Tracking the TiO2Trendline
Jim Fisher, president and CEO of IBMA Inc. and a recognized authority on the titanium dioxide (TiO2) industry and its end-use markets, says TiO2 consumption will expand more slowly during the rest of this year in the United States, while pigment demand will remain very strong in Europe and Asia. On the pricing front, TiO2 suppliers are continuing efforts to implement price hikes announced for July, and Fisher says prices will inch upward during the rest of 2000 as those efforts continue. Prices overseas are expected to approach, if not reach, the pricing levels in effect in the United States, he says.
Overall TiO2 consumption has been strong in the first half of the year in the United States — showing an 8.8% increase through June as compared to the same period of 1999. But Fisher says the coatings industry has not been the major factor in that increase. “Contractor sales are good, but trade sales are where we see some softening,” he says. Inventory levels are not really low, at about 40.5 days of sales according to the latest available data, at a point in the coatings-industry cycle where lower levels of 35 days or even 32 days might be expected.
But the situation is markedly different in Western Europe and Asia. “Across Europe, sales are up more than 15% compared with a year ago,” he says. Though the increase is inflated somewhat due to comparison with a relatively soft 1999, Fisher says TiO2 consumption in Europe is “very strong. We think it has surprised everybody, including the paint producers and plastics compounders in Europe.”
As a result, inventories in Europe are down considerably from 1999. “A year ago inventories were about two months of sales; today they’re less than one month of sales,” he says. “Pigment inventory in the hands of producers is less than 30 days, and in the hands of consumers is also quite low.”
Consumption is also very strong in Asia, particularly in China, Taiwan and South Korea, with activity also picking up momentum in the secondary markets in southern Asia, The Philippines, Indonesia, and nearby economies. “These are very small markets, but the growth rates there are in excess of 50% compared with a year ago,” Fisher says. “Obviously consumption levels from a year ago were very low in these markets, but when you look at the big markets — China, Taiwan and South Korea — they’ve been recovering since the middle of last year. What we’re seeing now is a continuation of very strong growth.”
With that assessment of TiO2 consumption trends in the first half of the year, PCI asked Fisher to discuss the outlook for TiO2 demand and pricing, and to review developments among the major TiO2 suppliers.
PCI: What is the U.S. TiO2 demand outlook for the rest of 2000?Fisher: Based on the most recent leading economic indicators for the United States, we foresee that second-half U.S. TiO2 consumption will be 2.0% to 2.5% higher than year-ago levels. The net result in the United States is, we’re going to see a very good overall year for TiO2 consumption. A growth rate of 3–4% overall is very much in sight. For the U.S. market, that’s good growth. The forecast (for a) tailing off in U.S. pigment consumption in the second half is caused by slowing in the U.S. economy and the expected slowdown in housing and consumer durables. We’ve all seen the statistics, and these markets are clearly beginning to weaken.
PCI: What is the demand outlook in Europe, Asia and other regions?Fisher: In Western Europe, the very high rate of pigment consumption will slow. The question is when, and whether it will be an abrupt or gradual slowing. We don’t see it slowing a whole lot until we get into the end of the year.
We also see a lot of products containing TiO2 being exported from Europe owing to their relatively weak currency. When the currency begins to strengthen, which could be caused by a slowing U.S. economy, we expect pigment consumption to start tailing off. We don’t think we’re going to finish the year in Western Europe with double-digit growth compared with 1999, but we’re going to see a very high growth rate, which is supporting efforts by producers to raise prices.
We think Asia will finish the year with a growth rate of over 15%. The rest-of-the-world markets are a mixed bag. Central and Eastern Europe are getting better slowly. Latin America is surprisingly strong. We would expect rest-of-world markets to finish up 3–4%. World consumption is likely going to be one of the better years, compared with a typical growth rate of 2–4%.
PCI: What do you see as the key pricing developments in the TiO2 market?Fisher: The pigment producer would like to have a price for TiO2 that is expressed in U.S. dollars, roughly equal to the U.S. dollar price. This is based on the demands of global pigment consumers who buy pigment in a variety of markets. Obviously if the price in Europe is very low, a PPG or an Akzo is going to pressure its pigment suppliers in the United States about having to pay a higher price in the United States than in Europe. There is a very strong effort under way to establish a global pigment price.
We believe DuPont, the global pricing leader, is attempting to raise prices gradually but steadily, attempting to avoid tremendous swings in price that used to occur, where you’d have a 15% increase in price one year and then a 15% decline the next year. Their interest is having pricing grow 4–5%, somewhat more than inflation but not high enough to support reinvestment by their competitors. They don’t want to see competitors adding capacity, upsetting utilization balances, and causing the prices to skid downhill at a fairly rapid rate.
