News focus: New era dawns for titanium dioxide

Tronox’s proposed acquisition of Cristal is the latest example of market consolidation that should lead to more price discipline in titanium dioxide (TiO2).

The consolidation wave started in 2014, when Huntsman acquired the pigment business of Rockwood Holdings. This included TiO2 as well as Rockwood’s coloured pigments business. In 2015, DuPont spun off Chemours, which included its TiO2 and fluorochemicals business.

By becoming an independent TiO2 producer, Chemours should have greater motivation to adopt more disciplined pricing strategies, since it is no longer part of a larger company, according to Fitch Ratings in a recent report on TiO2.

The same goes for Huntsman’s pigment business, which is scheduled to be spun off later this year as Venator Materials. This should give the industry another shot of pricing discipline, since Venator will no longer be part of a larger company.

Tronox’s planned acquisition of Cristal for $1.673bn plus 24% of the equity of combined larger Tronox is a continuation of a trend, although it would combine two existing independent global pigment producers into world’s largest TiO2 company.

If everything goes through as planned and all is said and done, there would be four major Western players in TiO2 that are all relatively pure-play – Tronox, Chemours, Venator Materials and Kronos Worldwide. That’s a big difference compared to the sector many years ago when Chemours was part of DuPont and Tronox part of oil and gas company Kerr-McGee. Venator is still part of Huntsman for now.

STOCK MARKET REACTION

The stock market certainly approved of the deal, a break from its typical reaction to companies announcing acquisitions.

Tronox shares rose 35% to $19.47 on 21 February, the day of the deal announcement. Other TiO2 producers benefited as well, with both Huntsman and Chemours rising 8%.

Prior to this wave of consolidation, there was Tronox, DuPont, Huntsman, Kronos and Cristal. Rockwood’s TiO2 business was smaller and production was limited to Europe. More significantly, this earlier grouping had only three independent TiO2 producers, which were Tronox, Cristal and Kronos.

This recent consolidation does not automatically presage a surge in prices. The big four Western producers are not the only major players in the world. Henan Billions Chemicals is a Chinese producer that makes almost as much TiO2 as Kronos, according to Fitch.

Also, TiO2 is still a heavily commoditised industry, Fitch said in its report. “The industry as a whole will likely still be highly sensitive to stocking and destocking trends as customers substitute lower quality pigments when prices rise beyond the ability to pass on costs,” said Fitch.

This will be especially true in China, where the TiO2 market is still relatively young.

PARALLELS WITH STYRENICS

Still, it’s worthwhile to compare the consolidation in TiO2 to one that happened in another highly commoditised market – styrenics.

Like TiO2, the styrenics market is heavily commoditised, and producers were once part of larger conglomerates.

When businesses are part of larger conglomerates, they need to compete with other business units for capital needed for growth. Moreover, when the parent company manages the operations of individual business units, it is from the viewpoint of a large, diversified chemical producer and not from a focused manufacturer – be it one that makes styrene or TiO2.

For styrenics, what followed was the creation of several joint ventures composed of the styrenics businesses of these conglomerates.

NOVA Chemicals and INEOS created the INEOS NOVA styrenics joint venture in 2005, with NOVA selling its stake to INEOS six years later. In 2008, what is now Trinseo (formerly part of Dow) and Chevron Phillips Chemical created the Americas Styrenics joint venture.

Dow Chemical sold its styrenics business – now called Trinseo – to Bain Capital at the start of the decade. INEOS and BASF created the Stryolution joint venture in 2011, with INEOS also buying out the share of its partner in 2014.

At the time, styrenics was an exceptionally unattractive market. Processors had started using other resins instead of polystyrene (PS), the major derivative of styrene. The market had been weak for several years.

While the styrene chain was a mature market, it was still growing, albeit slowly. The previous consolidation allowed the industry to play its weak hand relatively well, as shown in the pricing charts below for styrene and PS.

TIO2 BOTTOMED

It’s too early to predict what will happen with TiO2. Fitch noted that Huntsman and Chemours have removed a combined 270,000 tonnes/year of capacity, but this will be largely offset by new additions.

Still, the market has likely bottomed out after hitting a low of $1.20/lb ($2,646/tonne) at the start of 2016. Prices in North America are currently assessed at $1.265/lb. Producers have since nominated more increases, and some were confirmed last month for Q1 contracts.

Given the latest consolidation, it could mark a new era for TiO2.

• Additional reporting by Joseph Chang