Market Intelligence: TiO2 price challenge

17 May 2013 09:47  [Source: ICB]

Several CEOs point to reduced customer inventories as a sign that prices may make up some lost ground. However, a poor economic growth outlook could stall any recovery

Producers of titanium dioxide (TiO2) are expecting that the market could stage a recovery in the second half of the year, after prices for the pigment fell by more than 25% in less than a year.

But one consultant said producers are being optimistic. Pigment consumption follows economic activity, which should be lukewarm this year.

 

 The high refractive index of TiO2 is useful in sunscreen

Copyright: Rex Features

"I don't think pricing increases are going to come easily," said James Fisher, CEO of International Business Management Associates (IBMA), a US-based consultancy.

A successful price initiative would reverse the steep decline in the North American TiO2 market.

Average prices fell from an all-time high of $2.06/lb in August 2012 to $1.625/lb, where they have remained since January 2013, according to ICIS.

CEO Peter Huntsman said the company is seeing signs that TiO2 prices have bottomed out, and demand is beginning to recover.

The company's Q1 sales volumes rose 27% from the previous quarter, he said.

The market has worked down inventories after they swelled to up to nine months among some of Huntsman's paint customers, the CEO said.

Inventory levels are now about 75 days for the industry, compared with about 100 days at the end of 2012, Huntsman said.

The drop in inventories is stabilising TiO2 prices and creating the foundation for a recovery, he added.

DuPont, another pigment producer, has noticed a similar trend. The company's TiO2 customers have completed destocking, said Nick Fanandakis, chief financial officer. Producers still have some inventory to work through - about 10-15 days.

That excess could be reduced by the end of the first half of the year if not sooner, Fanandakis said during his company's first-quarter earnings conference call.

"There has already been tremendous progress made in this area of moving producer level down," he said. "We believe things will hit that stable, normal level by the end of the first half of this year."

Once producer inventories return to normal, then utilisation rates could begin rising, said Tom Casey, Tronox CEO. The company has kept its rate down to about 70% during the first quarter to help it work down supplies.

Utilisation rates will need to rise before prices can recover, he said.

Meanwhile, signs are pointing to a sustainable recovery in the nation's housing market, an important end market for TiO2.

While the US housing market is still far below its pre-recession peak, it has gradually been improving over the past several months.

In March, 75,800 building permits were issued, up 12% from 67,400 for the same time last year, and the largest figure since 76,300, issued in August 2008, according to the US Census Bureau.

In March, new residential sales reached 40,000, the highest monthly number since 41,000 in April 2010, the bureau said.

Rental vacancy rates reached 8.5% in the first quarter, the same as the second and third quarters of 2012. Outside of those quarters, the last time rates were that low was in the second quarter of 2002.

POOL OF POTENTIAL HOMEBUYERS
The low vacancy rates for rentals point to a large potential pool of homebuyers.

TiO2 is going to be a product that will come back as the US housing comes back," Huntsman said. "Regarding TiO2, we continue to see signs of improvement with better demand and lower inventories. I believe that we will see a real turnaround by year-end and throughout 2014."

In fact, another pigment producer, Kronos, proposed a 10 cent/lb increase for TiO2, effective on 1 June.

With 90-day price protection common in the domestic market, a successful effort would not be implemented until 1 September.

Among paint producers, though, the outlook on second-half price trends is murkier.

During an earnings conference call, Sherwin-Williams said time would tell which direction TiO2 prices would go.

Charles Bunch, CEO of PPG Industries, simply said: "We don't know exactly the trend for TiO2 in the second half of the year."

Other trends could work against price hikes.

James Fisher, the head of IBMA, said the major economies of the world are still contending with either weaker growth, slow growth or no growth.

The International Monetary Fund (IMF) expects the US economy will grow by 1.9% this year, down 0.2 percentage points from its previous estimate.

The eurozone's economy is likely to shrink by 0.3% this year, the IMF said. The region is still producing TiO2, and that pigment has to go somewhere, said Fisher. "It's not going to find a home in Europe."

Meanwhile, China is expected to grow by 8.0% this year, the IMF said. While up 0.2 percentage points from 2012, the rate is still below 2011's 9.3%.

In addition to slow growth, the TiO2 industry still has too much capacity, a problem that will persist for the next 5-10 years, Fisher said.

Paint companies, shocked by the sharp spike in prices earlier this decade, are developing new formulations that use less TiO2.

PPG's Bunch said the company reached its Q1 target of lower pigment consumption, and it will continue cutting back in the second quarter.

PPG reached its target in a surprisingly short time, Fisher said. He expects other paint producers will follow PPG and successfully reduce TiO2 consumption.

Paint formulations are difficult to change, particularly for multi-national companies, Fisher said. As a result, the new formulations are almost always irreversible.

Dow Chemical, meanwhile, continues to market its Evoque TiO2 extender. The company has said that the product could reduce pigment consumption by as much as 20%. So far, six North American customers have adopted Evoque in paint now being sold, the company said. Several others around the world are also using the pigment extender.

All of its major customers have either validated the technology or have commercialised it, Dow added.

Additional reporting by Larry Terry


By: Al Greenwood
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