China cuts in steel output may pressure TiO2 feedstock higher

HOUSTON (ICIS)–China’s environmental crackdown would lead to a decline in steel output, leading to drop in iron-ore mining and a subsequent fall in production of a feedstock for titanium dioxide (TiO2), an analyst said on Monday.

TiO2 would join a large number of chemicals whose production has been disrupted by the government’s move to cut down on pollution.

One of the feedstocks used to produce TiO2 is ilmenite, which is a by-product of magnetite.

Magnetite mining accounts for more than 90% of the ilmenite produced in China, said Hassan Ahmed, an analyst for Alembic Global Advisors. He made his comments in a research note.

For every 10-50 units of magnetitie that is mined, 1 unit of ilmenite is produced, Ahmed said.

China relies on magnetite for the iron ore it used to make steel, he said.

As part of its 13th five-year plan, China plans to curb pollution by shutting down 500m tonnes of coal production and 100m-150m tonnes of steel production by 2020, Ahmed said.

He estimates that Chinese ilmenite production could fall by 40-60% if China reaches this goal, he said. In terms of global ilmenite production, output would fall by 6-10%

The table below outlines the relationship between steel and ilmenite production in China.

If China is successful in reducing steel production and if ilmenite output also declines, then this should put additional pressure on TiO2 prices.

These already have been rising because of a dearth of new capacity, Ahmed said.

This contrasts with the outlook for demand, which Alembic expects will be below previous trends.

More than 50% of demand for TiO2 comes from paints used in housing and construction, Ahmed said. “In no way are we looking for aggressive demand growth from that end market.”