TZMI: The China slowdown could push industry forward

By Kasia Patel
Published: Thursday, 27 November 2014

China pushes forward through challenges; Chinese products improving competitively

The slowdown in China and its effects on the titanium dioxide (TiO2) industry isn’t the disaster that some industry commentators have indicated, delegates at the TZMI 2014 Congress heard in November.

China’s slowing economy has been well documented with regards to the TiO2 industry, with reports of oversupply, pricing slumps and ghost towns abounding.

However, Hugh Peyman, president of Research Works, opened the TZMI conference with a more optimistic point of view, saying that what some consider negatives in China, may actually push the industry forward.

"The stories you have heard are largely true, but it’s all about putting them in context," he told delegates.

One problem China has been facing is a shrinking workforce - there is no longer a young rural surplus workforce to be utilised as before. "But this is good news, because for China to move onto the next stage of development, it needs to focus on productivity," explained Peyman.

The new normal requires companies to boost consumption return ratios, and make better use of resources. "Since 2008, Chinese companies have had to adjust and learn some hard lessons. Out of all this destruction, so to speak, those that have survived have emerged much stronger and are exceeding expectations," said Peyman.

New leaders are also emerging from the private sector that have been subjected to the intensity of competition - these people, Peyton explained are financially smarter, and better equipped to deal with market challenges.

Another positive which has arisen from the situation in China is the focus on research and development (R&D), which is now no longer an option but a necessity. "Quantity has given way to quality, and people in China are very concerned about quality," Peyman said.

Figures calculated by Research Works suggest that China’s R&D investment as a percentage of GDP has quadrupled since 2000, and this figure is likely to reach around 3% in the near future - on the same level as world leaders. 

A hard lesson that China has had to learn is that customers matter. "The sharp slowdown has had one upside: it has given companies a time to focus. Firms have become more flexible, understanding that it is all about clients and markets," Peyman said.

The emergence of new industrial leaders is also complicating the TiO2 landscape, as expansion is becoming less risky - new leaders are becoming increasingly global.

Demanding quality, Asian consumers are driving growth in the world’s largest economic region, which saw its collective GDP surpass that of the EU’s in 2001. Peyman described China as "the heart of Asia, pumping even harder than Japan".

The tighter labour market in China means that consumers now have the income to demand quality and value. "Consumers are also more knowledgeable about the market thanks to the internet and social media, so they are likely to consume more, and quality is only going to become more important," Peyton said.

Table 1: September 2014 TiO2 China export data

Quantity (tonnes)

Value ($)

Quantity y-o-y compare %

Value y-o-y compare %

Top export countries

49,064

100,429,204

26.9

14.5

Brazil, India, US, South Korea, Indonesia


Table 2: January - September 2014 TiO2 China export data

Quantity (tonnes)

Value ($)

Quantity y-o-y compare %

Value y-o-y compare %

Top export countries

424,749

870,249,137

45.45

25.21

US (9.96%), Brazil (9.53%), India (9.26%), South Korea (6.72%), Indonesia (4.79%),

Turkey (4.29%), Malaysia (3.68%), UAE (3.59%), Iran (3.55%), Vietnam (3.03%)


Ghost cities

The existence of "ghost cities" in China has been widely reported and is a growing cause for concern. Peyman, however, questioned whether these were actual ghost cities or just 'ghost areas’.

"This is China’s way of handling an acute housing shortage. However many of these buildings have already been purchased and households - for whatever reasons - are delaying moving," Peyman said.

"Yes there are no lights on, and there is nothing inside right now, but 70% of a project will be occupied within two years - this has always been the case," he added. Peyman said that affordability of housing is now greater than it was in 2011.

China’s credit is also out of control, he explained. The country has experienced unsustainable credit growth and now has the highest corporate debt in the world.

"But, this is because China has an underdeveloped capitals market and all of its borrowing comes from banks," he said.

"Bonds, equities and derivatives are very underdeveloped," Peyman added, concluding: "Overall, China has the lowest debt globally, with the world’s lowest debt levels of households, public sector and financial institutions." 

China will emerge to compete globally

TZMI managing consultant David McCoy also said at the conference that the main factors affecting the TiO2 sector are industry rationalisation and consolidation, regional supply demand balance, and China’s increasing role on the world stage.

"Chinese producers are going to make chloride pigment in the next decade and it’s going to be just as good as the rest of the world. There will be chloride pigment in China. The question is just how it’s going to fare," McCoy told delegates.

According to TZMI figures, China has so far accounted for around 32% of global TiO2 supply in 2014 while Chinese exports have increased by 50% in the last three quarters.

"This to me signals an acceptance of Chinese product which could also spell a better quality and more reliable product," McCoy said.

