Nerves of titanium

By Kasia Patel
Published: Thursday, 27 October 2016

Although positive demand is beginning to feed through to titanium dioxide (TiO2) pigments and its feedstocks, the supply landscape for the pigment will continue to shift as producers attempt to remain competitive and Chinese supply faces more stringent regulation.

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Titanium dioxide (TiO2) has undergone a turbulent few decades, with the pigment mineral experiencing a particularly rocky road in the last few years. Producers have struggled to balance output in response to low demand, and the resultant consolidation in the industry – which is by no means over – has created a changed and uncertain landscape. 

Raw material suppliers have borne the brunt of this uncertainty, as inventory all along the value chain has built up. When paint producers have experienced increased demand, the benefits have failed to trickle down. Market participants have, on more than one occasion, predicted a recovery in the sector, which has, until now, failed to materialise. 

But those producers that are still standing are cautiously optimistic that 2016 marks the turnaround the industry has been waiting for. Characterised by aggressive pushes for price increases by both Chinese and western producers, industry sources are reporting that higher prices are finally sticking and are being duly reflected in TiO2 feedstock selling values such as ilmenite and rutile. 

Yet the path to growth is far from linear. Demand for TiO2 is expected to increase. However, as global focus zeroes in on environmentally friendly practices, producers along the entire supply chain will need to navigate through sustainability issues in addition to other challenges as consumers continue to question the health and safety risks associated with the pigment. 

World pigment capacity in tonnes, 7.2m in 2015 
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Source: USGS 

Shifting supply 

The US Geological Survey (USGS) estimates 2015 TiO2 global capacity at 7.2m tonnes, with analyst figures pegging global average plant utilisation rate at around a healthy 88% (though this figure is lower for China). Lower demand for the pigment mineral, global overcapacity and continuing environmental pressures particularly in China mean that the supply landscape for TiO2 has continued to change in 2016.

China remains the largest producer of TiO2, with capacity estimated at 3m tonnes according to the USGS, followed by the US at 1.09m tonnes. US domestic production of TiO2 (sponge and pigment) fell 8% in 2015 to 1.16m owing to the closure of a pigment plant in Delaware and the closure of two production lines in Mississippi as producers struggled to balance profitability and market demand. 

An important distinction in output is the difference between chloride route and sulphate route TiO2 capacity, with global output currently led by sulphate route technology. The difference in processing route determines the feedstock used by a pigment manufacturer, and changes in process technology trends will impact raw material demand for various grades of rutile and ilmenite.

Feedstocks used for the sulphate process include lower grade ilmenite and sulphate ore slag, while the chloride process utilises rutile, synthetic rutile and chlorinadable slag. 

Following significant growth in TiO2 output in the 1990s, the chloride process overtook sulphate route output. Since then, China’s growing role in the sector resulted in another crossover point in 2011, as most of the country’s growth has been accounted for by sulphate route technology.

According to Reg Adams, managing director of research firm Artikol, as China adopts more chloride-route technology in preference to sulphate plants there will be another cross over sometime in the next 10 years. Currently only four of China’s 42 TiO2 producers have the capacity to produce chloride route TiO2

In contrast, only around 33% of North American production is via sulphate-route output, European output is around 67% sulphate-route and the majority of China’s production is sulphate route according to figures from Artikol.

Speaking at the TiO2 World Summit held in Cleveland, US in October, Adams said: "That’s going to change over the next 10 years, by 2026 China’s capacity will be around 3.5m tpa with chloride route accounting for something like 33%."

However, not all event participants agreed with Adams and his theory on the speed at which chloride route would once again regain dominance, with Chemours’ global customer leader, Peter O’Sullivan, questioning how long it will be before China establishes a significant chloride production base. He added that Chemours does not see the pathway to chloride production as a rapid increase in the near future, contrary to other industry players and analysts.

"For chloride capacity around the world to double in a short timeframe – we just don’t believe that to be a likely outcome. Perhaps not impossible but not likely," he added. 

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Artikol’s Reg Adams and Chemours’ Peter O’Sullivan disagreed over the speed at which chloride-route capacity would once again dominate pigment capacity at the TiO2 World Summit held in
Cleveland in October. 
Major producers

The Chemours Co.

