Titanium producers are closing or mothballing plants in Europe raising fears that once demand for the pigment picks up again shortages will trigger big price increases.
The plants being shut down are facilities with high production costs, in particular those using the sulphate process, which in recent years has accounted for about two thirds of total annual capacity in Europe of around 1.5 million tons.
The TiO2 sector in the region is effectively going through a restructuring exercise, which could result in less capacity in Europe a lot of which could be under different ownership.
Even financially hard-pressed producers are positioning themselves to take advantage of a reorganization which could provide some acquisition bargains.
Kronos Worldwide Inc, Dallas, TX, over half of whose volume sales of 530,000 tons of TiO2 were sold in Europe where it has plants in Germany, Belgium and Norway, suspended its quarterly dividend earlier this year to prepare itself for possible plant purchases.
It is prudent to maintain our liquidity and strengthen our balance sheet in order to take advantage of potential opportunities in the chemical markets, including acquisitions of TiO2 manufacturing facilities," said Steven Watson, vice chairman of Kronos, which declared a $26 million loss in the first quarter of this year and expects to make a loss for the whole of 2009.
A possible worsening imbalance between supply and demand in the region's TiO2 sector the majority of whose output goes into the coatings market will mean that a higher proportion than usual will have to be imported into Europe. DuPont, a major player in Europe but without any local production capacity, ships in most of the TiO2 for its European customers from North America.
Over the last one to two years, an appreciating euro, particularly against the U.S. dollar, has triggered an even higher level of imports from outside Europe, although the inflow has eased in recent months as the dollar strengthened against the euro.
Within the global TiO2 market, the European titanium dioxide sector is competitively vulnerable because of its reliance on the traditional sulphate process which is more expensive than the chloride method, or the other main production technology for making the pigment and which was first introduced into Europe in the 1970s.
The recession has made the high production expenses of Europe's TiO2 producers an even heavier financial burden because they are absorbing the costs while demand has been plummeting.
With their inventories rising they have had little alternative but to reduce production either permanently or temporarily.
Huntsman Corporation, Salt Lake City, UT, which has around 60% of its 560,000 tons-a-year of global TiO2 capacity and a similar proportion of sales in Europe, much of it using the sulphate process, has just closed a 40,000 ton-a-year sulphate plant at Grimsby, northeast England, in favor of a UK-based chloride unit. It is also mothballing another sulphate unit at Huelva, Spain.
"In TiO2 in the first quarter, we probably operated our plants at just over 50% utilization rates," Peter Huntsman, the company's president and chief executive officer, told an analysts' conference call in May. "Annual operating costs savings from the Grimsby closure will be approximately $28 million. The production demand from Grimsby has been absorbed by the Greatham facility (in the UK), which we believe is the lowest cost TiO2 chloride facility in Europe."
"Additional cost controls were implemented to lower fixed costs and reduce inventory," he added. "We plan to reduce inventory further by idling our TiO2 facility in Huelva at the end of the second quarter while running other assets at full capacity."
Tronox Inc., Oklahoma City, OK, which filed for Chapter 11 bankruptcy protection in January this year, has put up for sale its 100,000 ton-a-year sulphate plant at Uerdingen, Germany.
Millennium Inorganic Chemicals, Hunt Valley, MD, now owned by Cristal Global of Saudi Arabia, closed a sulphate unit at Le Havre, France, over a year ago. But it has recently shown that poor performing chloride facilities are also under threat when it announced in February that it would be closing a 150,000 ton-a-year chloride unit at Stallingborough, England.
The withdrawal of the UK capacity will be offset by Cristal's expansion of a chloride facility in Saudi Arabia which has one of the lowest production costs levels in the world.
Europe's TiO2 production capacity for supplies for coatings applications will shrink even further as a result of moves by some producers to switch more of their output into specialty applications.
The recently merged TiO2 activities of Sachtleben Chemie of Germany and Kemira of Finland, under the majority ownership of Rockwood Holdings of the U.S., will accelerate the complete shift of a total of 210,000 tons a year of sulphate capacity into niche sectors outside coatings. These include printing inks, fibers, plastics, cosmetics and personal care products.
"We are still supplying the bulk coatings market but we are now predominantly a maker of specialty TiO2 products," said Tim McKenna, Rockwood's investor relations manager. "The sulphate process is suitable for certain niche segments because the additional control it provides on particle size. We are developing new speciality markets for it."
TiO2 producers in Europe are reporting a levelling out of the decline in TiO2 prices. This has prompted a series of announcements of price increases, which are unlikely to be accepted by customers without a significant rise in downstream demand.
The potential for big price rises will be considerably stronger when the market recovers because it could coincide with supply shortages. TZ Mineral International (TZMI), the Australian-based TiO2 consultancy, is predicting scarcities in 2010/11 because of permanent plant closures in Europe, as well as in the U.S.
"By 2010 TZMI expects some reasonable recovery in the profitability of the sector on the back of some hard decisions by major producers to shut high cost assets and a recovery in product pricing," said David McCoy, senior partner at TZMI. "We are entering a period of major change for the titanium dioxide sector."
He predicts the impetus behind the resulting TiO2 price increases will not ease until 2012 onwards when the additional capacity, financed by the higher profits of the TiO2 producers, will start to come on stream.