Titanium dioxide and zircon markets overview — brighter times ahead

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Published: Wednesday, 30 October 2013

As the industry gathers for the 7th TZMI Congress in Hong Kong this November Sue Fitzgerald takes a look at the industry in 2013 and reports on future trends.

There has been a lot of activity throughout the mineral sands industry and titanium value chain in the past few months and certainly in the first half of 2013. Indeed, it seems as though the last five years have brought more changes to the industry than the preceding 20.

In contrast to a bumper 2011 and positive first half in 2012, it was the opposite story for the second half of 2012 and the first half of 2013. However despite the gloomy start to 2013, it looks as if there are some signs of a modest recovery as the year advances.

The high demand and price environment of 2011 and early 2012 began to unwind when the Chinese government implemented several policies to head off a looming property bubble and slow the country’s residential sector. This resulted in falling titanium dioxide (TiO2) pigment and feedstock demand.

The zircon, TiO2 pigment and feedstock sectors began to retreat, hitting the bottom of the cycle in mid-March and remaining flat for the remainder of H1 2013.

Adding to the strain was higher economic volatility in Europe where many EU countries were drawn further into the spiral of increased debt, higher unemployment and tighter credit.

Slower economies resulted in a drop in consumer spending, which, when combined with the pigment producers’ stockpiling phase, led to many pigment manufacturers holding higher inventory levels by mid-2012. In response to falling demand, pigment producers scaled back production and drew down on inventories.

Overall, TiO2 pigment demand plummeted 15% in 2012 compared to 2011. Because pigment accounts for about 90% of feedstock demand, the feedstock portion of the sector was yanked into the slump in H2 2012 and Q1 2013.

Despite somewhat subdued results for the first two quarters of 2013, pigment producers have expressed upbeat sentiments about the second half of the year, noting that prices have stabilised and inventory levels dropped. DuPont, the world’s largest TiO2 pigment producer, announced price increases effective 1 October 2013.

Continued strong growth in the US construction sector, especially the housing market, may signal improved demand during the second half of 2013, despite the economic slowdown in China and cooling of its domestic property market.

The zircon value chain revealed weakness significantly earlier than the titanium chain. Cracks in the zircon sector could be seen as early as Q4 2011. The Chinese government’s policies to head off the property bubble and the subsequent slowdown also resulted in falling demand for ceramic tiles and subsequently zircon. In addition, the high price of zircon forced end consumers to look for alternatives or substitutes, further weakening demand.

A brighter road ahead?

Despite the drop in demand and prices across the titanium value chain, there have been early signs the market has seen the worst of its current slump.

Because the zircon and titanium value chains are closely linked to the global economy, it is useful to look at the global macroeconomic outlook for 2013. Taking into account IHS Global Insight’s data, TZMI’s view for the remainder of 2013 is cautious optimism after real GDP growth slowed to 2.6% in 2012, from 3% in 2011.

During Q2 2013, the US economy has seen early indications of improvements in the residential investment, consumer expenditure, exports and private inventory investment sectors.

Although China underwent a seasonal slowdown during Q1 2013, speculation remains regarding the possibility of China’s economy losing momentum.

Overall, the macroeconomic situation poses some challenges for an industry revival. Despite the challenges and risks global economies are facing, growth is still occurring, with the Asia-Pacific region expected to lead a recovery as its middle class begins to emerge.

Even with the mineral sands sector’s rocky start to 2013, its underlying fundamentals remain solid and TZMI believes the market has experienced the worst of its current slump.

There has been a pick-up in demand for both TiO2 pigment and feedstock.

In addition, at the recent DbAccess Global Industrials and Basic Materials Conference in Chicago, US, major pigment producer Huntsman Corp. CFO Kimo Esplin, said it had managed to reduce its inventory to 45 day sales of inventory (DSI) by the end of Q1 2013.

The mineral sector’s revival in H2 2013 and 2014 is dependent on sustained recovery within the North American and Asia-Pacific construction sectors. China also remains a large contributor to global demand even with a reduced growth forecast to a little less than 8% for 2013.

TZMI expects the feedstock market to improve in the latter half of 2013 and early 2014, provided there are no unexpected shocks to the macroeconomic environment.

Despite easing off the heights it reached in H1 2012, feedstock prices are expected to stabilise during the latter part of 2013 as demand picks up.

To meet the increased demand, most feedstock producers are capable of resuming capacity that has been curtailed in the current downturn.

The US was the largest importer of titanium feedstocks during H1 2013, followed by China.

