China TiO2 market consolidation may prompt price recovery

Focus article by Alexis Gan

SINGAPORE (ICIS)–Consolidation in the China’s titanium dioxide (TIO2) market should help curb oversupply in Asia and possibly prompt a price recovery of the material known as white pigment after a two-year slump, industry sources said on Wednesday.

Reformulation in downstream applications has been weighing down on the market since 2012, they said.

In the week ended 8 May, TiO2 were mostly discussed at $2,300-2,700/tonne CFR (cost and freight) Asia, according to ICIS.

In April, TiO2 prices averaged $2,500/tonne CFR (cost and freight) Asia, about 40% lower compared with the record high set in the same month two years ago at $4,150/tonne CFR Asia, according to ICIS data.

Huge and steady capacity expansion in China led to an oversupply that brought about the sharp falls in TiO2 prices. A resurgence of mergers and acquisition (M&A) activities in the industry should help address the supply glut, industry sources said.

China is estimated to have around 2m tonnes/year of TiO2 capacity.

Early this month, publicly-listed Chinese firm Henan Billions Chemical confirmed plans to merge with Sichuan Lomon Titanium Ltd, a major TiO2 supplier with a nameplate capacity of around 300,000 tonne/year at Sichuan province in China.

Henan Billions, which is one of the biggest TiO2 producers in China, currently owns a 160,000 tonne/year sulfate-TiO2 plant at Jiaozuo city in Henan province, and is in the process of commercialising a new 100,000 tonne/year chloride-TiO2 plant, with technology licensed from US’ coatings producer PPG Industries.

“With one less supplier – if the merger goes through – the buyers will lose out,” said a southeast Asian buyer, citing that the merger will trigger a TiO2 price uptrend.

In October 2014, Henan Billions had acquired Huntsman’s 30,000 tonne/year TR52 ink-grade plant in France. US producer Huntsman was induced by the European Commission to sell the French plant following its acquisition of the performance additives and TiO2 business of Rockwood Holdings.

“China is currently seeing another wave of market consolidation, and if the recent talks of mergers between two of the largest Chinese producers went through, we could see a stronger Chinese TiO2 growth, since both of the producers [have] different strengths and market segments,” said a Chinese supplier, referring to Henan Billions and Lomon.

Meanwhile, two other major Chinese TiO2 producers were heard to be on the lookout for M&A opportunities, industry sources said.

“It is high time for the Chinese TiO2 market to see more consolidation. All the overcapacities situation across the chemical commodity market is hurting everyone,” said a source at Shandong Doguide  Group, another major Chinese TiO2 producer.

In late 2013, China’s TiO2 market went through a consolidation phase as producers suffered from margin erosion caused by continued decline in product prices, market players said.

Stricter environmental regulations in China have also led to closure of a number of smaller TiO2 plants last year, as these plants were unable to pass down extra cost required to manage waste disposal generated by hazardous sulfate-TiO2 production in the country. These may have shaved around 100,000 tonnes/year from China’s overall capacity last year, industry sources said.

“TiO2 producers can no longer compete on lower pricing grounds. They need to find other alternatives in order to continue in the current weak market,” the Chinese supplier said.

M&A activities in the Chinese TiO2 market spell good news to other suppliers in Asia, according to a major northeast Asian producer.

“Chinese companies are the most aggressive suppliers [of TiO2] to take market share with low prices,” the producer said, adding that a reduction in Chinese capacity would calm the regional market.

Most market players agree that the concentration of assets in China will be key to future price trends in the Asian TiO2 market.

TiO2 prices may go on an uptrend in the middle of the year, once buyers have exhausted their inventories during peak downstream demand in the summer season, industry sources said.

Some buyers, however, said that ample sales outlets, as well as the continued capacity expansion in China should cap any price increase towards the third quarter.

“A 100,000 tonne plant closure in France and some smaller plants closure in China won’t make a dent in the nearly 6m tonne/year [global] capacity, not to mention a few more plants [are] coming up in China, Mexico, Europe and wherever else in the world,” a southeast Asian distributor said.

Meanwhile, consolidation in the TiO2 market is also happening on a global scale. US producer Huntsman announced the restructuring of its pigments and additives business, which included the 13% reduction of its TiO2 capacity in Europe. Its 100,000 tonne/year TiO2 plant in Calais, France is expected to shutter by summer 2015.

Late last year, Huntsman through the acquisition of Rockwood Holding became the second biggest global producer of TiO2.

Japanese producer Ishihara Sangyo Kaisha (ISK), another major international TiO2 producer, had permanently closed down its 54,000 tonne/year chloride-production plant in third quarter of 2014, citing high operation costs in Singapore and poor economics.

The paints and coatings sector accounts for 60-70% of the global consumption of TiO2, which has extensive use in the polymer industry.

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