One example of a Chinese producer gaining increasing prominence is Chengdu-headquartered Sichuan Lomon Titanium Industry Co., which in 2013 had a TiO2 capacity of only 20,000 tpa.

In 2004, the company began to roll out its expansion plan, aiming for a production capacity of 360,000 tpa TiO2 and a forecast of 300,000 tonnes in TiO2 sales by the end of 2014.

Speaking at the Congress, the company’s senior vice president, Gan Wang, told delegates that R&D was the core value of the business - a common theme at the conference as attendees agreed that innovation would be the deciding factor in which companies survived current market challenges.

With environmental regulations pushing smaller producers out of business, Wang also stressed the importance of sustainability.

"Our idea is to recycle, reuse and reduce. Sustainability is very important in the sulphate route of TiO2 production because you need to find a way to deal with the waste," Wang said.

"That is why our plant is inland, because if you are not sustainable you can’t build a large scale operation. With our operation we fully recycle all of the sulphuric acid," he added.

Wang conceded that growth in China had slowed, but would continue at a lower rate as urbanisation is still occurring and income continues to rise.

He added that Chinese chloride production would occur, but that that it would be "a long march" and many questions would need to be answered in terms of the quality, cost, reliability and feedstocks for the product.

Industry consolidation

Although figures vary between sources, it is estimated that there are between 45 and 60 small scale TiO 2 producers in operation in China, a situation which Congress attendees agreed will inevitably give way to further market consolidation.

According to Wang, environmental issues, heavy reliance on borrowing, unplanned rush projects and increasing labour costs are all issues that will force some factories to close.

Jack Blumenfrucht, CEO of Fairmont International Inc., told delegates that China currently has an unsustainable number of producers, which average production of around 51,000 tpa TiO2, compared with an average production rate of 500,000 tpa for the other global top producers.

"A 51,000 tpa producer cannot survive in a competitive market," he said. "At least half of these are using antiquated polluting equipment and they don’t have the money to address this, so these producers are going to die out."

With many Congress participants focused on the importance of quantity and consistency of product exports from China, Blumenfrucht added that Chinese producers would need to also improve their product mix - emphasising the need for innovation - in order to compete on the world stage.

"Exporting is not something that can be done on a whim. If you want to be successful in a highly competitive market you have to espouse the terms and conditions that the West offers," he said.

Survival in a changing market

According to Blumenfrucht, the last two years of price declines have hit Chinese producers hard, with some smaller manufacturers barely breaking even or operating below breakeven rates.

"These laggers will shut down which will accelerate the consolidation process," he said.

Although Blumenfrucht forecast that market may potentially turn around in 2015, he noted that the transformation of the Chinese TiO2 industry in recent years has been amazing.

"Three new chloride plants are in final completion - that’s 220,000 tonnes of chloride by 2015. This represents 50% of chloride imports that China needs for its industry," he said. "This might be exaggerated optimism though. It might take years before they come online properly and the prices will have to meet competitor prices."

Iluka to open China technical centre

Iluka also announced at the event that it would be opening a new technical centre in China in 2015 as a response to the need for innovation in the TiO2 industry. 

Speaking to IM on the sidelines of the congress, Matthew Blackwell, head of marketing for Iluka, confirmed that the centre, funded by capital investment internally, will be located on the outskirts of Shanghai and that the building had already been constructed. 

"The technical centre will be focused on servicing our customers and will be able to test zircon and TiO2 as well as feedstocks and forward products," he told IM

Despite a well-documented slowdown in China’s economy and - crucially for TiO2 markets - construction, Blackwell told IM that Iluka still had faith in China’s growth.  

"I think that when you consider China you have to look at it in the longer term. It still has a growth rate of around 7% a year and that it’s now the third largest economy in the world - that is very encouraging and it is one of the right places to focus our attention," he told IM.  

In terms of the new projects currently under development, Iluka also appears unfazed by a possible oversupply over the next few years.  

"Someone else said - not Iluka but I am quoting here - that mineral sands projects take longer to bring online than you think, they cost more than you think, and then they cost a little bit more," Blackwell told IM. "But, I think it’s good to see people giving it a go." 

"Need for innovation" 

 Blackwell told delegates that as a result of industry challenges, it is no longer good enough to rely on experience alone in the TiO2 and zircon markets. 

"I think we can all agree there is a need for innovation - there has been a hiatus in this area and this is something Iluka is trying to reinvigorate," Blackwell said. 

Included as part of the operation will be a state of the art laboratory, access to leading academics and scientists and access to testing facilities. 

"Iluka’s investment in the technical centre acknowledges the role that innovation needs to play," Blackwell said. "It also recognises the importance of China in the growth of the TiO2 industry."