Ukraine’s TiO2 industry buckles under pressure

By IM Staff
Published: Saturday, 26 September 2015

Weakness in the domestic economy, international sanctions against Crimean companies following Russian annexation and poor demand for feedstocks has pushed Ukrainian TiO2 to the edge, Vladislav Vorotnikov, IM Correspondent, discovers.

Ukraine could lose a chunk of its titanium oxide (TiO2) production capacity, as some of the country’s largest manufacturers teeter on the verge of bankruptcy.

According to industry sources, some Ukrainian pigment producers may halt operations within months. Crimea Titan PJSC (now trading as Ukrainian Chemical Products), Ukraine’s largest TiO2 manufacturer, has found itself trapped by the fallout from the ongoing conflict following Russia’s annexation of Ukraine’s Crimean peninsula in March last year. Due to the sanctions imposed by the European Union (EU) and US against Russian companies, Crimea Titan has found it practically impossible to conclude deals or receive payments. 

Ukrainian group Velta, which produces ilmenite as a TiO2 feedstock, is facing pressure from low prices for the pigment chemical and feedstock minerals, meanwhile, but believes that the situation will improve with time. 

State-owned Sumykhimprom, another major industry player, concluded a number of important agreements for the supply of ilmenite to the European market during 2015 but has likewise suffered from lower ilmenite prices. 

Ukraine is the largest producer of TiO2 in the former-Soviet Union block. According to official statistics, the country holds around 20% of total world reserves of ilmenite and rutile, equating to an estimated 180m tonnes TiO2. At current production rates of 800,000 tpa ilmenite and rutile concentrates, Ukraine’s reserves are enough to last for the next 400 years.

The country exports about 40% of its ilmenite and rutile. During the period January-June 2015, Ukraine shipped 145,000 tonnes, with a total value of $44m, to foreign markets. The biggest purchaser of Ukrainian ilmenite and rutile is Russia, which primarily uses the minerals to make titanium sponge. 

The second largest buyer of Ukrainian ilmenite and rutile concentrate is China, which imports 60,000-70,000 tpa. The top purchasers inside China are textile manufacturers China National Chemical Fiber Corp. and JOC International, pharmaceutical company Sinopharm and the Chinese arm of Sweden-headquartered LKAB Minerals. 

China’s ilmenite and rutile purchases from Ukraine this year have dropped by nearly 20%. According to market observers, Chinese companies have switched to deliveries from Vietnam, India and Indonesia, which are cheaper due to lower transportation costs. As a result, during the first six months of 2015, supplies of Ukrainian TiO2 minerals to China amounted to just 13,500 tonnes. 

According to Group DF, which owns Crimea Titan, Europe is presently a more promising growth market than Asia. Since the beginning of this year, Ukrainian TiO2 shipments to the EU rose by almost a third to nearly 27,000 tonnes, primarily due to demand from the Czech Republic. The primary Czech consumers of TiO2 minerals are inorganic pigment producers, such as Precheza and Esab Vamberk.

Sumykhimprom has reported an upturn in demand from Germany, which today accounts for nearly a fifth of all its export sales. Crimea Titan, meanwhile, has not made any deliveries to the EU since the middle of 2014, due to sanctions. 

Crimea Titan

Crimea Titan has been Ukraine’s largest producer of TiO2 from Soviet Union times. Since Ukraine gained independence from Russia in 1991, the company has accounted for 74% of the country’s ilmenite and rutile exports. Now, it is fighting for its survival. After the annexation of Crimea, the company found itself in a situation where its resources are effectively based in one country (Ukraine) while its main manufacturing facilities are located in another (Russia). 

Based on the Crimean peninsula, Crimea Titan, had been receiving all of its ilmenite from the Volnogorsky and Irshansky mining sites, located in central Ukraine to the north of Crimea. After the annexation of the peninsula, Ukraine implemented sanctions against Crimean companies, which effectively cut off Crimea Titan’s raw materials supply.

At the beginning of 2015, the regional court of Kiev Oblast cancelled Crimea Titan’s leases over both its mining sites and returned them to state ownership. Adding to the company’s problems, Group DF’s chairman, Dmitry Firtash, was detained in March 2014 at the request of the US government over bribery charges relating to an Indian titanium venture, but avoided extradition to the US following a court ruling in Austria in April this year.

