IM 2012 Round-ups: Titanium dioxide

By John Ollett
Published: Friday, 21 December 2012

What a difference a year makes. The entire makeup and trends of the titanium dioxide (TiO2) pigment market have changed since its 2011 boom to give a radically changed landscape during 2012

What a difference a year makes. The entire makeup and trends of the titanium dioxide (TiO2) pigment market have changed since its 2011 boom to give a radically changed landscape during 2012.

2012 has been a time of austerity, characterised by end-user destocking and high feedstock prices squeezing the mineral from both sides and forcing the industry into a significant dip.

Positive start

The year started positively with US chemicals group DuPont - the world’s largest producer of TiO2 - reporting a 33% increase in fourth- quarter profit for its Performance Chemicals segment on higher prices.

Tronox Inc. also reported a positive 2011 with its EBITDA (earnings before interest, taxes, depreciation, and amortisation) more than doubling in 2011 on the back of TiO2 prices and higher sales volumes, it said in its financial year results.

Demand begins to dip

Things got rough as the year progressed and end-user destocking, which began in the last quarter of 2011, started to bite into demand.

AkzoNobel, one of the world’s leading paint companies, saw its Capex increase dramatically.

“The absolute impact of increased raw material prices for the year was approximately €1bn ($1.32bn*),” Hans Wijers, CEO, said in March.

Paint producers Sherwin-Williams and PPG Industries were the next to report changing market conditions, with PPG taking action by aiming to reduce its TiO2 consumption on a per-gallon basis by 4-6% for the year.

However, the round of first-quarter results from the large producers showed an increase in profitability despite this end-market concern, which was due mainly to increased prices compensating for either steady volumes or a slight decline.

Tronox and Rockwood

Tronox completed financing for its previously announced purchase of the mineral sand assets of Exxaro, which it completed later in the year, making Q3 2012 its first quarter as a fully integrated titanium dioxide pigment producer.

Rockwood, one of the largest sulphate-route TiO2 producers outside of China, also made headlines declaring that it was going to sell its pigment production operations, its largest in terms of revenue, to focus on lithium.

Its European subsidiary, Sachtleben, then purchased the former Tronox asset, crenox. Crenox consists of a single, 100,000 tpa sulphate route plant near Essen, Germany, where Sachtleben also have a facility.

The levee breaks

The market weakness that had been hinted at throughout 2012 truly came to a head in July when Jefferies Equity Research analysts cut the rating for DuPont from buy to hold.

The ratings agency also reduced the earnings estimates for Huntsman Corp., the only other major TiO2 producer it covers, but maintained its hold rating.

This was shortly followed by Iluka Resources, one of the biggest producers of TiO2 feedstocks, slashing its sales forecasts because of apparent weakness in the pigment market.

DuPont and Tronox were quick to hit back.

“Recent comments regarding market demand for TiO2 in the second half of 2012 are not consistent with DuPont’s view and overstate the softness in the pigment industry,” BC Chong, DuPont Titanium Technologies president, said.

This statement differed considerably from DuPont’s Q3 results in October where sales revenues dropped 19% and volumes fell 18% year-on-year for Q3.

“We are in the midst of a changing market condition,” Ellen Kullman, DuPont CEO, said, highlighting a fall in economic activity throughout Asia Pacific, and particularly the fall in infrastructure investment in China, as the reason for the large decrease in volumes there.

Tronox highlighted its upcoming (at the time) Exarro purchase as insulating it from the feedstock squeeze, but agreeing in part with Iluka.

“We think that pigment producers (...) are seeing somewhat lower demand, and may be switching more of their feedstock requirements from the higher-priced synthetic rutile to lower-priced slag because the input cost savings outweigh the reduced production efficiencies in a soft demand market,” Tom Casey Tronox CEO, said at the time.

Huntsman Corp. also predicted falling prices.

Out of the frying pan

The third quarter of 2012 was by far the weakest quarter of the year for all TiO2 pigment producers. Sales were poor across the board and prices slipped.

DuPont reported an almost 20%-drop in sales revenues and volumes along with a raft of cost-cutting measures, while Huntsman Corp. was also hit by the industry dip as revenues from its pigment segment declined by 30% year-on-year (y-o-y).

Kronos Worldwide Inc. also reported weak third quarter results as higher average TiO2 selling prices and lower sales and production volumes hampered profitability. The US company’s net income totalled $35.2m in Q3 2012, compared with $85.9m for the third quarter of 2011, while net sales for the quarter fell 14% y-o-y to $75.1m

Sulphate producers were also hit as Rockwood Holdings Inc.’s sales volumes dropped by 25% y-o-y, while accompanying price rises meant that overall revenues dropped by around 9%.

The US company also made the decision to operate its production facilities at 75% capacity for 2012, Ghasemi said.

Tronox’s results were weak as well as sales volumes declined 32% y-o-y and 13% q-o-q. TiO2 sales prices were also hit, declining by 6% q-o-q, but rose by 4% y-o-y.

Outlook

The overall feeling from major TiO2 producers is that this decline will come to an end. The general consensus is that as the global economy and GDP pick up, then TiO2 demand will begin to rise and that this is likely to happen midway through 2013.

Recent positive indicators have been the Chinese leadership change and new infrastructure programme and the recent news that the US housing market has been showing signs of life.

Also, major end users have indicated that they will continue to destock and so will gradually begin to build up their inventories again now that titanium dioxide prices have fallen.

So, while Q1 2013 will show similar weakness, Q2 2013 will hopefully show signs of strength and industry profitability will begin to pick up again.

*all calculations made in December 2012