Suppliers look to incremental expansions to keep pace with rising global TiO2 demand.

Figure 1/ TiO2 Consumption by Region (Percent)
Users of titanium dioxide (TiO2) pigments can look forward to relatively modest price changes and price stability in most regions during 2001, as demand slows to normal growth trend rates.

At the same time, TiO2 suppliers are looking to manage operating rates and pursue incremental increases in capacity sufficient to keep customers satisfied and maintain reasonably high levels of capacity utilization. The resulting forecast is supply and demand balance for the next several years.

So concludes an annual TiO2 review presented recently in Europe by Millennium Inorganic Chemicals, the world’s second-biggest TiO2 supplier behind DuPont Co.

In a recent interview, Bruce Zwicker, vice president of Millennium Inorganic’s Global Coatings Business, adds one caveat to this relatively tranquil supply, demand and price picture. Millennium and other TiO2 suppliers are under considerable pressure to bring European prices more into line with prices in North America, due to the currency-exchange beating taken by the euro, the common European currency launched in early 1999. Millennium recently announced a price increase of 150 euros per metric ton in Europe in order to cut into the estimated $300-per-metric-ton shortfall in price that has resulted from the euro’s weakness relative to the U.S. greenback. DuPont, Huntsman/Tioxide and Kronos have also announced increases.

In the 21 months following its launch on Jan. 1, 1999, the beleaguered euro lost 28% of its value against the U.S. dollar before staging a recent rally that has recovered some of the difference. In mid-January, the euro had crept back up to approximately 95¢ (U.S.).

Figure 2/ World TiO2 Installed Capacity (Percent)
Still, compared to the steep price increases seen for a range of other key coatings raw materials, Zwicker pointed out that price increases for TiO2 in North America have been relatively modest. He notes that major TiO2 producers announced a 5¢/lb price increase in North America in late 1999 and another 5¢/lb increase in mid-2000. But only about half of those increases have been successfully implemented. Coatings manufacturers, the biggest user of TiO2 pigments, face their own difficulties in passing on cost increases, and thus are reluctant to pay more for TiO2. Coatings companies have been faced with a host of raw-materials cost increases, particularly for resins and other petroleum-derived ingredients, over the past year.

As a result of this highly charged cost scenario, Zwicker said Millennium and the other major TiO2 suppliers can be expected to continue an ongoing program of incremental capacity increases to keep pace with growing worldwide demand — as opposed to embarking on major investments in totally new production facilities. According to Millennium’s figures, these incremental expansions will boost total global capacity from 4.331 million metric tons annually (mta) in 1997 to 4.514 million mta in 2001. All the major suppliers are chipping in with capacity expansions between 1999 and 2002. But no massive new-plant projects are anticipated (see charts).

On the consumption side of the equation, TiO2 use worldwide has accelerated following the virtually flat demand situation seen between 1997 and 1999, a period that witnessed the serious economic downturn in Asia-Pacific and a more modest slowing in Western Europe. In the three-year period between 1999 and 2001, on the other hand, TiO2 consumption is expected to show an increase of about 4.4% per year worldwide, paced by strong economic recoveries in Western Europe and Asia/Pacific (see table), according to Millennium’s recently issued TiO2 industry review.

Table/ Announced TiO2 Capacity Expansions
Zwicker, providing updated estimates of TiO2 consumption, said TiO2 demand worldwide in 2000 rose approximately 5%, a strong showing for an industry that historically experiences average growth of 2.5% to 3% per year. Demand was particularly strong in Europe, where the increase last year is estimated at 8-9%, and in Asia, where demand is thought to have surged by 9-10%. U.S. demand growth in 2000 is estimated at 2-2.5%.

The results show the effects of economic trends in the various regions: the European and Asian markets were staging recoveries from downturns experienced in 1998 and 1999, while the strong U.S. economy generated robust TiO2 demand growth in 1999 and early 2000 before activity began to cool in the second half of last year. A series of interest-rate cuts by the Federal Reserve put the brakes on U.S. economic growth in the last half of 2000.

In the smaller but increasingly important Latin American market, TiO2 consumption rose sharply from 1997 to 1999, but much slower growth is estimated for 1999-2001. A key factor, Zwicker said, was the devaluation of the Brazilian currency, the real, in 1999, which actually helped cause a retreat in TiO2 use of about 3% in 2000. In a phenomenon seen in the Latin American market but not duplicated elsewhere, Zwicker said coatings manufacturers reduced the TiO2 content in coatings last year in a move to cut product prices. Currency woes reduced the buying power of consumers in a region where relatively low incomes are a major factor in purchasing decisions. TiO2 consumption is expected to rebound this year in South America, Zwicker said.

Speculating about the TiO2 industry’s outlook for this year, Zwicker said Millennium is forecasting solid, though not spectacular, TiO2 consumption growth of 2.5-3% worldwide, with Asia/Pacific setting the pace at 4-6% higher demand. Growth in demand of 2-5% is expected in Europe, while the increase in the United States is pegged at 1-2%, based on the widespread perception that U.S. economic growth will continue to moderate.