Commentators predicting a market upturn in the titanium
dioxide (TiO2) pigments and coatings industry in the
past few years would be unlikely to find much success in the
field of divination.
The sector, at both the feedstock and finished-product ends,
has repeatedly defied expectations of a turnaround, reflecting
weak post-crash global gross domestic product (GDP) growth, to
which it is tied, and an additional set of market-specific
While reversals of fortune were being predicted as early as
2013 by multiple analysts and companies, a recent
Moody’s report suggested that the bottom has not
yet been hit.
"We don’t think the TiO2 cycle has
hit bottom. Price declines in the first and second quarters,
and trade publications reporting that third-quarter
negotiations are likely to result in further declines, strongly
suggest there is further to fall," Moody’s said in
a 26 August report, entitled "Titanium Dioxide Cycle Yet to Hit
Bottom, Recovery Possible by 2017".
"Low global operating rates combined with year-end seasonal
weakness and new manufacturing capacity in China and Mexico
don’t bode well for the paint and coatings season
as we move into the first half of 2016 and rated producers
(…) will see their earnings under pressure," the ratings
TiO2 is used in pigments, owing to its
exceptionally high refractive index (2.87 at a 632.8 nanometres
(nm) particle size, according to Filmetrics). The high
refractive index means that when mineral sources of
TiO2 are purified and powdered, a "brilliant" white
can be obtained for paints, coatings, papers, plastics, food
products and cosmetics such as sunscreen, where the mineral is
used to absorb harmful ultraviolet spectrum bands of
Produced primarily via heavy mineral (HM) sands mining,
TiO2 can be sourced from the minerals rutile,
ilmenite and leucoxene, a blend of rutile and anatase. While
zircon is also generally present in HM deposits, it is
typically considered a minor byproduct,
According to "Mineral Sands: An Overview of the Industry", a
paper written by Greg Jones, a former Iulka Resources Ltd
geologist, most mineral sands deposits are found in
"unconsolidated fossil shorelines several hundreds of metres to
tens of kilometres [long]".
HM are concentrated once mined via wet sizing and density
separation processes and dry magnetic, electrostatic and
Ilmenite and leucoxene are primarily treated via the
sulphate process, whereby concentrated sulphuric acid is used
to remove the iron component from the mineral, which has the
The iron sulphide created when sulphuric acid is reacted
with the mineral is removed via precipitation and filtration
and the remaining titanium sulphate is hydrolysed to yield
TiO2 and water.
The chloride process is preferred when the feedstock
material is at least 70% rutile, according to "TiO2:
Manufacture of Titanium Dioxide", a report by the
UK’s Royal Society of Chemistry. In this process,
impure TiO2 is chlorinated and then recovered by
oxidation, yielding a premium, high purity product.
Paint manufacturing, including lacquers and varnishes,
represents 62% of TiO2 pigment consumption according
to the US Geological Survey (USGS), while the plastics industry
accounts for 24%; paper, 11% and others around 3% of
TiO2 pigment prices,
Source: IM Prices
Strong demand for TiO2 products leading up to
2012, when the construction industry was still healthy in China
and the continuing trend of rapid urbanisation in Africa, the
Middle East and India, resulted in a shortage of
TiO2 feedstock materials, pushing prices up
The challenge to produce more feedstock was quickly met by
producers, which ramped up production from 6.3m tonnes titanium
mineral concentrates in 2010 to 7.45m tonnes material in 2014,
according to the USGS, representing a four-year capacity jump
of just under a fifth.
As this happened, according to Moody’s,
"[TiO2] customers found ways to reformulate, use
less through substitution and move down the quality scale," for
example, by substituting chloride TiO2 for sulphide
TiO2 substitutes include ground calcium carbonate
(GCC), precipitated calcium carbonate (PCC), talc and
TZ Minerals International Pty Ltd (TZMI), a TiO2
industry consultancy, gave a bleak assessment of pigment and
feedstock markets in its August 2015 Mineral Sands Report. "The
industry is suffering from lower prices, weak demand, high
inventory levels and a general oversupply of most products,"
the organisation said."Pricing is relatively volatile in this
market," Philippe Guillemaille, head of sales and marketing at
Argex Titanium Inc., a new-route TiO2 company with
low-cost production aspirations, told IM.