PCI: Are recent price increases being effectively implemented?Fisher: There was a 5¢/lb North American price increase announced for July 1, which is in the process of being implemented, albeit with some difficulty. Our anticipation is that we see about half of this 5¢/lb being implemented by the end of the year. Depending on the turndown in the industry, that 2–3¢/lb could start to slide, but there will likely be a slowly rising price through the end of the year. Prices stood at roughly 95¢/lb on Aug. 1.
In Europe, producers pushed very strongly for a price increase beginning with a hike of 135 to 160 euros (EUR)/metric ton in April, with weaker European currencies a key reason for the price-hike moves. Then in June and July there was another increase of EUR 135–140/metric ton. With these two price increases almost completely implemented, we’re seeing prices in Europe of around 95¢/lb So you’re seeing prices of about 95¢/lb in Europe and 97¢/lb in the United States, which seems very stable, and we don’t see any slippage in these markets.
In Asia, there has been nearly a quarterly price increase as Asian markets began rebounding in mid-1999. Prices are just about at the U.S. price — in the range of 95¢ to $1/lb — except in some isolated markets. In other markets of major interest, South America in particular, prices are moving up and approaching the U.S. level. Overall, the stability of pigment prices since 1998 has been notable, and there does seem to be a recognition of the U.S. dollar price, with some uniformity around the world.
PCI: Where does global capacity stand and what is the outlook?Fisher: We see effectively 60,000 tons of capacity operating in 2000 that did not operate in 1999, and with our forecast of a modest increase in consumption of about 2.8%, operating rates in 2000 should be 92–93%, which is quite high. As for recent announcements on capacity increases, DuPont’s 80,000 metric tons at New Johnsonville, TN, shouldn’t disrupt the market at all. Huntsman Tioxide has announced roughly 40,000 metric tons globally between 2001 and 2002, and that’s debottlenecking. On balance, over the next couple of years we see about 120,000 tons of new capacity coming into the market, potentially as high as 240,000 metric tons, but we don’t see this having a major impact on supply/demand balances. The major operators are currently operating at rates higher than 91–92%, and they clearly need the capacity.
PCI: Are there any significant changes taking place among the major TiO2 suppliers, and what could be in store?Fisher: Kronos, now the number-five producer worldwide, has done quite a bit in Europe to improve its position. They’ve focused sharply on the European market, where they have some real strengths, and do a good job. Huntsman Tioxide, the number-three producer globally, has made an enormous number of improvements, cost reductions and headcount reductions. We’re beginning to see some of the results. Kerr-McGee, now number four, has become more global, having acquired 80% of Bayer’s TiO2 operations and two Kemira plants. Kerr-McGee’s consolidation strategy generally is to acquire higher-cost facilities at a good price and to work quickly to reduce costs. They’re a good operator and we believe they will reduce noticeably the cost of the assets they acquire. One of the things we foresee is that Kerr-McGee will expand its Tiwest joint-venture operation in Australia. We think as time goes on, Kerr-McGee is going to really pressure the top three.
Number-two producer Millennium Inorganic Chemicals (MIC) has also become a far more global supplier. They acquired the Thann operations of Rhône-Poulenc in Europe and a pigment plant in Brazil. We see MIC and Kerr-McGee as being the two most aggressive growth-oriented pigment producers. Clearly we don’t think acquisitions for the industry are over.
Huntsman provides Tioxide with the capability and interest to invest in the business. We think they’re seeing things in Tioxide that make them want to grow in this business. So Tioxide will likely be an acquirer in addition to Kerr-McGee and Millennium. It’s a consolidating industry, with the top four producers accounting for about 70% of global capacity, and the top six to seven accounting for about 85%.
PCI: What is your view on the price outlook?Fisher: There’s pretty much of a consensus in the industry that the producers have to improve their bottom lines, because feedstocks are going up in price and they’re starting to look down the road at investing in new capacity. Prices right now aren’t good enough to support capacity increases, with the exception of one, maybe two producers. The overall global dynamic is such that prices should be stable.
My belief is that the year is going to finish well, and that the producers will push for an increase in 2001, along the lines of 4–5% in the second or third quarter of 2001 in North America. The rest of the world will follow U.S. pricing, with prices to continue to increase in Europe and Asia.
James R. Fisher is president and CEO of International Business Management Associates Inc. (IBMA), an international consulting firm specializing in the chemicals and plastics industries, with particular emphasis on the TiO2 pigments and minerals industries. He was formerly vice president, Planning and Technology, for NL Industries’ Kronos and Rheox businesses, and previously held a number of technical and management positions with Union Carbide Corp. IBMA is located at 14 Washington Road, Suite 701, Princeton Junction, NJ 08550; phone 609/275.0672; e-mail firstname.lastname@example.org; website www.ibmainc.com.