19:07 PM | July 25, 2011 | —Lindsey Bewley
North American titanium dioxide (TiO2) contracts for the second-quarter have settled at an increase of 15 cts/lb, up about 10% from the first-quarter 2011, to $1.55-$1.69/lb del, on escalating raw material costs, high operating rates, and very tight supply. The settlement represents a 29% premium over contracts in the second quarter of 2010.
Producers nominated the 15-cts/lb hike effective April 1, but it was not implemented until July 1 due to the standard 90-day price protection. However, another round of price increases is slated for October 1. Four of the five major U.S. producers—Cristal Global, DuPont, Kronos and Tronox—have each stepped out with nominations ranging between 25 cts/lb to 35 cts/lb.
There has been no confirmation that Huntsman will join its counterparts in the effort to further raise prices, but market sources say it is likely due to shortages in titanium ore and ilmenite, key raw materials needed to produce TiO2. About 94% of the titanium ore consumed in the U.S. is used to make TiO2, while the remaining 6% is used in welding rod coatings and for manufacturing carbides, chemicals, and metal, according to IHS SRI Consulting (IHS SRIC; Menlo Park, CA). The largest titanium reserves, owned by DuPont at Maxville and Starke, FL, account for 75% of U.S. reserves. DuPont consumes about 300,000 m.t./year from these mines.
Demand for TiO2, a white pigment used in coatings, paper, plastics, and laminates, is growing at 2%-3%/year, Tronox says. Global demand in the $10.2-billion TiO2 market reached about 5.3 million m.t last year, and is expected to grow by about 5% in 2011, to reach 5.6 million m.t., says SRIC. “This rate is expected to continue as the Western economies improve,” says Eric Linak, senior analyst at SRIC.
Excluding China, global operating rates fell from about 85% in 2008 to 75% in 2009 due to the economic downturn, SRIC says. Utilization was about 88% in 2010 and is expected to be about 90% in 2011 as demand rebounds, Linak says.
With demand recovering, global capacity remains short, players say. About 275,000 m.t./year of capacity was shut down during the recession, including Cristal Global at LeHavre and Baltimore; Huntsman at Grimsby, U.K. and Tronox at Savannah, GA. “This represents about 4% of global capacity,” Linak says. “These plants are unlikely to ever restart as they are based on the sulfate capacity.”
But given the three- to four-year lead time needed to add brownfield capacity, “the market is likely to remain tight until there is some relief in additional capacity, probably with incremental expansions,” Linak adds. In turn, analysts expect prices to rise at annual double-digit rates through at least 2013. “In the meantime, suppliers will be in the driver’s seat for a change. It looks like caution is prevalent among suppliers in building any new capacity.”
The only producer that has so far confirmed plans for new capacity is DuPont, which will invest $500 million to build a 200,000-m.t./year TiO2 production line at its Altamira, Mexico facility by the end of 2014. The project is part of a global expansion that will lift DuPont’s total TiO2 capacity by about 29%, to 1.55 million m.t./year. DuPont is the largest maker of TiO2, with a global market share of 20%, according to SRIC estimates. In addition to the new line at Altamira, DuPont says it will build 150,000 m.t./year of capacity at existing sites over the next three years. DuPont makes TiO2 at DeLisle, MS; New Johnsonville, TN; Edge Moor, DE; Altamira; and Kuan Yin, Taiwan.
Meanwhile, Tronox says it plans to debottleneck its plants at Botlek, the Netherlands; Hamilton, MS; and its Tiwest joint venture at Kwinana, Australia, but has not specified the size of the capacity increases. The company emerged from Chapter 11 bankruptcy in February (CW, Feb. 21/28, p. 12) and recently announced first-quarter net income of $641.5 million, on sales up 34%, to $374.4 million. The company is “still in the process of developing our brownfield expansion plans,” CEO Dennis Wanlass told investors on a recent conference call. “Debottlenecking and technical advances could take the 90,000 m.t./year Botlek plant to about 115,000 m.t./year, while Hamilton, Kwinana may see smaller expansions,” Wanlass says. Last summer the company completed a capacity expansion at Kwinana, boosting capacity from 110,000 m.t./year to 150,000 m.t./year.
The company expects prices to rise until global capacity is able to meet demand. “Customers were hit with a double whammy—tight TiO2 supply and ore shortages,” Wanlass says. “I think the key to any growth, going forward, is feedstock.” Tronox’s Tiwest jv is the world’s largest integrated producer of ilmenite, giving the company a strategic advantage amid global shortages.
In China, capacity was about 1,150 million m.t./year in 2008 and is now about 2,250 million m.t./year, SRIC says. “One must be a bit careful with Chinese data, as many plants are small and do not produce Western-quality product,” Linak says. Chinese producers have expanded rapidly in the past decade and now account for 20% of global capacity, but that capacity is spread among a large number of producers. “Western exports into China remain strong despite the building of capacity” in China.
DuPont says it is also pursuing a license to build a 200,000-m.t./year TiO2 plant at Dongying, China and has so far received necessary approvals in Dongying and in Shandong Province. It has also obtained approval from the Ministry of Environmental Protection and passed technical assessment of underground injection feasibility at the Ministry of Land and Resources.
However, a start-up date “cannot be predicted with any certainty” because the project is still going through the Chinese government approval process, DuPont says (CW, May 16, p. 7).