17 May 2013 09:50 [Source: ICB]
Value chain is going through a four-stage destocking and restocking process, says CEO Tom Casey
Utilisation rates for titanium dioxide (TiO2) plants may rise in the second quarter as demand continues to increase and inventories decline, setting the stage for a recovery in pigment prices during the second half, the CEO of US-based Tronox said on 9 May.
Inventories are declining as demand increases in the US for titanium dioxide, which is used as a pigment in white paint
Prices had fallen as buyers worked through inventories, a process that is winding down.
In fact, TiO2 demand is recovering, said Tom Casey, Tronox CEO. He made his comments during an earnings conference call.
Tronox pigment sales volumes in the first quarter rose by 23% versus the 2012 fourth quarter, he said. In fact, pigment sales reached their highest level since Q3 2011, he said.
However, Tronox's inventories were at 71 days at the end of March, Casey said. A more normal level is at the mid 50s.
"We want to get rid of inventory," he said.
To help work down inventories, the company's plant utilisation rate was about 70% during the first quarter, he said.
Utilisation rates will need to rise before prices can recover, as Tronox sees any price increase occurring through a four-step process.
First, sales volumes will increase because customers have finished destocking, Casey said. Prices will still decline, because the increase in customer demand will be met by producers' inventories. As those inventory levels become normal, prices will start to stabilise.
In the third step, utilisation rates will begin rising as producers deplete excess inventory, Casey said. Margins should automatically increase because of the higher rates.
Once utilisation rates rise and inventories return to normal, prices could start rising, he said.
"I doubt that we are at that level right now, in terms of prices increasing right now," he said. "But we see the possibility of it coming in the second half."
Third-quarter North American titanium dioxide (TiO2) price-increase efforts are unlikely to succeed, buyers said on 9 May.
At least two producers have announced plans to raise prices by 10 cents/lb ($220/tonne, €168/tonne) during the period - the most recent being Kronos, which seeks a 10 cent/lb hike effective 1 June. With 90-day price protection common in the domestic market, a successful effort would not be implemented until 1 September.
Cristal previously announced its plan to increase third-quarter prices similarly in North America.
Buyers are sceptical, at best.
"The third-quarter increase is pretty much a non-issue," a buyer said. "Even though [producers] will tell you it isn't."
"I do not see any price changes for the third quarter," another buyer said.
Although customers agree among themselves that typical spring demand for coatings has yet to surface, some say there has been incremental improvement as summer approaches - just not enough to warrant near-term price increases.
Producers were mostly quiet on the subject of price-hike efforts, but first-quarter earnings news did not bolster their positions.
Tronox recently reported a first-quarter net loss of $57m, compared with a net income of $86m in the same quarter a year ago.
Higher cost of sales sharply diminished gross margins, but Tronox said it has seen volume increases for two consecutive quarters and believes this may signal recovery in the second half of the year.
Kronos also posted a net loss of $41.1m for the first quarter of 2013 because of lower pigment prices and higher raw materials costs.
Kronos' CEO Steven Watson said the company's inventory is shrinking, that supply of some grades of TiO2 has begun to tighten and that delivery lead times are increasing. These are all signs that the market is improving, he said.
North American contract values are in a range of $1.55-1.70/lb, as assessed by ICIS.
Other North American TiO2 producers include DuPont and Huntsman.
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