Europe TiO2 tightness leads to Q3 price rally, downstream margin concerns

LONDON (ICIS)–Ongoing tight supply in the European titanium dioxide (TiO2) market has led to a relentless price rise rally continuing into the third quarter, resulting in downstream profitability concerns becoming more pronounced, market sources said this week.

An upward price trend was widely expected for the third quarter with little room for negotiation, according to some buying and reselling sources, because of persistent tight supply.

The market has been tight for various reasons, including restructuring measures in Europe and globally, along with producers’ strict inventory controls over the past few years, along with Huntsman’s extended disruption at its Pori, Finland, TiO2 plant following a fire earlier this year.

Q3 price agreements were so far at plus €180-350/tonne.

While there was some variation in the level of price rise for Q3 contract business already concluded, depending on source, supplier and grade, price hikes of closely around €250/tonne and up to €300/tonne were frequently heard so far.

Q3 contract prices were talked closely around the mid-€2,000s/tonne FD (free delivered) and closely either side of €3,000/tonne FD for standard paints and coatings grade product, depending on source.

Prices were talked well above this on a spot basis.

Buyers said their profitability was being eroded in view of the sizeable price hikes for their feedstocks, in particular for TiO2, where prices have risen substantially and successively for more than one year (see graph below), which they have struggled to pass on downstream.

They said this was because of strong competition in the downstream markets, among other factors.

“Profitability is pretty tough, we can’t pass on the increases, our profitability is under extreme pressure,” said one buyer.

This relentless upstream cost pressure is triggering buyers to seriously consider reducing their TiO2 consumption or look at other substitution possibilities, where possible.

However, buyers acknowledge that while TiO2 consumption can be reduced by using fillers for example, a direct substitute for TiO2 with the same performance requirements was difficult to find.  

Demand remains healthy in Europe, with no signs of any summer slowdown in activity evident. There is some talk of some possible pre-buying activity in the downstream market, which is also artificially inflating demand in some cases too.

Supply remains tight in Europe, with talk that suppliers are sold out for the third quarter and lengthy lead times of 4-6 weeks and up to 2-3 months, depending on grade. One buyer said it is working hard every month to get confirmation for the volumes it has ordered.  

One trader said that some players in the downstream paints/coatings sector have been forced to reduce their downstream production because of TiO2 supply constraints.  However, this view was not directly or widely confirmed in the market.

Due to the tight supply in Europe, some players are looking to Asia to cover any demand that cannot be accommodated in Europe, with talk of improving supply in Asia and prices in Asia becoming more attractive compared to recent months in some cases.

However, this view was not shared by all, with some European players stating that they did not consider it to be interesting enough to import volumes ex-Asia into Europe from a price perspective or because of quality differences for their applications.

European Q2 TiO2 contract prices were assessed at €2.34-2.55/kilogram (KG), according to ICIS.

Titanium dioxide (TiO2) is used as a white powder pigment in products such as paints, coatings, plastics, paper, inks, fibres, food and cosmetics.

Focus article by Heidi Finch