Special Issue: Europe TiO2 rollercoaster ride continues

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It has been a real rollercoaster ride for players in the European titanium dioxide (TiO2) market for some years now, with extreme swings in pricing and supply. There is no sign of any relief in sight – at least in the short term. Heightened price volatility has led to profitability concerns through the chain – with TiO2 producers reaching a critical point a few years ago and this switching to buyers over the past year due to a dramatic change in price direction.

This, combined with the European Chemical Agency’s recent recommendation to classify TiO2 as a category 2 carcinogen, when inhaled, could lead buyers to look further into reformulation and any substitution possibilities.

Signs of easing supply in Asia could also encourage European buyers to look more outside the region for volume and price leverage, depending on further price developments.

For some years, TiO2 producers struggled with a lack of profitability, which reached a critical point when European TiO2 contract prices plummeted by €380/tonne on average from the fourth quarter of 2014 to the first quarter of 2016, according to ICIS. This sizeable price drop was driven by structural global oversupply. As TiO2 prices had reached unsustainably low levels, TiO2 producers took drastic action with a series of restructuring and cost cutting measures over recent years.

These measures have since addressed the structural oversupply globally to a large extent. But the drive for market consolidation/rationalisation continues. Restructuring, along with stricter inventory controls since the end of 2015, have resulted in a more finely tuned, tighter supply situation in Europe.

Unplanned issues such as Huntsman’s TiO2 plant fire at Pori in Finland, which occurred in early 2017, and continued robust demand, further exacerbated the market tightness in Europe.

The supply crunch in Europe has led to a relentless uptrend in pricing over the past year, which is becoming increasingly challenging for buyers.

Prices rose successively from Q2 2016 to Q3 2017 by close to 40%, with price rocketing by a staggering €740/tonne on average.

The upward price momentum over the past year has been due to ongoing market tightness for the most part, along with robust demand in most cases, along with some pre-buying activity, where possible.

BUYERS SQUEEZED

The continued price uptrend for TiO2 in Europe means that TiO2 buyers’ margin pressure is intensifying, as they are struggling to pass on the successive and sizeable price rises over the past year into the downstream market.

These TiO2 buyers said this is because of strong competition and longer-term contracts in place with some of their customers, among other factors. Some buying and reselling sources said that margins for downstream players such as in the paints sector are not only being hit by the relentless upward price pressure for TiO2,which is a main chunk of their costs, but also by some other feedstocks, which have also been moving up. Some buyers said they have no option but to try pass on any price rises as and when they can.

SUBSTITUTION CONSIDERATIONS

Due to this intensifying margin pressure, TiO2 buyers are also seriously revisiting any possibilities to reduce their TiO2 consumption and/or to substitute.

Some players said they have already reduced their TiO2 consumption by using fillers or other materials. However, the flexibility to reduce TiO2 usage in formulations is somewhat technically limited, according to market players.

There is also some talk that any attempts to change TiO2 buyers’ formulations to use less TiO2 were made some years ago, particularly in 2011-2012 when the market was also experiencing a period of price volatility and tightness. There is a question mark, therefore, over how much leeway is still left to be explored.

In addition, finding a direct substitute for TiO2 is not easy, because in many cases TiO2 performance is unrivalled. However, one buyer recently said there are some options, stating that it is about reaching a level of acceptance with its customers.

One buyer said it is concerned that while TiO2 may not be substituted directly, end-users may start to opt for non-TiO2 based solutions.

An example of this would be increased use of wood and veneer instead of TiO2 based paper laminate in furniture and flooring. However, there is no evidence that we have reached this point yet. In fact, one player talked of an increasing trend towards lighter and whiter furniture, paper and flooring. But there is a risk that this trend could change, particularly if the historically high TiO2 prices were to continue.

Another customer, in contrast, said it had promoted off white and grey options for paints to its end-users, which has enabled it to reduce its TiO2 consumption over recent years for price related reasons.

LOOKING TO ASIA

There are some signs that supply is starting to improve in Asia, following prolonged tightness. The possibility that more material could become available from Asia for Europe could provide European buying sources with some leverage in future price discussions, although this remains to be seen.

While some European TiO2 buyers are already looking more to Asia, this is mainly driven by the need to cover their volume requirements due to the shortage in Europe rather than for any price related reasons.

One trader said it did not expect to see any significant change in supply/price in Europe until 2018 – until imports from Asia become more attractive and with Huntsman’s expected ramp-up of its Pori production next year.

ECHA RISK ASSESSMENT

Aside from supply and price volatility, the ECHA’s Risk Assessment Committee (RAC) assessment of TiO2 as a suspected carcinogen, when inhaled, adds further complexity to the TiO2 situation in Europe.

The European TiO2 Manufacturers Association (TDMA) has questioned the validity ECHA RAC’s proposal and is fighting it, claiming that the tests and scientific data used by the RAC were not suitable or conclusive for this labelling.

The verdict is still out, however, until the European Commission makes its decision after taking into account the RAC’s scientific opinion, along with other comments.

While the RAC’s recommendation could also lead to more of a drive for reformulation and substitution away from TiO2, there is no evidence that this is being done for this reason. And once again the same technical limitations apply. Industry players remain poised to see what will play out over the coming months – that is, whether the RAC’s scientific assessment will have any regulatory implications and how the seller landscape is likely to continue evolving.

While tweaking formulations and exploring other possible substitutes may be an option to some extent, it may not be the best solution, unless performance in use is comparable to TiO2.

What is really needed is a period of price stability after the recent heightened volatility where economic sustainability is supported throughout the chain for the sake of the whole industry.

Heidi Finch has worked at ICIS for close to 11 years and during this time she has covered a range of petrochemical and chlorine related products. She has been involved with the research and development for certain product launches, including those related to fatty acids, plasticizers and oxo-alcohols. On top of her regular report coverage, she produces content in various forms such as infographics, podcasts and market videos, along with more analytical pieces.

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