INSIGHT: DuPont thinks even harder about TiO2 and Teflon

23 July 2013 19:00  [Source: ICIS news]

By Nigel Davis

LONDON (ICIS)--DuPont CEO Ellen Kullman is taking the company further away from its chemicals roots towards the life sciences and sophisticated materials, places where it has the potential to grow predictably and deliver more.

In weighing the options for its performance chemicals segment, the company will measure the cash generating capabilities of titanium dioxide (TiO2), fluorochemicals, fluoropolymers and other chemicals with the cyclical drag they have on the company.

Analysts feel it at least makes sense to investigate the options for the whole or parts of the segment.

Titanium dioxide, the white pigment used in coatings and other applications, is a cyclical business and DuPont probably cannot do much more in the way further technical development. Chinese exporters have helped drive the TiO2 price down and price cyclicality has hit DuPont’s earnings hard this year.

The fluoropolymers in the segment include DuPont’s famous Teflon non-stick coating.

“We have been carefully weighing the strong cash generation of our performance chemicals businesses against their cyclicality and lower growth profile,” Kullman said in a statement on Tuesday.

DuPont is looking at its strategic options for the segment but has not come to any decisions on whether a spin-off or other options might be preferable.

Kullman said that DuPont’s integrated approach to the chemical, materials and biosciences cannot really help make much difference to differentiate the businesses.

It has competitive process technologies for TiO2, which helps it ride the cycle, but Kullman, who at one stage managed white pigments for DuPont, said in April this year that the way the business turns “drives everyone to distraction”. 

The drop in the TiO2 price hit the company hard in the first and second quarters of this year, and, while volumes have been improving, profits from the business are expected to remain comparatively poor.

The performance chemicals segment had sales of $7.2bn (€5.5bn) in 2012, down from $7.9bn in 2011. Pre-tax operating profits for the segment were down 16% at $1.8bn.

This is not a reaction by DuPont to short-term issues but to longer term trends and comes as a consequence of the direction the company has taken in recent years.

DuPont says its growth engine is the integrated material, chemical and life sciences and the ways in which it is able to meld these to deliver new products.

It calls the potential spin-offs or divestments the next step in the transformation towards a higher growth and a higher value company, although it has to convince investors that in its new form it will be capable of delivering better returns.

The acquisition of Danisco in 2011 and the divestment of performance coatings in 2013 showed the way the company was moving.

DuPont said on Tuesday that its TiO2 volumes were up 12% year on year in the second quarter and up 18% from the first quarter of 2013 and that earnings from the business were improving sequentially.

That performance probably indicates that the TiO2 cycle may have bottomed out, analysts have suggested.

But the negative TiO2 price impact on DuPont were significant in the second quarter. Performance chemicals segment sales were down 9% year on year at $1.8bn, dragged down by the lower white pigment prices. Operating earnings for the segment were down by $330m year on year at $264m.

DuPont said that price falls for refrigerants (made from fluorochemicals) and for fluoropolymers, as well as higher operating costs, hit performance-chemical-segment earnings.

It said that earnings from the segment in the third quarter would be down substantially year on year but were expected to be higher on a sequential basis.

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By: Nigel Davis
+44 20 8652 3214



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