He contrasted this with a "strong base" of consumption,
which stands at around 5.7m tpa and is worth roughly $16.5bn
"A number of pigment producers have shifted owners
frequently because it’s a difficult industry in
which to sustain profitability. Current sulphate and
chloride-route producers are facing environmental issues which
require more and more investment," he said, adding that,
despite wider gloom, he believes the industry is at its market
Guillemaille said that the TiO2 industry is
defined by a set of "diligent" companies, which he contrasted
with the current mind set of the iron ore industry, where
producers are unwilling to cut back production at high-cost
mines, despite poor pricing levels induced by oversupply.
Tronox Ltd announced plans to cut pigment and feedstock
production by 15% in early August 2015; Rio Tinto cut
TiO2 production by 18% year-on-year (y-o-y) during
H1 2015; Huntsman Corp. said in February that it would cut
European supply by 100,000 tpa and shut four US plants; and The
Chemours Co. announced the closure of its Edge Moor
TiO2 manufacturing plant located near Wilmington,
North Carolina, US, together with the suspension of its third
TiO2 production line, representing a supply cut of
150,000 tonnes TiO2.
"We believe this is the right business decision," Chemours
said when announcing its cuts. "Chemours is committed to the
TiO2 market, and these changes position us for
growth in the industry," it added.
Guillemaille said: "More plant closures will happen;
you’ve just got to check the public companies. The
stocks are floating freely right now. They’re at
book value and shareholders will demand profitability.
They’re not going to be sleepy about it."
Moody’s agreed, stating: "In light of the
broad-based level of pain, with the industry operating at well
below reinvestment economics, further production curtailments
are likely, probably sooner rather than later."
Production volume cuts are being mirrored by cost reductions
at mines and plants in the industry. Robert Porter, the general
manager of investor relations at Australia-based Iluka
Resources Ltd, told IM that the company had
seen both a reduction in its unit cash costs of production in
2015 and increased its revenue per tonne.
Sierra Rutile managed to cut its direct operating cash cost
by 16% in Q2 2015, compared to the previous quarter, while on
the pigment side, Chemours has announced intentions to find
savings in plant efficiency and selling, general and
administrative expenses totalling $40m for H2 2015. Similar
measures are planned and being implemented across the
Neil Gawthorpe, marketing and logistics director at Sierra
Rutile, told IM that the company has made
great strides in cost reduction, making it one of the
lowest-cost natural rutile suppliers globally.
"Many companies will be benefitting at present from the low
oil price and this is also applies to Sierra Rutile, but the
company has also made sustainable savings in the areas of
labour, power optimisation and material costs," Gawthorpe
"There is of course still room for further improvements in
these areas but it is the expansion of production volumes
– and the resultant dilution of fixed-costs –
that will take Sierra Rutile to a market-leading cost
position," he added.
However, TZMI believes that, for the industry as a whole,
"these measures are not enough to counter the price decreases
resulting from weak (…) fundamentals, nor will they be
in the next two quarters".
"Obviously these measures are critical for the industry at
the moment, but with everyone lowering costs at the same time,
the structural impact on the market is that the marginal costs
of the industry are lower," the consultancy said, adding that
industry overhang exceeds 1.5m tpa on a nameplate basis, with
the majority of the oversupply material originating in
Despite relatively strong supplier discipline and cost
cutting measures, a big problem facing the industry is that
extra pigment demand will not necessarily result in pigment or
feedstock price increases, owing to low operating rates in both
Today, operating rates stand at about 80%, according to
Moody’s. This is an improvement on 2012, where
operating rates stood in the low 70% range, but still lower
than the 90% which Moody’s believes is necessary
to give suppliers the ability to raise prices.
"In the absence of more meaningful capacity rationalisation,
we believe the industry is probably at least two-to-three years
away from that level," Moody’s said.
The historically high stockpiles reported by suppliers and
consumers are a further impediment to recovery, as producers
need to work through these before buyers will consider the
"TiO2 prices have remained under pressure, with
the industry continuing to absorb feedstock inventories
incentivised from the previous period of high prices," Rio
Tinto advised in its most recent quarterly earnings
Sierra Rutile’s Gawthorpe said that
TiO2 inventories could weigh on pigment prices in
the medium-term, but that high-grade chloride feed inventories
are now returning to normal levels, meaning that any effect is
set to be short-lived.
"Inventories of lower quality feedstocks will undoubtedly
continue to cause pricing pressure within that sector,"
Irish mineral sands miner Kenmare Resources Plc, which
operates mines in Mozambique, also noted that ilmenite
inventories have been reduced from a peak at the end of 2014,
but remain a source of supply.
