PERTH, Australia - The $10 billion titanium dioxide industry improved profitability in 2009 compared to 2008, as variable costs reduced at a faster rate than selling prices. Leading producers also idled high-cost plants during the year, leading to improved asset portfolios. A rebound in demand in the second half of 2009 had plants winding back to full production rates. TZ Minerals International Pty. Ltd. (TZMI) announced that, according to its independent analysis of the global TiO2 sector, the weighted average manufacturing cash cost decreased by 11 percent in 2009, while at the same time sector revenues contracted by only 4.5 percent on a U.S. dollar basis. The net result was a further rebound in the industry revenue to cash cost (R/C) ratio to 1.21, taking the sector back to profitability levels last seen in 2006.
On average, industry profitability expanded by over $100 per ton in 2009 relative to 2008. Manufacturing cash costs dropped substantially relative to 2008 costs on the back of declines in raw material and energy input costs. Producers managed to hold fixed costs flat, but production rates were down in the first half of 2009 and therefore, fixed cash costs per ton increased.
The cost gap between chloride and sulfate technology shrunk significantly in 2009, primarily as a result of a significant decline in sulfuric acid pricing.
DuPont remains the clear industry leader with the highest profitability rating, when all five plants in its portfolio are consolidated. According to TZMI, DuPont’s weighted average revenue to cash cost ratio was 1.47, approximately 21 percent higher than the industry-wide average for 2009.
North American plants were the most profitable in 2009, followed by those in Asia-Pacific and Western Europe. All regions had plants located at both ends of the profitability curve; however, North American plants dominated the most profitable end of the spectrum, while Western European plants were more prevalent at the other end of the income distribution.
There was a significant decrease in the number of plants operating in a negative cash-margin position in 2009. Whereas in 2008 TZMI calculated that 27 percent of the output that year was operated with negative cash margins, in 2009 that had decreased back to 11 percent, or 16 plants. “In particular sulfate producers saw significant relief in the form of low sulfuric acid and energy costs, while some global producers have reset their portfolios by idling high-cost plants ” said David McCoy, Senior Partner at TZMI. “In 2008, there were only five sulfate plants with costs below the industry-weighted average. In 2009, the number increased dramatically to 14 plants, representing 15.5 percent of the production in the study. The differential in operating cost structures between chloride and sulfate process plants nearly halved in 2009 over 2008 levels, coming back in line with the differential last seen in 2006.
In 2009, global pigment demand was estimated at 4.68 million tons, down 3.0 percent from 2008. Regionally, the main consuming markets for TiO2 pigment are the major industrialized economies of North America and Europe, with an increasing role for China. Per-capita consumption is highest in North America and Western Europe. The greatest opportunities for growth lie in the less-developed high-population economies, led by China and India.
“Late in 2008 and early in 2009 there were further announcements of plants being idled or temporarily closed, as demand collapsed in all markets” said McCoy. “Continuing over the next 18 months, TZMI expects some further recovery in the profitability of the sector on the back of some hard decisions by major producers to shut high-cost assets, along with recovery in product pricing. However, generalities about this sector should not be treated as gospel, as each producer and region is distinct. We are entering a period of major change for the titanium dioxide sector.”
Higher titanium feedstock prices are expected to be fully rolled out by 2011 to support much needed investment decisions by the suppliers. Pigment manufacturers will have to pass through reasonable price increases over the ensuing period just to tread water. Capacity utilization rates are expected to rise sharply as the global supply chain is restocked. There will still be an extended period of price and profitability recovery until global producers will commit to brownfields expansions. There are not expected to be any new pigment plants built outside China before 2012.
Each year TZMI releases its Global TiO2 Pigment Producers Comparative Cost and Profitability Study. The study covers 60 pigment plants spread across 27 countries and covers almost 91 percent of the 2009 output.