OUTLOOK ’18: No respite for TiO2 buyers in Asia as supply restricted

03 January 2018 03:40 Source:ICIS News

SINGAPORE (ICIS)--Asia's titanium dioxide (TiO2) prices are likely to continue to rise in the near term, as China’s war on pollution wages on, resulting in production cuts across the country.

Quarterly contract prices have been on a consecutive rise ever since early 2016, as producers sought to recoup lost profitability following previous price erosion.

The situation was exacerbated in 2017, with contract prices peaking for the year in the fourth quarter at $2,900-3,000/tonne CFR (cost and freight) Asia.

Price hikes in 2017 were mainly as a result of production cuts in China brought about by unprecedented increase of nationwide environmental inspections, limiting supply of Chinese materials.

While the government has not forced the larger, more established and modern TiO2 production plants to shut, the smaller-scaled TiO2 manufacturers who fail to abide by the government’s emissions rules have to contend with potential fines and temporary plant closures.

These companies will have to upgrade existing pollution-control equipment to be in line with anti-pollution requirements, or face the prospect of being shut indefinitely.

Further waves of environmental inspections are likely to take place throughout China in the near term, continuing to disrupt supply of TiO2 pigments in the year.

Sulphate-based TiO2 production plants in the country are especially vulnerable, with these producers facing difficulties passing down the extra cost required to manage waste disposal generated by TiO2 production through the sulphate-route.

As a result, any significant expansions of sulphate-based TiO2 plants in 2018 is highly unlikely.

Chloride-based TiO2 production will be the main driver behind China’s potential capacity expansions in the future.

TiO2 major Lomon Billions has announced plans to focus its expansions in the coming years on chloride-based productions.

Production growth via the sulphate-route is expected to be muted in contrast.

While supply in the country is expected to continue to be curtailed, demand for TiO2 pigments in China is likely to be impacted by the environmental crackdowns as well.

Downstream capacities losses are expected, as paint manufactures and other factories that buy TiO2 pigments may also be forced to shut as a result of the clampdown.

Outside of China, other international TiO2 suppliers are keenly aware of the production cuts among Chinese producers, and most have already announced intentions to hike contract prices in Asia in the coming quarter by three digits.

However, buyers’ resistance to the proposed price hikes is likely to grow this year, as downstream demand for finished products remains lukewarm at best, and margins for TiO2 buyers become increasingly squeezed.