NEW YORK (ICIS)--Titanium dioxide (TiO2) prices will not see anything like the run-up and collapse in 2011-2012 as market dynamics have shifted and point to more stability ahead, the CEO of US-based producer Chemours said on Tuesday.
“We’re confused how some people view the TiO2 industry, projecting something that looks like 2011-2012. We’re in a different place,” said Mark Vergnano, CEO of Chemours, in an interview at the New York office of ICIS.
“Yes, China quality will improve, but it will take many years to get to chloride levels. And we just don’t see the capacity coming on - we need about 200,000 tonnes/year just to meet demand growth. We see a strong TiO2 industry in the next few years and do not see the logic to how some see the cycle,” he added.
After the financial crisis of 2008-2009, a number of players shut down inefficient capacity, tightening the market. As global economies recovered, a massive shortage developed. Prices spiked and then China flooded the market after quickly ramping up capacity. Meanwhile, coatings companies adjusted their formulations to use less TiO2.
TiO2 prices spiked in 2011 and through the first half of 2012 before collapsing later in the year. They stabilised through 2014 before collapsing further in 2015, finally bottoming in late 2015/early 2016 before embarking on the latest run-up.
“Today we are back into balance. China has shut down a lot of inefficient capacity, and I don’t see any reason China would re-enter with a lot of capacity,” said Vergnano.
While companies in China are still building some sulphate-based TiO2 plants on a smaller scale in the range of 60,000 tonnes/year versus world-scale chloride-based plants at 100,000-200,000 tonnes/year, the plants that have been shut down are not coming back, he noted.
Chemours itself is debottlenecking its TiO2 plants around the world to add an additional 10% of capacity through 2021 from a year end 2017 base of 1.25m tonnes/year.
“We are doing this across multiple plants. We’re trying to accelerate this but are on track. This is primarily in our big, low-cost facilities in DeLisle (Mississippi, US) and Altamire (Mexico), but also in New Johnsonville (Tennessee) and Taiwan,” said Vergnano.
Chemours is also seeking to add stability to long-term TiO2 pricing through getting more customers under its Value Stabilization (VS) contracts which offer more price stability and more flexible volumes.
Chemours has over 50% of its TiO2 volumes under VS contracts, and aims to increase this level, leaving room for around 20% of non-VS volumes, noted Vergnano.
GROWTH MEETS SKEPTICISM
For Chemours coverall, which includes a fast growing fluoroproducts segment whose sales are nearing those of its Titanium Technologies segment, Vergnano expects to meet or exceed a target of achieving a 15-20% compounded annual growth rate in earnings per share (EPS) from 2018-2020 off a 2017 base of $3.93.
However, investors are clearly skeptical, taking into account a potential major decline in TiO2 profitability by assigning Chemours’ stock price a price-earnings (P/E) multiple of just 7.3x Wall Street consensus 2018 earnings per share of $5.91 and 6.6x estimated 2019 EPS of $6.60.
This compares to a 17.7x P/E multiple on 2018 estimated earnings for the broader US market as measured by the S&P 500 and a 16.0x multiple on estimated 2019 profits.
“We believe Chemours is clearly undervalued, as we plan to grow EPS 15-20% a year over the next 3 years – we are a high growth company and it’s a great value story,” said Vergnano.
Chemours is putting its money where its mouth is, having announced a new $750m stock buyback programme on the release of its second quarter earnings on 3 August, as well as a 47% increase in its quarterly dividend.
Interview article by Joseph Chang