Group DF has so far refused to be beaten, however, and in April 2015, announced a new TiO2 project in Ukraine. "We recently launched plans for the development of the Stremigorodsky apatite-ilmenite deposit, with an intended capacity of 500,000 tpa ilmenite and the possibility to boost this figure to 1m tpa within the next 10 years," disclosed Ivan Bondar, CEO of Valky Ilmenite, which is part of Group DF. He added that all ilmenite will be supplied to Crimea Titan and should fully compensate for the loss of Volnogorsky and Irshansky, which had a combined production capacity of 700,000 tpa. 

"So far, we have not disclosed the financial plan for the project," Bondar said. "It will be announced after we have completed all estimates and a technical-economical draft of the project. Valky iIlmenite has a licence to develop the deposit until 2032," he added. Ukrainian analytical agency, Delovaya Stolitsa, has estimated that investment in Stremigorodsky is likely to be around $500m – a significant sum for Crimea Titan, which already has large debts. Experts have suggested that the project is a risky venture for the company, given what happened with Volnogorsky and Irshansky. It may therefore be difficult for Group DF to secure foreign investment in the venture.

According to official information, Stremigorodsky is one of the largest deposits in Ukraine, with total resources of around 131m tonnes. However, the minerals are deep underground and the economic viability of extracting them is questionable, given current low prices for TiO2 and feedstocks. 

Additionally, Crimea Titan’s operational status following Russia’s annexation of Crimea is not quite clear. At the beginning of 2015, the company increased the price of its TiO2 by 5% to $2,100/tonne and Crimea Titan’s management says it has increased its deliveries to Russia, although no precise figures have been disclosed. 

It is also unclear where the company is sourcing its raw materials from. It has been suggested that Crimea Titan has been importing minerals from Asia-Pacific suppliers via another company in order to avoid international sanctions, while others have suggested it has secured resources in Ukraine. The company’s management has so far declined to comment on this issue. 

At the beginning of 2015, Crimea Titan rebranded itself as Ukraine Chemical Products, although the Crimea Titan name also remains in use.

Other players under pressure

Velta and Sumykhimprom, which are also facing challenges, chiefly related to the tough economic situation in Ukraine and low ilmenite prices. "The situation in the world market has been changed, primarily by China," said Andrei Brodsky, general director of Velta. "Two years ago, we shipped our products to China at the price of $350/tonne, while earlier this year, we sent it for $110/tonne. So we have decided to stop supplies [to China]."

"Because two years ago, China was the most promising market globally, many manufacturers went there. But they trampled on one another and greatly brought down the price of titanium raw materials," Brodsky explained. "This wave [of low prices] transferred to the rest of the world. In addition, the consumption of pigment also dropped around the world, which further pulled prices down."

Brodsky said that Ukrainian producers are struggling to compete at current price levels, as they have higher production costs compared with some of their international competitors. 

At the end of last year, Sumykhimprom, which has a production capacity of around 40,000 tpa ilmenite, said it was on the verge of bankruptcy. The company has cancelled an expansion programme it announced in 2012, which would have increased its capacity to 160,000 tpa by 2020. Doubts have been cast over Sumykhimprom’s insolvency claim, however, with some suggesting that the move was intended by Group DF to spur assistance from the Ukrainian government, which owns a stake in the company.

According to Brodsky, both Velta and Sumykhimprom may face problems if Group DF develops the Stremigorodsky deposit. "This is one of the largest deposits in the world," he noted. "If [Group DF] brings this huge stock of raw materials to market, it will inevitably lead to the collapse of prices."

Brodsky doubts that the project will be developed, as it is a greenfield deposit and production costs will be high. For its part, Velta has said it plans to expand its production capacity from 100,000 tpa to 250,000-300,000 tpa over the next few years, by which time Brodsky believes that TiO2 prices will have recovered.

However, Ukraine’s existing TiO2 producers may face increased competition if a government plan to launch a new state-owned company for the production ilmenite and rutile is implemented. The scheme was announced in mid-2015 by Adomas Auditskas, senior adviser at Ukraine’s Ministry of Economic Development and Trade and head of a national task force for the reform of state-owned enterprises.

Auditskas said that details of the scheme would soon be finalised and the planned holding company may involve Sumykhimprom, if it looks likely that it could go bankrupt. Potentially, the new company could produce 500,000-1m tpa ilmenite and rutile, most of which will be exported. 

According to Brodsky, Ukrainian domestic demand for TiO2 feedstocks has collapsed and local manufacturers will have to fully switch to exports to survive, particularly since the devaluation of the Ukrainian hrvynia against hard international currencies makes Ukraine’s exports more attractive.