NEW YORK (ICIS)--US-based Chemours is positioned for strong growth in the coming years with a tailwind in titanium dioxide (TiO2) dynamics and favourable megatrends benefiting fluoroproducts, its CEO said.
“We feel very good on where we are, and are pivoting to growth mode with our world leading positions in TiO2, fluoroproducts, and mining solutions,” said Mark Vergnano, president and CEO of Chemours, in an interview with ICIS.
“Over the next three years we anticipate adjusted earnings per share growth of over 15% on a compounded annual basis. We see higher revenues and improving margins,” he added.
Vergnano was at the New York Stock Exchange, where Chemours held its first ever Investor Day and employees rang the closing bell.
This marked the completion of the company’s transformation plan, which, when started in July 2015, included a goal of increasing annual earnings before interest, tax, depreciation and amortisation (EBITDA) by $500m, and taking leverage levels defined by net debt/EBITDA to below 3x.
Chemours has since increased EBITDA by over $800m from 2015 levels, and taken debt/EBITDA to around 2x.
And the outlook is bright for the TiO2 business, the largest part of Chemours, with around $2.8bn in sales in the last 12 months in its titanium technologies segment.
“We view the next three years as extremely positive for TiO2 markets. There’s not a lot of capacity coming on stream and growth is in line with GDP at around 3-3.5%. The market should continuously have good pricing dynamics,” said Vergnano.
And while TiO2 prices have risen, they have not spiked to levels disruptive to customers. Margins at coatings companies have increased through the latest period of TiO2 price gains, he noted.
“Our goal is to work with customers so they don’t get surprised by price increases,” said Vergnano.
Chemours is able to scale production up or down as needed without having a major impact on costs, thus allowing customers more flexibility in terms of dealing with fluctuations in demand, he said.
“We price our product based on value. If customers experience weakness, or GDP slows and demand drops, we can absorb that. We build our contracts with more flexibility on volume, but less on pricing,” said Vergnano.
While China-based producers will continue to improve TiO2 quality, this is a process that could take decades, he noted.
And Chemours in October 2017 introduced its offering to the greater China market called BaiMax – a chloride-based TiO2 that is cost competitive but higher quality in terms of brightness and longevity to the typical sulphate-based TiO2 in the market.
“Over time, China will become more of a chloride market,” said Vergnano.
The China market is moving towards higher quality, especially with the government’s crackdown on pollution, which has already resulted in temporary as well as permanent TiO2 plant shutdowns, he said.
M&A STRATEGY AND FLUOROPRODUCTS
Mergers and acquisitions (M&A) will play a role in Chemours’ growth plan, but not likely on the TiO2 side.
“Our [TiO2] assets are so unique that it is difficult for us to participate in consolidation. Our asset base is high value. Taking on someone else’s plants doesn’t really work,” said Vergnano.
M&A is more likely in the fluoroproducts area, which is considered a “very attractive space” with fluorochemicals (including refrigerants) and fluoropolymers offering high growth prospects in the electronics, automotive and energy storage end markets, said the CEO.
The company is building a new $300m Opteon hydrofluoroolefins (HFO) refrigerants plant in Corpus Christi, Texas, US to start up by the end of 2018. The project will triple Opteon refrigerant capacity, though figures are undisclosed.
Chemours’ fluoroproducts segment generated $2.57bn in sales in the 12 months through Q3 2017, close to the $2.8bn in sales for titanium technologies.
“Here you could see us participate [in M&A], going downstream or adding new products,” said Vergnano.
The fluoroproducts business stands to benefit from the shift towards electric vehicles (EVs), as well as autonomous vehicles, he said.
“EVs need more fluoroproducts [than combustion engine vehicles]. EVs and autonomous vehicles require sensors, which use more semiconductors, which require fluoropolymers. This is a huge growth opportunity for us,” said Vergnano.
Another big opportunity lies in the growth of energy storage solutions involving large-scale batteries.
Whereas Chemours sees 5% annual growth for fluoroproducts in automotive over the next decade, and 9% in electronics, it expects 21% growth in energy storage, where solutions will require more fluoropolymer membranes for high-end batteries.
That should help charge up earnings growth for Chemours, making it recognised by investors as more than just a TiO2 company.
The smallest part of Chemours is the chemical solutions segment with $567m in sales in the 12 months to Q3 2017.
There in the mining solutions business, it is building a 50,000 tonne/year sodium cyanide project in Durango, Mexico to start up by the end of 2018, to serve the growing demand from the gold mining sector.
It sees sodium cyanide demand growth in the Americas at around 9%/year through 2021.
Image above: Chemours rings bell at New York Stock Exchange
Interview article by Joseph Chang