Spun off from parent company DuPont in 2015, Chemours remains the biggest producer globally with a capacity of 1.3m tonnes TiO2, which is 100% chloride route.

Chemours launched a new TiO2 line in September 2016 at the company’s Altamira plant in Tamaulipas, Mexico. The new line uses Chemours’ chloride production process to manufacture TiO2 pigment, with a full capacity of 200,000 tpa expected to be achieved over the next several years.

Production at Altamira adds to Chemours’ existing output in Mississppi, Tennessee and Taiwan. Production will be balanced across the company’s facilities depending on demand, as Altamira ramps up output. The new line is anticipated to reduce overall costs of TiO2 manufacturing by at least $20m a year.

According to the company, Chemours has the lowest sustainable TiO2 production cost globally owing to the scale of its facility, proprietary process and the flexibility of using a variety of ore feedstocks, allowing it to process raw materials from lower grades such as ilmenites containing 50% TiO2 up to higher grades such as natural rutiles containing 90% TiO2 and above.  

At the TiO2 World Summit in October, O’Sullivan told delegates that scaling up at Altamira was progressing as planned.

"We’re quickly advancing our capability there, and I have to tell you, starting up a chloride line is not for the faint of heart," O’Sullivan said. "It rarely results in the type of quick migration to acceptable quality that we’ve experienced, so we’re grateful and proud of what we’ve done at Altamira."

The company also addressed the issue of increasing capacity in an already oversupplied market.

"The question we get asked all the time is, what are the repercussions of bringing on a 200,000 tonne line in a market that’s from some vantage points already overserved," O’Sullivan sad. "Rest assured, we’ve offset this with some decline in other asset output. Just like we’ve always done, and I suspect everyone else always does, we manage a global circuit of capabilities designed to find the sweet spot between customer needs and our needs. I don’t think that’s unique."

Cristal

Cristal is the world’s second largest producer of TiO2 following Chemours. The company’s pigment output consists of seven locations, with two producing TiO2 via the sulphate route process. 

The Thann plant in France was the first in the world to produce TiO2 in 1922 and uses a sulphate-based process. The company’s Brazilian plant in Bahia, located around 20km from Salvador also produces TiO2 using the sulphate process. Cristal’s remaining five plants utilise the chloride process for TiO2 production. 

The Paraiba mine in Northeastern Brazil supplies the company with TiO2 feedstocks and comprises a floating plant and dredge for the extraction of ilmenite, zirconite, rutile and cyanite, in addition to four fixed production plants.

Huntsman

The third largest producer with capacity of around 734,000 tonnes at the end of 2016, US-headquartered Huntsman Corp. purchased Rockwood Holding Inc.’s pigment and additives division for $4bn, but the following year the company revealed it planned to implement site closures and reduce headcount in its colour pigments division as part of its restructuring programme. The majority of the cuts were made at the newly-purchased production facilities from Rockwood.

The company has since continued with the streamlining of not just its pigment division but also its other businesses, progressing with a number of divestitures and closures. 

In August 2015, Huntsman announced its intentions to spin off the flailing pigment division, and despite some recent recovery from "trough conditions", in July this year the company confirmed a spin off – either on a plant by plant basis or of the pigments business in its entirety – is still on the cards. Most recently Huntsman announced the planned closure of its smallest production plant, the Umbogintwini facility in South Africa, expected to be taken offline in Q4 2016. This will pull 25,000 tpa TiO2 offline, in addition to the company’s previously announced plans to reduce capacity in Europe by 100,000 tonnes.

Henan Billions and Sichuan Lomon

Chinese producers Henan Billions Chemicals Co. and Sichuan Lomon Titanium Industry Co. announced plans to merge in May 2015. While the tie-up has yet to be completed, Henan Billions confirmed in late September that it had raised $1.34bn and that the funds would be used to proceed the acquisition. The acquisition will result in Henan Billions holding 99.99% of shares in Sichuan Lomon, with the remaining 0.01% held by its subsidiary Xintai. An integration between the two companies would result in a leading Chinese producer and the fourth largest TiO2 producer globally with a combined capacity of 620,000 tpa. 