As of June 2015, Iluka maintained a stockpile of feedstock
worth just over Australian dollar (A$)800m ($572.8m*), nearly
double the recorded value for December 2011, which edged
slightly over A$400m.
"Iluka’s approach is to flex production and be
a demand follower, rather than push product onto the market,"
Porter told IM.
"Part of the inventory build-up has been associated with the
completion of mining at the Murray Basin Woornack, Rownac,
Pirro site in Victoria, Australia, with the intention for
finished product and concentrate to be processed and provided
into the market in the period leading to the next planned
development in the Murray Basin," he explained, adding that the
inventory will be drawn down accordingly.
"Iluka has a strong balance sheet and I think it has been
demonstrated unequivocally that the level of inventory does not
have an influence on its market behaviour," he said.
The wider industry problem remains, however, and
TiO2 end-market demand is not expanding
substantially. "Overall, the demand for titanium units from end
users appears to be little changed from last year — it
remains stable," Porter told IM.
Iluka said in its Q2 2015 results that it believes the
reason for this flat demand profile reflects currency movements
and pigment-specific sector dynamics, rather than underlying
demand for TiO2 products.
TZMI agreed, stating in an August 2015 report that the
strong US dollar has lowered dollar-based costs and thus prices
in many regions, particularly Europe.
High grade demand
Market conditions for high-grade TiO2 products
are said to be better than those for standard grades,
particularly because recent expansions in Chinese pigment
production typically focus on low quality material.
"We need to take care of contaminants and radioactivity,
whereas the Chinese TiO2 industry often does not
consider these problems," Guillemaille told
He said that while TiO2 producers require bulk,
low quality demand to exist, the margins in niche, high quality
sectors is where profits can start to stack up.
Reflecting Guillemaille’s comments, Iluka
restarted its synthetic rutile kiln in Q1 2015 after taking it
offline for more than a year. The company said the decision was
made on the basis of higher demand for premium-grade
Iluka’s Porter told IM that
the reactivation of the kiln is underpinned by commercial
arrangements, reflecting demand from pigment customers.
He said that when chloride pigment plant utilisation levels
were lower, relating to the drawdown of pigment inventories,
there was more demand for lower-grade products and less demand
for high-grade natural and synthetic rutile.
"As utilisation rates increase there is typically a shift to
consumption of higher grade feedstocks," Porter added.
While the US construction industry is booming, sparking
positive headlines and generating statistics revealing spending
at a seven-year high and single-family home starts up 19%
year-on-year (y-o-y), the slowdown in China and global growth
projections are less positive, leaving international pigment
High-end applications, however, appear to offer a refuge
from a wider malaise.
Looking further ahead, self-cleaning coatings still have
some technical hurdles which need to be overcome, but they are
a potentially lucrative future pigment market, according to
Guillemaille. He also pointed to photocatalytic paints as a
good recipient for research dollars.
Meanwhile, Gawthorpe told IM that the
high-grade titanium metal market for aerospace applications is
showing "exciting growth and is particularly geared towards the
use of high-grade feeds, including natural rutile".
"There are also several interesting projects being developed
to produce titanium metal at significantly reduced costs, which
could exponentially increase the use of the metal. Success in
any one of these projects would be a game-changer for the high
grade titanium minerals sector," he added.
The wildcard: China
China surprised the industry with the rapidity of its
entrance to the TiO2 markets. Mine production of
ilmenite, which stood at 500,000 tonnes in 2009, doubled to 1m
tonnes in 2014, over a period of only four years.
Much of this supply increase was caused by the association
of ilmenite with magnetite in Sichuan province. High iron ore
prices allowed Chinese miners to produce large volumes of low
cost ilmenite, Edward Barlow, the China country manager for
TZMI, stated in a recent report for Paints and Coatings
"Chinese pigment exports have spread rapidly across the
world, displacing conventional supply in established markets
and winning the lion’s share in new markets,"
While production mostly consists of lower-value sulphate
feedstock and pigment material of variable quality, as with
many other Chinese mineral industries, improved beneficiation
and manufacturing techniques are being encouraged.
According to Kenmare declining iron ore prices have resulted
in a drop in ilmenite supply in China, potentially increasing
the Chinese import requirement to maintain pigment production
rates in the second half of 2015.
