the buyers to think they can successfully battle the increases," he said.

Buyers do not share that opinion.

“The ore suppliers are really running up the prices now,” a plastics compounder said. “But I believe the coatings guys are sitting on a boatload of TiO2 because their season has been soft. And I may stop buying in the fourth quarter to try and fend off the 35 cent/lb increase [expected by 1 October].”

However, the buyer offered a caveat, saying that could backfire because although the market may see a temporary glut of TiO2 due to the recent weak coatings season, supply will soon be constrained again heading into 2012 as demand returns without the benefit of additional production capacity.

“Then it will be as tight, as ever,” he said.

Asked if producers are greedy, Cianfichi said gross margins are not unfairly high, and that rising ore costs will continue to squeeze TiO2 margins.

Buyers concede upstream pressure on TiO2 producers, but continue to insist that margins have expanded at an excessive rate.

($1 = €0.69)

For more on TiO2, visit ICIS chemical intelligence
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