INTERVIEW: Chemours TiO2 capacity expansions to be stretched out on capex cuts - CEO

Author: Joseph Chang

2020/05/06

NEW YORK (ICIS)--Chemours will stretch the timing of its titanium dioxide (TiO2) capacity expansions toward 2021-2022, as it cuts capital spending (capex) on growth projects in 2020, said Mark Vergnano, CEO of Chemours, in an interview with ICIS on Wednesday.

“We’re probably going to be stretching that out a little longer…as we slow those down a bit. We’ll see how long that delay will be, depending on what we see from a demand perspective, and how the year plays out. Those can be restarted at any time”, said Vergnano.

Chemours plans to bring on more than 200,000 tonnes/year of additional TiO2 capacity across several of its existing plants.

The company announced a $125m reduction in planned capex for 2020, to $275m, with most of that coming out of growth projects.

The original 2020 capex plan of $400m was already down 20% from 2019. In that plan, $125m was for growth projects, split about evenly between its Titanium Technologies and Fluoroproducts segments.

A small, unspecified amount of TiO2 capacity has already been added, but the bulk will likely come on in 2021, instead of by the end of 2020, as previously planned, the CEO noted.

“We just can’t see what the second half of the year looks like right now, because consumer demand has relatively stopped across the world. 2021-2022 is still the aim point of what we’ll try to do with the capacity”, said Vergnano.

In the first quarter, Chemours’ Titanium Technologies segment saw adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) rise 10% year on year to $138m, on 10% higher sales of $613m on 19% higher volumes, while prices fell 8%.

Part of the volume boost was from the company regaining more market share among plastics and laminates customers through the Flex online portal, market share it has been recapturing since the second half of 2019, noted the CEO.

LIMITED VISIBILITY

Looking to the second quarter, Vergnano sees a “slight decline” in TiO2 volumes sequentially from the first quarter, but noted that visibility is very cloudy.

Competitor Venator Materials noted that TiO2 volumes could decline 15-20% sequentially in the second quarter, a level of decline that Vergnano did not rule out for Chemours.

“It could be that large. Normally you’d have clarity…in the order book, early in the quarter in the TiO2 business. What we’ve been seeing is that clarity coming later in the quarter, and it’s just because the demand signal to our customers is slow as well. So they’re bringing in product as they need it”, said Vergnano.

“We’re seeing orders coming in later than normal, so at this point in time it could be 15-20% down", he added. "That’s a distinct possibility but right now, we don’t feel it.”

Before the coronavirus pandemic, the TiO2 sector had largely de-stocked through 2019, and was just beginning to turn up, said the CEO.

Coming out of the coronavirus crisis, government stimulus measures should give a kick to the recovery, he noted.

“What you’re going to have on the back end of this is some levels of stimulus. This industry has responded extremely well to stimulus. It’s a GDP driven industry, and stimulus usually uplifts GDP, especially in the construction sector."

“When things start turning around, when demand starts coming back, when people are buying again, and when stimulus kicks in, there’s an upside to this that’s going to happen at the back end”, he added.

TVS PROGRAMME

Within Chemours’ Ti-Pure Value Stabilization (TVS) programme, the CEO expects continued gains in AVA contracts that provide security of supply along with price stability, while customers also get more comfortable with its Flex online portal, where it can buy volumes, at a specified price, for up to six months out.

“We have some customers that have been Flex portal customers who have migrated over to AVA contracts because they want the surety of supply…and in some cases because they want to know what the price is going to be”, said Vergnano.

“I think as we come out of this Covid crisis, people will probably need a little bit of time to digest exactly what the market and demand looks like", he added. "So by the end of the year, I would think we’ll start seeing people interested in going into AVA contracts or renewing those contracts.”

The current rough split of Chemours’ TiO2 business from AVA, Flex and through distributors is about 50/40/10, he noted.

“The majority is under AVA contracts, but we don’t anticipate ever being above 70% on AVA, because we need that flexibility. If a customer’s demand goes up…we want to be able to move that volume up for them”, said Vergnano.

A comfortable percentage would be about 60-65% under AVA, he added.

Interview article by Joseph Chang