FocusN America TiO2 pricing weakens on oversupply, weak demand

20 July 2012 22:13  [Source: ICIS news]

N America TiO2 pricing weakening beneath market pressures HOUSTON (ICIS)--The wave of North American price hikes for titanium dioxide (TiO2) has begun to weaken after a run of more than five years, as the market is hit by lacklustre demand and oversupply.

Although sources recently confirmed third-quarter rollovers after producers failed to implement initiatives of 20 cents/lb ($441/tonne, €357/tonne), some price decreases of 5-10 cents/lb have begun to surface among coatings and paper makers and plastics compounders.

“Demand stinks, and there was greediness last year,” a buyer said. “Because of that, nobody in North America was going to accept the July hikes. And there is lots of product.”

Most buyers anticipate full-market reductions, but decreases have not yet been broadly confirmed.

“I think the producers are all trying to forestall the impact of a further reduction in demand,” said one buyer. “My largest domestic suppliers have cut prices by 5-10 cents/lb within the last two weeks.

“At first, pricing was steady on July 1,” the buyer said. “Then producers said the initiatives were delayed. Then I got the first notice [of a decrease] about a week later. It snowballed from there.”

None of the major domestic producers responded to requests for comment.

Still, not all customers have been offered reductions.

“I haven’t gotten that offer [of minus 5-10 cents/lb], but maybe I will in the next week or so,” a buyer said.

However, market sentiment portends broad-based reductions, despite producers’ penchant for margin grab, sources said.

“I think that whether it makes sense to [producers] or not, they try to push price increases,” a buyer said. “Now, I think they are reducing price to maintain or grow their market share.

“They’d like to raise prices, but it’s not in their interest right now to do that. At the negotiating table, they are much more nervous, much more conciliatory,” the buyer added. “Before, it was ‘take the increase or walk’.”

If the reductions are widely confirmed, it will be the first price decrease dealt to the domestic TiO2 market since June 2007, when the range was 94-104 cents/lb.

Since then, North American TiO2 prices have been flat to rising, punctuated by some partial concessions but never defeated until 1 July. The current range is $2.00-2.12/lb, as assessed by ICIS.

Demand for architectural coatings is flat to up by about 10% over depressed levels a year ago, one paint manufacturer said. The price reduction it received was expected.

“Everything is going down – surfactants, dispersants and TiO2. There’s just too much inventory,” the paint maker said. “And there’s not a lot of promising economic news, either domestic or globally.”

A plastics compounder assessed its year-on-year demand as flat to up by 5%, citing economic pressure as a reason for reduced buying interest in products, including electronics and appliances.

Although customers concede that ore producers are pressuring TiO2 margins, most buyers said prices are likely to drop again in the fourth quarter.

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 sulphate process, which uses sulphuric acid.

“Paint companies have taken a look at TiO2, and they are being more efficient,” the paint maker said. Those efficiencies include substituting cheaper sulphate-route product whenever possible, and using alternatives to TiO2 to achieve acceptable opacity.

Producers have a couple of tactics they can employ to recover pricing power.

Beyond marginally scaling back production rates, one antidote to upstream price pressure may be that non-integrated producers will get tough with their ore suppliers, a buyer theorised.

How?

“Buy as little ore as possible so that TiO2 inventory will plummet,” the buyer suggested. “All the producers will do this because, in general, the market is soft, so inventory is building.”

“It means producers will basically tell the ore guys to go pound sand,” the buyer said. “Producers will intentionally reduce inventory during this quarter because they must stop the ore increases.”

The buyer also suggested that despite the likelihood of more price erosion before the end of the year, TiO2 makers will propose hikes for late 2012 or early 2013 in an attempt to prevent further price weakness.

“I’m confident,” the buyer said, “that every producer has a price letter sitting on his desktop ready to hit the send button.”

North American TiO2 producers include DuPont, Cristal, Tronox, Kronos and Huntsman.

($1 = €0.81)


By: Larry Terry
1 713 525 2653



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