Titanium Dioxide Market Slows on Uncertain US Economy And Cautious Customer Buying Patterns
TITANIUM DIOXODE (TiO2) is showing signs of stalling as an uncertain US economy and exceedingly cautious customer buying patterns are combining to slow a once promising market, especially in the US. Inventories are up, and the usual strong second quarter, driven by coating companies purchasing TiO2 in anticipation of the summer house painting and construction season, has not materialized as it has in prior years.
Before the fourth quarter of 2000, the TiO2 industry was running full out, with operating rates in the low- to mid-90s in the US and 95 percent in Europe. In the first quarter, operating rates were eased back as sales volumes slipped slightly.
From March to April of this year, production of Ti02 climbed roughly 12,000 tons, according to the US Department of Commerce. At the same time, stocks continue to rise, with April showing a 2,500 ton increase.
In 2000, Ti02 demand increased between 4.5 and 5 percent. In the US, demand grew roughly 2.5 percent. In Europe and Asia, demand was much higher as both regions experienced roughly 8 percent growth. This year, demand growth is expected to reach no more than 3 percent, which would be at trend for the US.
Millennium Chemicals, the second largest producer of Ti02 in the world, recently lowered its second quarter outlook based in part on the poor performance of its Ti02 business. "The projected second quarter shortfall from analysts' expectations is due to weaker than anticipated demand and pricing for titanium dioxide and Equistar's principal products, ethylene and polyethylene," says William M. Landuyt, chairman and CEO of Millennium. The company projects second quarter sales volumes to be equal or slightly above first quarter volumes, which were 154,600 metric tons.
While flat or slightly increased sales volumes may look good in these economic times, the numbers are disappointing considering the second quarter is usually the industry's strongest. In the past, TiO2 producers enjoyed a strong second quarter as coatings makers purchased large quantities of TiO2 to prepare for a summer's worth of construction and house painting.
Further compounding difficulties for producers is the fall of the euro versus the dollar. Since March, the euro has dropped roughly 8 cents versus the dollar. This hurts producers in two ways. US companies producing TiO2 in Europe sell their product in euros, but many of their raw material costs, such as energy and ore, are in dollars. Also, a slumping euro means less exports from the US as the cheaper euro encourages buying in Europe.
Last year, with steady demand and high operating rates, producers announced a series of price increases, gaining about 4 cents on the whole. In January, producers attempted to gain another increase in Europe as DuPont launched an increase of EURO140 per metric ton and Millennium countered with an increase of EURO150 per metric ton.
Elsewhere in the world, producers have launched increases as well. In Australia, there was an increase of A$150 ($76) per metric ton. The Asia-- Pacific region saw an increase of $100 per metric ton for the first quarter, and Japanese producers went ahead with a Y30 (25 cent) per kilo increase, also for the first quarter. The success of many of the increases remains in doubt as sales volumes remain off.
Although Ti02 pricing is now on the decline, and reinvestment economics-- $2,300 per metric ton-are well off, producers have launched a series of debottleneckings at several plants. The most recent announcement came from Kemira, which divested two-thirds of its TiO, capacity just last year. The company will now boost the capacity at its remaining plant, in Pori, Finland, by 10,000 metric tons to 130,000 metric tons.
The additional capacity, which will cost EURO21 million, is due on stream in 2003 and will be achieved through expansions to several process stages. The company has also set a long-term goal of 150,000 tons for the Pori plant, which is already the world's largest sulfate-process plant.
Last year, the company sold two chloride-process plants in Savannah., Ga., and Rotterdam, the Netherlands, with a total capacity of 200,000 metric tons, to Kerr-McGee.
Kemira says the Pori unit, using ilmenite ore, was the most profitable of the three. Kemira expects to make the same level of operating profit from the facility as it did from all three plants.
Huntsman Tioxide has also launched a series of expansions. The company is expanding its plant in Huelva, Spain, by 17,000 tons. The new capacity is expected to come on stream in the fourth quarter of 2002. Huntsman says the cost of the expansion will be $40 million.
Huntsman is also boosting the nameplate of its Teesside, UK, site by 40 percent. The $72 million project will bring the nameplate to 100,000 tons by building a new unit and removing art older one. In Malaysia, Huntsman has spent $10 million to up capacity by 6,000 tons to roughly 60,000 tons.
Huntsman Tioxide is also undertaking a $49 million supply-chain improvement project, called Hermes, to optimize operations from purchasing through to customer service and transact electronically with customers and suppliers.
Although not expanding, Kerr-McGee says it is lowering production costs at the plants it acquired from Kemira. The company is expanding its Kwinana TiO2 plant in West Perth, Australia. Kerr-McGee will spend $10 million to add 10 percent of capacity, bringing the unit's nameplate to 95,000 tons. This expansion is due on stream later this year.
Kerr-McGee also purchased Bayer's 20 percent share of their TiO2 joint venture for EURO25 million. The venture, which was set up two years ago, comprises Bayer's former Ti02 business, which Kerr-McGee purchased 80 percent of with an option to acquire the other 20 percent following the end of 2000. The business has two plants in Krefeld-Uerdingen, Germany, and at Antwerp, Belgium.
Kronos, the TiO2 arm of NL Industries Inc., has resumed production at its Leverkusen, Germany, chloride-- process TiO2 plant in early April, following a fire at its sulfate-process plant on March 20. Kronos expects to resume full production at the sulfate plant by October of this year, at the latest. The company says roughly 20 percent of the sulfate-process plant's production has already been recovered, primarily by using excess calciner capacity at its Nordenham, Germany, plant.