27 February 2012 00:00 [Source: ICB]
Customers resist price hikes, citing a surplus of material - but producers expect earnings gains in 2012
North American titanium dioxide (TiO2) buyers have noted the ongoing cost pressure from ilmenite ore, but contend ample supply within the region weakens producers' arguments for price gains in April.
TiO2 customers paint a picture of sufficient supply
Copyright: Rex Features
Current price hike initiatives of 15 cents/lb ($330/tonne) are scheduled to be implemented on April 1. North American TiO2 prices are currently in a range of $1.90-2.04/lb ($4,189-4,497/tonne, €3,183-3,418/tonne), as assessed by ICIS.
The domestic first quarter contract price rose by 10 cents/lb in February, although the increase was less than the 15-25 cents/lb originally sought after. It also reflected wide buy-side sentiment that supply is ample.
"There are people knocking on our door to sell us TiO2," one customer said. "The only thing that pushed the dime in February was ore costs."
An architectural coatings maker said it was trying to get the current initiatives "delayed or tabled," adding: "There's now a surplus, and we're trying not to take any of the current [high-priced] material."
A second buyer said diminished demand is another deterrent to strong price gains, but added that weaker demand is based more on the economy than the cost of TiO2.
One producer contended, however, that demand is picking up as the quarter progresses, and it expects continued improvement through the spring coatings season. It is only a matter of time until demand reaches a level similar that of the third quarter of 2011, the producer added.
In the meantime, TiO2 manufacturers "have been digesting the feedstock price increases," the producer said, adding that as of mid-February most of these costs have since been passed on to their customers.
Another producer said supply is sufficient to cover first quarter demand. "The TiO2 market is well-balanced in North America and Asia, and balanced-to-long in Europe. Talks about second quarter price increases are starting."
A SWITCH TO SULFATE
Buyers in different end-markets have started buying cheaper sulfate-based TiO2 from China for certain applications - something they would not have considered before the run-up in chloride TiO2 in the past two years. "I think a lot of companies overbought and are using up some of their inventory," a paint maker said. "Demand, although not bad, is not super as far as paint sales go, so we've cut back on our domestic TiO2 orders."
US-based coatings producer Valspar said it anticipates a 5-10% increase in raw material costs this year, adding that it is making progress on reformulating its products to employ more sulfate-based TiO2.
A smaller paint producer said sulfate material has worked much better than expected for some of its primer formulations, while a plastics compounder said it has used sulfate material in some products, but said "there is plenty of good TiO2 out there."
Most North American TiO2 producers employ the chloride route, which uses chlorine to extract pigment from ilmenite, rutile or titanium slag. Much of European and Asian production is based on the sulfate process, which uses sulfuric acid.
Producers are largely optimistic on volume and profit gains in 2012, as expressed in fourth quarter conference calls. US-based Tronox expects its TiO2 sales volumes to recover this year, after a 25% decline from the third to the fourth quarter of 2011.
"We do not believe there has been any structural change in the industry, and therefore we believe sales volume growth will naturally recover in 2012," Tronox CEO Tom Casey told analysts during the company's 2011 fourth-quarter results conference call.
Casey said sales would grow modestly in the first quarter, driven by increased volumes and further price increases, compared with the fourth quarter of 2011.
In the second quarter of 2012 - and the second half of the year generally - demand growth would then go on to increase "in the absence of major economic disruption in Europe, China or elsewhere," he predicted.
Casey, pointing to Tronox's TiO2 price increases, even in the weak fourth quarter of 2011, rejected an analyst's suggestion that TiO2 markets may currently be awash with excess supply.
"Our ability to raise prices in the face of what was clearly an unusually soft-demand quarter illustrates not only our strength in the TiO2 market, but also the fundamental strength of the market itself," he said.
Additional reporting by Stefan Baumgarten in Toronto
For more on TiO2 go online to the ICIS Chemical Intelligence database at icis.com
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