In addition to idled capacity there are some new feedstock projects that are expected to come online on the African continent within the next 12 months. TZMI believes the new supply will go some way to offset naturally declining production rates and the expected demand recovery in 2014.

There will be a segment at this year’s Congress which will focus on new supply for titanium feedstocks and zircon, with presentations from developers such as Image Resources, Mineral Commodities, Murray Zircon, Rio Grande Mineracao, Sheffield Resources and Zirco Resources.

Mines and acquisitions

This year there have been a number of strategic moves and acquisitions. Of note was Huntsman’s announcement of its intended acquisition of Rockwood’s TiO2 and performance additives businesses. Under the agreement, Huntsman will pay approximately $1.1bn and assume unfunded pension liabilities worth close to $225m. The move will cement Huntsman as the world’s second largest pigment producer, second only to DuPont. It will also boost the company’s position in Europe.

Earlier this year, Rockwood acquired Kemira Oyj’s 39% stake in Sachtleben in February for €97.5m ($127.6m.) With the sale of Sachtleben, Kemira was no longer exposed to the TiO2 pigment industry.

After acquiring Sachtleben, Rockwood unsuccessfully tried to sell the business.

Another piece of news which made headlines was the intended joint venture between World Titanium Resources’ (WTR) and Sichuan Lomon.

In March, WTR and Sichuan Lomon announced plans to jointly develop WTR’s Ranobe mine, part of WTR’s Toliara project in Madagascar. Under the agreement, Lomon would put up the capital required for developing an 800,000 tpa operation and earn itself a 50% stake in Toliara and about 12% of WTR. Lomon would also purchase 80% of the ilmenite produced from the mine. However, after a 90 day due diligence period and an amended deal, Lomon withdrew from the proposed agreement citing WTR’s recent A$3.25m ($3.11m) capital raising and senior management change as its reasons. Despite withdrawing from the previous proposed arrangements, Lomon stated it remained interested in the project.

In terms of the potential moves ahead, DuPont reported in August it was reviewing “strategic alternatives” for its performance chemicals segment which includes its TiO2 business. Elsewhere, Tronox has secured $1.5bn in debt to pursue what it has also termed as “strategic alternatives”.

The consolidation and integration theme within the industry appears likely to continue into 2014, which means some significant restructuring in the coming years.

Pigment producers remained subject to pricing pressure although all five major pigment producers - Kronos, Cristal Global, Tronox, DuPont and Huntsman - announced price increases during the first half of 2013. Japanese TiO2 producer Ishihara Sangyo Kaisha Ltd also announced price increases for products sold in the Asia-Pacific region, however the company announced it will be closing its plant in Singapore due to high costs of operation.

The mineral sector’s revival in H2 2013 and 2014 is dependent on sustained recovery within North America and Asia-Pacific’s construction sectors. In 2012, more than 400 industry leaders and representatives attended the TZMI Congress for an in-depth review across titanium feedstocks and zircon, TiO2 pigments and end-use markets. The 2013 Congress will provide the opportunity for all participants to ensure they have access to the most up to date industry information.

Hong Kong lights up

In November, industry leaders from around the world across the titanium, zircon and finance sectors will be attending TZMI’s 7th Congress in Hong Kong to hear about the latest developments in titanium feedstocks and zircon, TiO2 pigments, end use markets and more.

Delegates at this congress will meet and hear from established and emerging mineral sands and TiO2 pigment producers as well as new projects, end users and new industry developments.

The keynote speaker is Ben Simpfendorfer, managing director of Silk Road Associates, a strategy consultancy based in Hong Kong with offices in Beijing and Melbourne. Ben was the former chief China Economist for RBS and senior China Economist for JPMorgan where he advised some of the world’s largest financial institutions and multinationals. He is also the author of The New Silk Road, published by Palgrave Macmillan in 2009, and a leading specialist on commercial relations between Asia and the Middle East. His forthcoming book, The Rise of the New East, looks at managing growth and complexities in the Asia market.

Other speakers will include senior executives from Alkane Resources, Base Resources, Braemar Seascope, Chilches Materials, CMI Group, Cristal, DCW Limited, GPM Asia, Hainan Wensheng High-Tech Materials, Henan Billions Chemicals, IRC Ltd, Jotun A/S, Panzhihua ZTi Science & Technology, Rio Tinto, Ruby Ceramics, Sierra Rutile Ltd, Specialty Metals, Southern Ionics, Toho Titanium, Tronox and TZ Minerals International.

*Converted October 2013