Titanium dioxide market settles in for winter on a high plateau

By William Clarke
Published: Monday, 22 October 2018

Prices have built steadily over the past year in titanium dioxide, and despite seasonal fluctuations and one-off events the outlook is for a period of stability lasting at least into early 2019.

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The titanium dioxide markets appear to have taken a breather so far in the second half of 2018, after a relentless trek upward since the start of 2017.

Fastmarkets recently assessed the price of high-quality titanium dioxide pigment in China at $2,600-3,000 per tonne, down from a high of $2,800-3,100 per tonne that persisted into June 2018, and the first sustained decline in titanium dioxide prices for more than two years.

Now, buyers and sellers talk about a balanced market, and even a chance to build up stocks over the rest of the year. But looming tightness in the feedstock market is a cloud on the horizon for buyers.

Whiter than white

Titanium dioxide is a unique pigment.

No other affordable product can match it for whiteness, brightness, opacity and non-toxicity.

Pure titanium dioxide pigment is produced from ores. These ores contain naturally occurring titanium dioxide, mixed with iron and other impurities that must be removed, if the pigment is going to offer the desirable white qualities.

According to data from the United States Geological Survey, about 95% of titanium is manufactured and sold as oxide pigment, compared with pure metal.

Most titanium dioxide ores are mined from heavy mineral sand deposits. These consist of layers of sand deposited by hydrological or tidal action, all of a similar weight.

The most commonly mined ore by weight is ilmenite. This product is usually between 48% and 52% titanium dioxide, usually with high levels of iron alongside. Mineral sand deposits usually also contain rutile, a higher grade of titanium dioxide mineral with 90% or higher purity.

A number of heavy non-titanium minerals can also be found in mineral sands, most commonly zircon. The ore monazite, which contains rare earth metals and thorium, is sometimes also found in deposits.

Sulfate versus chloride

There are two main types of titanium dioxide production. The sulfate route generally results in more pollution, and produces a lower-grade end-product, but is more suitable for use with lower grade feedstocks. The chloride route uses more modern technology that is preferable for environmental reasons and for better end quality, but demands higher grade feedstock.

These rules of thumb conceal a great deal of difference between proprietary technologies. For example, Chemours produces chloride TiO2 from ilmenite, while some sulfate producers offer a high-grade product, or prefer to use higher-grade feedstock because it increases their output.

In addition, there are a number of options to upgrade feedstocks, either by converting ilmenite to high-purity synthetic rutile, or by smelting it in a furnace into titanium slag.

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US President Donald Trump’s tariffs on all steel and
aluminium imports into the US has worried Chinese
manufacturers.
iStock 

Market growth

The titanium dioxide markets began a long-term uptrend in early 2017, thanks to a range of supporting factors.

Demand for titanium dioxide is closely tied to economic activity. The pigment is used in a wide range of manufactured goods, as well as a filler in plastics. As manufacturing efforts ramp up, demand for the pigment increases.

Another key market is architectural coatings. Construction of new buildings means more demand for paint to cover them, and having sufficient income encourages property owners to renovate, further boosting the demand for paint.

Such forms of spending had been slowed down since the global financial crisis in 2008, but deferred demand had started to return on a global scale by late 2016.

But 2017 brought some sharp limitations to supply, specifically from China. China has carved out a position as the largest producer of titanium dioxide, but tightening environmental controls have imposed restrictions on the producers in the East Asian country.

In particular, production by the more polluting sulfate route was affected by enhanced environmental spot-checks. But the exact scale of the resulting capacity closures has been hard to assess, because they were concentrated among small legacy producers which produced low-grade pigment with outdated and polluting technology.

Balance in the market comes from a shift in the situation in China. Although environmental restrictions remain firmly in place, a large amount of the outdated legacy capacity has now been closed. This leaves the industry as a whole more resistant to the seasonal shutdowns that usually were imposed in the winter months, when higher power consumption increases air pollution.

The merger in 2016 of Sichuan Lomon and Henan Billions set the stage for a massive rationalization of the industry. With 700,000 tonnes per year of capacity, and a huge expansion program planned for the years ahead, Lomon Billions (as it is now known) is the world’s fourth-largest titanium dioxide producer. A cleaner, more rationalized Chinese industry is better placed to provide consistent supply, and TiO2 inventories which were stripped out during late 2017 and early in 2018 are reported to be building up again.

At the same time, local Chinese titanium dioxide demand has been reported as falling below expectations. Market sources have given a number of reasons for this. One Chinese exporter suggested that it was simply down to cyclical factors, after a period of fairly strong demand in 2017. But a US trader told Fastmarkets that China’s manufacturing and construction sectors were being affected by worries about a developing trade war between their country and the United States.

The first shots of this war were fired in March 2018, when US President Donald Trump announced tariffs on all steel and aluminium imports into the US. Relations cooled further when China introduced swingeing retaliatory tariffs on imports of US agricultural goods.

The current situation sees the US imposing a 25% tariff on a range of industrial goods, which amounted to around $50 billion-worth of imports last year.

A further tariff list targets the importing of chemicals and industrial minerals, at a rate of 10%, which could rise to 25% if an agreement is not reached.

And the White House has warned of further tariffs if an agreement with China is not reached, saying that these would bring almost all Chinese goods into the tariff regime. The resulting trade tensions are damaging manufacturing sentiment in China.

The official manufacturing purchasing managers’ index (PMI) in China, a measure of industrial confidence, fell to 50.8 in September 2018, down from 51.3 in the previous month. This was the weakest result since February 2018, and before that since mid-2016.

All of this means that there is less interest among local buyers of titanium dioxide, and higher volumes for export.

