Inorganics:TiO2 buyers frustrated with new price hikes

19 March 2012 00:00  [Source: ICB]

Titanium dioxide (TiO2) buyers worldwide are expressing frustration and resistance over the latest price hike announcements made by producers such as US-based DuPont, Huntsman, Tronox, Kronos and Japan-based Ishihara Sangyo Kaisha (ISK).

TiO2 prices, according to several analysts, are up an average 35-40% on a year-on-year basis despite lower sales volumes of around 20%. When DuPont first announced its price hike on March 5, buyers started grumbling on the seemingly never-ending TiO2 increases.

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Producers have already implemented their first price hikes of the year, which are expected to start rolling in April. Producers' fourth-quarter price hikes in 2011 did not fully go through.

"This is the first I've heard of the second price hikes this year, and it sickens me," a buyer said of the DuPont initiative. "I was hoping we wouldn't see these kinds of increases this year, but I guess they're going to keep trying to get better margins. When is it going to be enough for them?" Other buyers were similarly frustrated, citing the swift run-up in pricing over the past two years and the current slack demand and ample supply.

Downstream TiO2 buyers are showing more resistance to price proposals, but demand could return by April, said Huntsman CEO Peter Huntsman during the company's annual investor day event in New York on March 8.

North American TiO2 buyers have acknowledged continuing cost pressure from ilmenite ore, which is used in the production of the pigment, but contend that ample supply weakens arguments for price gains in April.

Asia buyers are also expected to resist the latest round of price hikes, citing difficulty in passing the costs on to their end-users.

In Europe, buying interest so far this year has also been lacking. Orders in January and February were down by 30% compared with the same period last year, although 2011 was exceptionally strong, one TiO2 customer said.

Players are waiting to see if demand picks up heading into the second quarter - when the downstream coatings season usually starts - but several buyers have doubts a significant improvement will occur given the pessimistic economic outlook across Europe.

Many TiO2 customers also cited higher stock levels and ­having enough material to see them through until May, allowing them to avoid the big price jump in April.

The majority of consumers believe they will be able to achieve rollovers for second-quarter contracts, with a couple adding that a €50-100/tonne ($66-132/tonne) rise would be the maximum gained by producers.

HIGH FEEDSTOCK COSTS

Global TiO2 manufacturers noted that order levels are improving in March, and the fact that buyers purchased so little in the first two months of the year means the high inventory levels they possessed will have been run down.

In North America, the four producers are proposing increases of 20 cents/lb ($441/tonne, €331/tonne), effective April 1. If the initiatives succeed, increases would be implemented on July 1 for most contract customers.

In Europe, Kronos and Tronox announced increases of €175/tonne while DuPont and Huntsman are aiming for €150/tonne and €200/tonne, respectively.

In Asia, ISK is aiming for a $400/tonne price hike for its TiO2 sales in the Asia-Pacific region; Tronox announced a $250/tonne hike; DuPont is implementing a $200/tonne price rise; and Huntsman is looking at a $300/tonne price hike. All announcements are effective from April 1.

Manufacturers said the hikes are necessary because of soaring upstream costs of TiO2 feedstock ilmenite and rutile where in some cases, prices are said to have risen by 70-75% from the second half of 2011 to the first half of 2012.

During an earnings conference call on March 6, Kronos reported that the company's average TiO2 selling prices in the fourth quarter of 2011 increased 46% compared to a year ago.

"The cost of our raw materials will increase in 2012, including significant increases in the cost of our feedstock ore," said Kronos CEO Steve Watson.

He added: "With the constraints and time required to add significant new production capacity, especially for the premium grades of TiO2 products through the chloride process, we expect the strong and growing worldwide demand for TiO2 products will continue to result in tightness of supply in 2012 and beyond."

Kronos expects to operate its facilities at full capacity in 2012 despite having higher TiO2 inventory in fourth quarter of 2011 because of lower demand attributed to seasonality and customer destocking of its inventory. In 2011, Kronos set a record production of 550,000 tonnes in total, which surpassed the company's nameplate production capacity of 525,000 tonnes.

After Kronos's 2011 TiO2 inventory is depleted, the company said it expects rising volume, demand and an increase of at least 50% in its total per-tonne production cost of TiO2.

UNCERTAIN FUTURE

Buyers and sellers are finding it difficult to predict what will happen in the short-to-medium term regarding downstream demand, so many are just waiting to see how things develop.

While US producers contend that the market is more balanced, buyers said they are being offered additional volumes and that the coatings season has been predicted to be soft this year.

TIO2 tableOne US buyer said the price initiatives are unrealistic given the plentiful supply and talk of a soft coatings season as well as a surplus of Chinese imports which could further weaken the price increase efforts, if not reverse them.

The North American market is already negotiating second-quarter initiatives of 15 cents/lb for implementation on April 1, but most buyers say they are willing to accept increases of only 10 cents/lb. As of March 9, North American TiO2 is $1.90-2.04/lb, as assessed by ICIS.

First-quarter TiO2 prices in Europe are €3,000-3,400/tonne FD (free delivered) NWE (northwest Europe), while discussions for China-origin rutile-grade TiO2 cargoes were at $3,450-3,500/tonne FOB (free on board), with deals concluded at $3,300-3,450/tonne FOB China as of March 9.

"With the Chinese New Year now behind, and the peak demand seasons approaching in the US and Europe, the extent to which demand will materialize could determine whether the 15 cent/lb price increase for April, which was announced in January, and the recently proposed 20 cent/lb increase for July 1 implementation will be achieved," said US-based Susquehanna International Group analyst Don Carson, in his March 11 equity report.

"Soft demand could challenge recent price initiatives. We do see some modest downside risk to our projection that TiO2 volumes will rise 4.2% year on year in 2012 as global demand remains soft," Carson added.

In the US, all TiO2 producers are running their plants at maximum rates and expect firm demand in 2012, noted Andrew Cash, analyst at Switzerland-based UBS Securities in his March 12 equity report.

"In general, most producers see 2012 as another very good year for the industry. The overall strength will depend on global demand growth, and will be leveraged to cost pressure resulting from ore costs increases, offset by product price increases," Cash said.

  • Additional reporting by Feliana Widjaja in Singapore, Larry Terry and Brian Ford in Houston, and Franco Capaldo and Amandeep Parmar in London

By: Doris de Guzman
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