A merger between Henan Billions and Sichuan is likely to place pressure on China’s remaining producers in order to remain competitive. Saturated by small-scale producers, a new wave of M&A activity will facilitate the development of China’s TiO2 industry. Additional consolidation will help to weed out excess capacity, allowing larger, fewer producers to allocate additional resources towards much-needed R&D. 

Chinese TiO2 production in '000 tonnes 
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Chinese pigment output is extremely fragmented, consisting of 42 producers, of which only four have chloride-route capability.
Source: G&J Resources 

Changes in China

Much has been made of recent regulations in China to crack down on more polluting industries, and, as such, the TiO2 industry has come under fire. 

However, government action to shut down more polluting plants has also been balanced with policies to encourage investment in chloride route TiO2 production technology, which is anticipated to encourage additional capacity online in the next five years.

Chloride output overtook sulphate production in the past for a number of environmental reasons, according to Chemours, as the European community made the expansion of sulphate route output increasingly difficult owing to its higher environmental implications. As China has expanded its relevancy and footprint in TiO2, sulphate route technology once again became the dominant pigment production route in 2011, with all of the new sulphate capacity added online in the last 20 years occurring in China.

"The wild card for many of us is, when will the environmental regulation get some teeth and when do the repercussions for that potential outcome happen, and what does that mean for the sulphate producers in China?" Chemours’ O’Sullivan said.

While market players disagreed on the speed of which changes in China might take place, according to George Chen, CEO of G&J Resources Inc. – responsible for the sales and marketing of products from Chinese producer Yunnan Xinli – unofficial data indicates that there are already five new chloride route plants in development.

One of only four chloride route producers in China, Xinli also plans to invest an additional $500m by 2025 to increase its existing product line of 60,000 tpa TiO2 by adding five additional product lines to bring its total capacity to 320,000 tpa TiO2

"The Chinese government has had a lot of ideas to improve the industry," Chen said. "In June 2015 the government issued the new China Environment Protection Regulation, closing all sulphate manufacturers unless they put money towards improving the environment."

An additional policy was introduced in April 2016, when the Chinese government launched a Market Access Blacklist Draft, prohibiting investment into sulphate grade plants as well as encouraging investment into chloride grade plants, Chen added.

As a result, 200,000 tonnes of sulphate route TiO2 capacity came offline in 2015, with Chen predicting that an additional 300,000 tonnes sulphate grade capacity will be closed in 2016.

"We can expect that more and more sulphate grade plants will disappear in China," he said. 

With the drive to encourage chloride route investment, sulphate route plants with capacity lower than 50,000 tpa will be eliminated if they fail to make environmental changes, while additional acquisitions – aside from the Henan Billions and Sichuan Lomon merger – are expected.

"There are many unreleased movements in the industry," Chen said. 

Chinese industry issues

Although the Chinese TiO2 industry was not established until 1998, in 2001 China surpassed Japan to become the second largest TiO2 producer globally at 194,000 tpa. By 2009, with a production of 1.8m tpa TiO2, China overtook the US and become the world’s leading producer.

However, the industry is plagued by a number of issues including environmental concerns, low capacity utilisation rates, a scattered and fragmented industry, and a lack of sufficient technology.

"China is the biggest TiO2 supplier but we still have some difficulties," Chen said. "Compared to Western countries, the manufacturing technology is still behind and the number of manufacturers in China is big, but the individual size of companies is small."

China currently has 42 TiO2 producers, with output for some at only 5-10 tpa, while resources are scattered all over China. Compared with a global capacity utilisation rate currently at around 88%, Chinese capacity utilisation stands at only around 70-75%.
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Not all TiO2 is created equal: the quality of product varies depending on application, with cosmetics, pharmaceuticals and durable industrial coatings requiring superior pigment design and performance. 
(Source: Tronox)

Meanwhile, the world’s top six producers accounted for 90% of output in 2014, according to Chen’s figures, while China’s top six producers accounted for only 46% of the country’s output.

