2020 PREVIEW: Can Chemours continue its fight against market volatility?

By William Clarke
Published: Tuesday, 07 January 2020

After a year of sluggish demand and overhanging stocks in 2019, markets will be looking to see if a shift in sales strategy by the largest producer will usher in a new era of price stability to the traditionally volatile titanium dioxide market.

Titanium dioxide is the world’s most widely used white pigment. Demand is strongly correlated to house building, personal spending, manufacturing and the growth of the middle class. This means the market has traditionally been considered a proxy for the global economy. Prices peak when the economy is growing rapidly and fall as growth cools off. 

Up until now, large western producers have worked on a system of contract sales. Customers were contracted to take a specific volume of titanium dioxide, with price adjustments communicated to customers on a quarterly basis. 

But one company has set out to challenge the cyclical nature of this market. Chemours is the world’s largest titanium dioxide producer. It was spun out of DuPont in 2015 and inherited the chemical giant’s proprietary pigment production technology. 

DuPont is the company which in the 1940s developed the chloride process for titanium dioxide, a production process that is both less polluting and yields a higher grade of pigment. 

Chloride process production is now the dominant method for the large European and North American titanium dioxide producers, and adopting the technology is also a priority for Chinese producers, including the giant Lomon Billions. 

But Chemours continues to hold a technological advantage in this area because its proprietary process allows for the use of lower-grade feedstocks than that used by other pigment manufacturers. 

The two other largest titanium dioxide producers, Tronox and Lomon Billions, have had little incentive to balance markets in 2019. Tronox completed the acquisition of its larger rival Cristal in May and is working to increase its market share. 

Lomon Billions, which is the product of a merger between Sichuan Lomon and Henan Billions in 2016, is on a mission to increase its footprint globally as the only major Chinese producer that can compete with the western giants on quality and volumes. 

So the task of balancing the titanium dioxide market has fallen entirely on the shoulders of Chemours. 

Fluctuating volumes
Customers who are not willing to enter into these long-term supply agreements can instead buy titanium dioxide through Chemours’ online portal. This system involves the customer requesting a specific volume and delivery date. They are then given a "take it or leave it" offer through the online portal, with the system explicitly designed to avoid protracted negotiations. 

Part of this strategy involves a greater degree of production flexibility. Buyers will contract to take a certain proportion of their total consumption from Chemours, meaning if end use falls the contracted volume falls. 

This means that Chemours will see its volumes sold rise and fall, even as it hopes price will remain more stable. 

This effect is already apparent in the company results. On November 4, Chemours’ titanium segment reported net sales of $614 million in July-September, compared with $791 million in the same prior-year quarter. 

This drop in sales revenue was down to lower volumes, while the price remained stable, the company said. 

Chemours management hopes this effort to draw down on stocks will support prices and demand in the future. 

Speaking to investors on November 4, Chemours president and chief executive Mark Vergano said, "We probably have seen one of the largest destocking events in the history of this industry." 

"I think the inventory levels are at significantly low levels across the board, across all our customer base and downstream from them."

Chemours does not publish production figures, but market sources agree that a huge production cut has taken place, with around 200,000 tonnes of production cut in the first half of 2019. 

The total amount of production cut in 2019 may be as much as 300,000 tonnes, market sources say. This would represent about 3% of the total global market, and a much higher proportion of the chloride grade market. 

Over the same period, prices have been extremely stable. Fastmarkets assessed the price of titanium dioxide pigment, high quality, bulk volume, cfr Asia at $2,200-2,550 per tonne on December 12 compared with 2,300-2,600 a year earlier. The price has hovered between $2,200-2,600 per tonne in the year to December 12.

Other producers have benefited from this stability. But the question remains as to how long Chemours can continue to sacrifice volume for price stability. The company’s share price has fallen to $17.32 as of December 13, compared with $29.32 at the start of the year, and highs of over $40 touched in March and April. 

In 2020, the key question for titanium dioxide markets will be whether Chemours’ price stabilization program can continue to balance global production, and if one of the most cyclical markets can really be tamed.

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