11 October 2012 15:35 [Source: ICIS news]
By Larry Terry
HOUSTON (ICIS)--North American titanium dioxide (TiO2) buyers are reducing inventories on expectations that prices could drop further before the end of the year, sources said.
Year-end destocking is no new phenomenon. In fact, it is standard practice in the domestic TiO2 market because the fourth quarter of the calendar year is typically the market’s slowest season.
And when domestic pigment prices dropped for the second time in the third quarter, most buyers agreed that it was the result of seasonal softness.
Buyers welcomed the cuts but said the softer prices would not be a major factor in their buying decisions because most were already letting stockpiles dwindle through the end of the year on weak demand and expectations of lower prices.
Sellers are typically reticent, but have been more so as they struggle to “align production levels and inventories to current and anticipated near-term demand levels”, as producer Kronos recently said in an announcement of its preliminary third-quarter results.
Kronos anticipates its third-quarter net sales will drop to $480m-495m (€374m-386m) from $548m, or by 10-12%, from the same quarter of 2011 largely because of lower sales volumes. The producer said its segment profit for the quarter will probably drop even more dramatically − by 75-78% − because of lower sales and production volumes and higher feedstock costs.
In its statement, Kronos said that customers’ inventory levels were “substantially depleted”.
A buyer said, “We’re letting our inventories run out.”
The buyer, an architectural coatings maker, added, “For this time of year, our stock levels are just a few percentage points lower than usual, but our plan is to lower our inventories until the buying season next year.”
US architectural coatings makers, for example, typically begin to restock their TiO2 in the first quarter of each year, ahead of the spring paint and coatings season.
Most customers said they plan to delay their first purchases for 2013 in hopes of even lower pricing, although producers are loathe to consider such a prospect.
“Our demand will be off for the rest of the year,” another coatings maker said. “We’re doing year-end management inventory.”
The buyer said it hopes to get price reductions of more than 5 cents/lb in its fourth quarter.
Although one producer asserted that demand has stabilised and that customers are significantly depleting their own inventories, most buyers said they still have more than enough material to carry them through the market’s traditionally weakest period of the year.
“Demand is weak,” a customer said, “but [producers] will want to keep their plants running at some reduced rate rather than shut them down.”
Buyers said the latest price cuts averaging 5 cents/lb took domestic TiO2 prices down by a third-quarter total of 10-13 cents/lb, which includes reductions of 5-8 cents/lb earlier in the period.
Current domestic prices for TiO2 are $1.90-1.99/lb, as assessed by ICIS.
Kronos, for one, said that the fiscal impracticality of planning expanded TiO2 production – largely because of the long lead time and high capital costs associated with adding significant new production – will ultimately create a prolonged shortage, especially as economic conditions improve.
North American TiO2 producers include DuPont, Cristal, Tronox, Kronos and Huntsman.
($1 = €0.78)
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