"Also, less than 10% of production is chloride grade," Chen said. "The structure of production also cannot meet domestic demand. 300,000 tpa TiO2 was imported in 2015. The existing chloride process is still experiencing production issues as producers are very new."

However, Chen is confident that Chinese producers will be able to take on the challenge as TiO2 prices in China continue to rise, noting the increase in price from $1,600/tonne in January to $2,000/tonne currently. 

Commenting on predictions from Artikol’s Reg Adams that chloride route capacity will reach 1.4m by 2025, Chen said: "To reach that amount they will need lots of money but I believe that it is possible in the next 5-10 years."


Markets 


Artikol pegs world 2015 consumption of TiO2 pigments at 5.89m tonnes, with China leading demand at 1.948m tonnes, followed by Europe with 1.17m tonnes consumption and North America at 950,000 tonnes consumed in 2015.

Some applications for titanium products have seen growth such as for titanium sponge in aviation, however the large majority of TiO2 is still consumed by the paint sector, which accounted for approximately 55% of global consumption in 2015. The second largest end market is plastics – the fastest growing segment – accounting for 26% of TiO2 demand in the last year. This is followed by the paper industry, which includes décor and speciality grade paper. Other uses for titanium dioxide include ceramics, coated fabrics and textiles, floor coverings and roofing granules. 
World TiO2 pigment consumption by end use (tonnes), 2015 
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Source: Artikol 

These figures differ slightly between various geographies and in China, paint and coatings account for around 59% of consumption, while plastics account for a smaller 19%, and paper for 11%.

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Chinese domestic pigment demand 2015
Source: G&J Resources 
"In the past few years, demand for TiO2 in plastic and paper has increased faster than for paint and ink," Chen said. "The demand for wallpaper increased by over 15% in 2015 and demand for TiO2 in Chinese wallpaper reached over 220,000 tonnes in the same year."

Most types of paint contain some form of TiO2 although generally rutile grades are preferred, with chloride grades used for high end applications. White paints have higher TiO2 loadings although coloured paints consist of TiO2 pigment in addition to another organic pigment.

Differentiating between high quality applications, Chemours notes the differences between pigment standards needed for various industries. According to O’Sullivan, the company focuses on areas it sees growth – speciality and high quality applications and the rapidly-growing multipurpose applications, requiring high performance TiO2

"Without question, the quality of TiO2 products differ considerably between different segments and applications," O’Sullivan said during a company presentation at the TiO2 World Summit.

"We’re confident and fully believe that utilisation is higher at manufacturing facilities supplying speciality and higher value pigment segments and its separation remains in multipurpose segments based on pigment quality and product design," he added.

The demonisation of TiO2

While the vast majority of TiO2 is used in paint, plastic and paper production, around 1% of global supply is consumed by the food and pharmaceutical industries. The pigment is present in a range of consumer goods such as sunscreen, toothpaste, powdered sugar and sweets.

However, consumers are growing increasingly concerned over the ingredients that make up their food and cosmetic products, and following public pressure, two major bakery chains – Panera Bread and Dunkin’ Donuts – announced decisions to drop TiO2 as an ingredient from their baked goods in 2015.

TiO2 has been marked as safe for human consumption and is regulated as a colour additive for food by the US Food and Drug Administration (FDA) – which says that it may be used to colour foods as long as it does not exceed 1% by weight of the food.

In March last year, Dunkin’ Donuts announced plans to remove TiO2 from its baked goods, where it is used as a whitening agent in the company’s powdered sugar doughnuts in the US. The move followed pressure from non-profit organisation As You Sow, which argued that the mineral may cause risks to human health and the environment.

At the time, the FDA told IM that it was not aware of any new information which would change its determination of TiO2 for use in foods.

As You Sow has argued on numerous occasions that the FDA regulations pertain only to TiO2 regulated at non-nano size, which does not cover its use in the form the pigment is often found in food. Dunkin’ Donuts has refuted that its products fall under the nonmaterial umbrella, and the voluntary removal of TiO2 as an ingredient seems to be more a response to pressure rather than health concerns.

Global TiO2 market split 
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Source: Peter O’Sullivan, Chemours. 