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A worker at Tronox’s Hamilton plant. If Tronox
acquires Saudi Arabia’s Cristal, it would be an
inverted take over.
Tronox 

Chinese material heads to Europe

The US tariffs also have a more direct effect on the titanium dioxide markets, because pigments are among the materials that are being taxed at the 10% level. Market sources have reported that this has not had an immediate sharp effect on prices, due to the fact that the EU was already buying mostly high-grade titanium dioxide, with US imports only sporadic.

According to EU data, between January and July 2018, the trading bloc imported 87,822 tonnes of titanium dioxide under HS code 32061100. This was more than the total import volume in 2017 of 86,998 tonnes, and showed the fastest growth in imports on record, about 2.7 times faster than the pace seen in 2016.

This shift in dynamics has been driven by a number of factors. One has been limited European production. A fire at Venator’s plant in Pori, Finland, early in 2017 knocked out a large amount of capacity. After a series of delays to the rebuilding of the facility, Venator announced that it would close the plant in September 2018.

Imports from Eastern Europe, meanwhile, have been hit by the tensions between Russia and Ukraine. Ukraine’s largest titanium dioxide producer was based in the Crimean peninsula, while its ilmenite mining business was based on the mainland. The company has struggled with sanctions and embargoes along its supply chains ever since Russia’s annexation of Crimea in 2014.

European titanium dioxide traders have also reported a shift in attitudes to China-origin pigment. For years, the country had the reputation of producing only low-grade material, unsuited to all but commodity buyers. But after being forced to take on Chinese material when markets grew tight in 2017, buyers have become increasingly comfortable with the service from the suppliers, particularly those which have been most successful at marketing their material into Europe.

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The merger in 2016 of Sichuan Lomon and Henan Billions set the stage
for a massive rationalization of the industry.
Lomon Billions 

Uncertain future

Where will prices head in the year to come? There are now two sharply diverging views of the market.

Those further down the supply chain tend to be bearish on prices. With global demand muted, and supplies heavy, there seems to be little prospect for a reversal in the markets through the northern hemisphere winter.

Titanium dioxide demand usually peaks around the second quarter of the year, when pigment companies start to buy in anticipation of the northern hemisphere "coating season." Dry summer weather allows for the building of houses, and the painting of industrial and marine structures, pushing up the demand for coatings. In winter, on the other hand, both buying and selling slow down or halt while the market takes on a more sedate pace.

This combination of long-term stability and cyclical decline is expected to limit the possibility for price rises well into 2019.

But a contrary view is more common in the feedstock end of the market. The fact remains that titanium capacity and demand are on a long-term uptrend. And increasingly the upgrading of facilities and the trend toward chloride over sulfate production is driving demand for higher-grade feedstocks.

Another major industry shakeup will come if Tronox manages to take over the Saudi Arabia-owned producer Cristal.

The deal would be an inverted one, in which the smaller Tronox takes over its larger rival. Cristal is currently owned by state investment company Tasnee.

The deal has been cleared in all markets except the US, but there is stiff opposition from regulators there. The sticking point is that Cristal and Tronox between them control a large slice of chloride-route titanium dioxide production in the US. For buyers which need this high-grade pigment, the deal could constitute a significant concentration of supply.

Tronox has offered to divest some of its chloride-route capacity to rival Venator, which has already snapped up some of Tronox’s technology in Europe, in order to lessen the latter’s control of the paper-laminate market in the region.

But globally the effect of the deal may be felt more intensely in the feedstock market. Tronox is a highly integrated producer, with a large amount of feedstock production capacity, and has previously sold its excess feedstock production.

The purchase of Cristal would bring a large amount of extra TiO2 production capacity into the company, however, thus increasing its internal consumption of feedstock.

Tronox announced in July 2018 that it would cease external sales of rutile and leucoxene by the end of this year, which will further limit the supply of those materials available for other buyers, while mineral sand miner Sibelco sees its sales slow down as a consequence of stock depletion.

One important factor resulting from the squeeze on high-grade feedstock is the potential to cap output. Although many pigment producers have a high amount of flexibility in the feedstock they buy, the fact remains that the lower the purity of the ore going in, the lower the total volume of pigment that can be produced at the other end. This means that, even for producers which can continue to operate, they may struggle to produce at the same rate.

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Titanium slag being tapped from a smelter furnace
using an oxygen lance.
Richards Bay Minerals 

Slag shortages

High-grade feedstock markets have also been hit by a series of production problems for slag producers in late 2017 and in 2018.

Rio Tinto’s Richards Bay Minerals business in South Africa was forced to declare force majeure to TiO2 customers in 2017 after a failure at its ilmenite roaster, which prepares the ore for smelting.

Then the company was caught up in violent protests by workers at one of its contractor companies, which resulted in the death of a security guard. These protests closed an access road to the Richards Bay site, and damaged equipment across the site. The situation was reported as resolved in July, after an urgent request for action by Rio Tinto management to local politicians.

But further technical trouble led to furnace failures for Rio Tinto’s other titanium slag business, based in Quebec, Canada. And similar problems hit output from rival TiZir, based in Norway, Europe’s only titanium slag producer.

Sporadic production outages are an expected part of heavy industry, but this sequence of delays and capacity reductions could not have come at a worse time for some producers.

In particular, attention is now turning to those facilities which are by necessity dependent on natural rutile. With production of this material on a long term downtrend due to ore depletion across the industry, and the additional consumption by buyers caught out by a lack of slag availability, there is widespread concern about how at least one European facility can keep running in the long term.

Concentration of titanium dioxide production is rationalizing the industry, but also concentrating it. The coming feedstock squeeze remains a key element of uncertainty.

But for the moment, titanium dioxide buyers are expecting a quiet end to the year, at least by the standards of this historically cyclical market.