"The start-up of new titanium slag plants in China and Saudi
Arabia is also expected to have a positive impact on demand for
suitable quality ilmenite," Kenmare said.
Balancing this, however, was the Chinese
government’s decision to devalue the renminbi
currency by around 3% in mid-August.
"[The devaluation] could see TiO2 exports from
China escalate and depress import volumes. Probably not a
scenario that encourages a global market uplift," TZMI said,
adding that domestic demand is not particularly strong.
"The capacity rationalisation in the country to date
has not been significant enough to favourably impact the global
market," TZMI said, noting that Chinese export volumes declined
y-o-y in Q2 2015 for the first time since Q3 2013.
Moody’s believes that pigment producers in
China, representing around a third of global supply, are worse
off than their Western counterparts. They are struggling to
compete and remain profitable in the face of low Asian prices,
lower operating rates and higher costs.
"It is fair to say that Western markets are certainly
looking stronger than Asia," Gawthorpe agreed. "The slowdown in
China and the volatility of its stock markets are obviously
cause for concern from a macro perspective."
The higher costs of Chinese TiO2 production
correspond to smaller average plant sizes, the use of the
sulphate, rather than chloride, production process and the
"fragmented nature" of the industry, according to
One of the biggest consolidatory changes to the Chinese
TiO2 markets in 2015 was the merger of Sichuan Lomon
Titanium Industry Co. Ltd and Henan Billions Chemicals Co. Ltd.
The two businesses account for 500,000 tpa of Chinese capacity,
according to China Chemicals Market, a
research consulting group.
The companies had combined net profits of just under $125m
"The Lomon-Billions merger is in our view, a positive
development – we have said for some time that
consolidation in the pigment industry is necessary."
Iluka’s Porter told IM.
According to Gawthorpe, the merger will have a positive
effect on the industry because it will drive further
consolidation and rationalisation, which are required to
optimise Chinese TiO2 quality and output.
"We are already seeing closures of small, inefficient,
pollution-heavy sulphate plants and the emergence of a new
chloride pigment sector [in China]," he added.
At the 3rd China Chloride Route Technology and
Source Material Application Seminar in Jiaozuo, Henan province,
in July, delegates heard that several companies are making
progress in meeting the technical challenges that chloride
route TiO2 production present.
Jie Deng, the vice secretary of the China TiO2
industry, said at the conference that China now has the
strictest environmental laws in its history, which became
effective in January this year.
Chloride route TiO2 producers in China include
Henan Billions, Liaoning Jinzhou Titanium Industry Co. Ltd,
Yunnan Xinliu Nonferrous Metals Co. Ltd, Luhoe City Xingmao
Titanium Industry Co. Ltd and Pangang Titanium Industry Co.
A move to chloride production of TiO2 would
likely benefit western feedstock producers, which are much more
capable of providing high-grade rutile material than the
ilmenite-dominated mines in China.
"The company has long-established
contacts within China and is poised to take advantage of the
high quality requirements that will be demanded by the emerging
chloride pigment and high-grade titanium metal sectors,"
A further, possibly only short-term, question mark hanging
over the TiO2 industry is the enormous explosion
that occurred in the Chinese port city of Tianjin in
Around 11% of TiO2 exports leave the country via
Tianjin port according to China customs. The scale of the
destruction in the port means the impact on TiO2
exports in the medium-to-long term is still unclear.
The effects of the enormous port
in Tianjin, China, in early August of this
year are still largely unknown. (Source: Eristic,
Gawthorpe told IM that consolidation and
rationalisation in China combined with capacity reduction
elsewhere are strong signs that industry issues are being
tackled. This will "undoubtedly" lead to a sector recovery
through 2016, he said.
"The recovery of natural rutile pricing is more geared to
non-pigment markets, for example, titanium sponge and welding,
which are expected to recover in a short time frame," Gawthorpe
"This recovery will then be further compounded as and when
the pigment sector strengthens."
While TiO2 pigment producers still have a long
and uncertain road to recovery ahead of them, pigment consumers
are in much better shape. Sherwin-Williams Co., PPG Industries
Inc., Valspar Corp., RPM International Inc., and Axalta Coating
Systems Ltd are all "reaping the benefits" of low pricing,
according to Moody’s.
TZMI neatly summarises the state of the industry thus: "So
can it get any worse? Unfortunately, in the short term, the
answer is yes, but a nadir cannot be too far away."
*Conversion made September 2015