Carcinogen 1B classification

In November last year, the French Agency for Food, Environmental and Occupational Health and Safety (Anses) sent a proposal to the European Chemicals Agency (ECHA) for the classification of TiO2 as a category 1B carcinogen. 1A or B carcinogen classification could have significant implications under REACH as these classified substances should be restricted in consumer applications.

The public consultation of France’s proposal ended on 15 July, with an overwhelming response received from various producers, consumers and industry bodies.

"We are quite at the start of the process," an ECHA spokesperson told IM. "The comments received during this consultation have been published online and will be responded to by the French authority. Subsequently, ECHA’s Committee for Risk Assessment (RAC) will prepare the scientific opinion."

According to legislation, ECHA’s RAC has 18 months from time of receipt to adopt an opinion on any classification and labelling proposal, the organisation said, adding that it will adopt an opinion by the end of November 2017. The RAC scientific committee will consider all relevant data, including that provided by third parties, and present its independent scientific opinion to the European Commission (EC), which will take a final decision.

However, a number of companies and associations have criticised the move by the French authority, claiming that the proposals are based on old and outdated studies that have been reinterpreted, and that the loading levels used in the studies are irrelevant. 

Responding to these criticisms, ECHA told IM: "The opinion of RAC will take into account the scientific data on TiO2 available to RAC, including any scientifically relevant data and comments from concerned parties received in the public consultation."

Speaking to IM on the proposal, Jan van der Meulen, managing director of CEPE, the European Confederation of Paint, Printing Ink and Artists’ Colours Industry, said the organisation does not believe there is reason to classify TiO2 as a carcinogen. 

"The argument is not really valid – it’s based on studies which showed a heavy overdose of TiO2. The question is if it was even possible to have such large amounts. There is no new information – this is the recategorisation of old results. We have submitted comments but we have no idea how this will develop further."

Van der Meulen said that, should the classification go ahead, the effects on the TiO2 sector would be dramatic, forcing the industry to use hazard classification labels. This would prevent the pigment’s use in all decorative paints, an issue owing to the lack of substitution options for TiO2.

Van der Meulen also questioned the studies used by the French authority – which looked at respirable TiO2 in rats – noting that the levels of TiO2 were so high that the study is irrelevant by existing industry standards. 

Tony Jones, global technology fellow for Huntsman Pigments, agreed, adding that there has been no new information or studies to prompt the move.

"There is absolutely no new information at all. The main study used dates from 1986, and it wouldn’t be allowed to be carried out today because that level of dust just wouldn’t be approved," he told IM.

Jones noted that while the occupational exposure limit for TiO2 varies globally, the highest exposure limit worldwide currently stands at 10mg/m3. In contrast, the studies used by the French authority examine far greater levels of exposure.

"The 10mg limit is 25 times lower than the levels that the tests looked at and it’s only at these levels that the effect was seen," he said. 

Additionally, Jones suggested that the reason there has been interest from industries outside of TiO2 is the effect shown by the studies – that there is no specific physical effect from TiO2 itself. If the classification is applied, it would apply to all inert dusts, not just TiO2

A consequence of the type of labelling required should the classification go through would also mean that TiO2-containing substances will only be permitted for handling by professionals.

"That means DIY paints would not be useable anymore. That would be a pretty big impact and it would affect most people," Jones told IM. "There could also be enactment into other regulation such as in toys, plastics and special dispensation for food and cosmetics. The studies have shown that TiO2 is only potentially a carcinogen by inhalation, but the way the legislation works will have an automatic effect and it will be applied everywhere."

The legislation could also lead to other minerals containing a small percentage of TiO2 being classified as hazardous waste. Owing to its far-reaching implications, the consultation received a huge response from companies worldwide – a total of 514 responses, including reactions from 116 trade associations, were received. 

Echoing concerns over the substitution of pigments, Jones noted that the lack of replacement for TiO2 would mean some colours would not be possible anymore, while increasing levels of other minerals in paints would also be problematic as many other possible options – such as zinc oxide or calcium carbonate – are also classed as inert dusts. 

However, Huntsman is not sitting idly by while the risk assessment takes place, and the company is in the process of carrying out meetings with member state authorities to raise awareness at a high level on the potential socio-economic impact of the legislation.

"This isn’t a case of sitting back and waiting for two years. We are working with downstream users and associations," Jones told IM. "We are concentrating on building a scientific argument and will be holding a scientific conference in Paris in November." 

Prices turn a corner

In August, TiO2 pigment producer Tronox reported the first sequential increase in TiO2 prices since 2012, predicting an additional sequential improvement in the third quarter as announced price increases roll across its customer base.

"We believe that the second quarter marked the turn in pigment pricing and we expect feedstock prices to follow within a few quarters," the company’s CEO, Tom Casey, said in its second quarter earnings statement. 

A number of price increases were announced by major TiO2 producers this year, while Chinese manufacturers attempted to push through no less than 10 price hikes. 

"Chinese producers themselves have announced no less than 10 separate price increases over the first eight months of 2016. Obviously, as in the west, not all of those price increases have been realised but it has certainly led to an uptick. This has also been reflected in an increase in the US TiO2 price. The low point was reached at the very end of last year and there has been an uptick since then," Artikol’s Adams said. 

"In the second quarter our average price – and probably the price for other producers – was only a faction above what it cost to operate, so change was needed to remain sustainable," Chemours’ O’Sullivan noted.

As such, Chemours took a number of pricing actions in 2016 to ensure sustainable reinvestment levels, including global price hikes in January and May and a price increase announced at the start of September of $150/tonne in EMEA and Latin America.

One producer told IM that while price increases from China had been announced, not all of them had stuck, and the company had yet to be hugely impacted by the price push as it buys much of its inventory in advance.

Meanwhile another US-based TiO2 buyer, which sources pigment from both the US and China, said the company had not yet experienced any price increases from Chinese producers.

"But we have seen a significant price rise from North American producers," the buyer added. "Once one pushes a price increase through successfully other producers do so as well."

Chinese sources meanwhile have continued to present a united front on price increases, distributor Shanghai Liantai Industrial Co., told IM.  The company added: "The current price is still lower than last year, so it may continue to increase this year." 

Tianjin Bairuide Trading Co., another distributor, also noted the real estate recovery in China, which often has a delayed positive effect on TiO2 prices, and an uptick could materialise on a six-month lag.

While one Chinese source recently pegged the upper range of China’s export prices at $3,000/tonne, US buyers have pegged the price at closer for a mid-point of $2,300 for Q3, with one adding: "I don’t know anyone who would be paying $3,000 for Chinese product." (pp50-56)
Chinese domestic prices 
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Source: China TiO2 Association 

Outlook

According to Robert Koort, research analyst for chemicals at Goldman Sachs, the company is currently "a big fan of TiO2 companies", placing an optimistic buy rating on both Huntsman and Chemours.

Although the current uptick in North American prices followed a deep downcycle, the general consensus by analysts, including Koort, is that TiO2 prices are on the rise and increases are likely to continue globally.

With China developing additional chloride-route capacity, its dominance is set to continue, particularly as the country exported just over 200,000 tonnes of pigment in Q2 2016 – the highest quarter ever for Chinese pigments. While much of this output made its way to non-western destinations, Artikol’s Adams cautioned buyers from thinking China’s exports had declined: "Just because it’s not so visible in the North American and European markets, China is making a really big push in those Asian markets."

And, increased activity and output ramp-up at TiO2 pigment plants has finally resulted in positive sentiment in the feedstock market. Prices in China for domestic ilmenite have now seen a 50% increase since the lows seen in Q1, while average ilmenite prices from elsewhere have also seen price increases. Rutile prices have been slower to follow but additional price increases have been predicted by suppliers as they continue to discuss new contracts.

Year-on-year (y-o-y) demand for pigments grew by around 9% in Q1 and 7% in Q2, but it remains to be seen how pigment producers in the Northern Hemisphere will respond to the seasonal downturn during the winter months.

Should producers keep momentum going and maintain higher production levels in Q4 in anticipation of higher demand, feedstock producers could also see an uptick in prices and demand.