This switch into specialities is causing concern among Europe’s coatings producers at a time when they have to struggle with rising TiO2 prices due to current imbalances between supply and demand for the pigment.
These anxieties have been heightened after the announcement by the German-based TiO2 producer Sachtleben Chemie that it is taking over crenox, another German TiO2 producer. It was placed in administration three years ago when Tronox, its U.S.-based parent, filed for Chapter 11 bankruptcy protection.
Sachtleben, a joint venture between Rockwood Holdings of the U.S. and Kemira of Finland, is primarily a speciality TiO2 producer with around 240,000 metric tons of annual capacity at two plants in Duisburg, Germany, and Pori, Finland.
Crenox has a 107,000 tons a year plant at Krefeld so its acquisition will considerably strengthen Sachtleben’s position in the European TiO2 market, in which the other main players are DuPont, Cristal, Huntsman, and Kronos.
However crenox is primarily a commodity-type TiO2 producer whose main outlet is the coatings market. Furthermore both Sachtleben and crenox use the sulphate process, which is particularly suitable for the production of specialities.
The acquisition could result in a further decrease in production capacity available for commodity-priced TiO2 for coatings at a time when supply has not been keeping up with demand. Consequently prices for the pigment have risen by around 50 percent since early last year with analysts predicting further rises in the second half of 2012.
TiO2 capacity in Europe has been under pressure since a steep drop in demand in the aftermath of the financial crisis in 2008 led to the closure of some uneconomic plants in the region. Producers of the pigment have reported that they have been sold out over the last two years.
There have been small recent increases in capacity due to debottlenecking. But there appears to be little prospect of entirely new capacity being built in Europe over the next several years.
Even with the steep rises in TiO2 prices over the last two years, which has pushed up operating margins to around 30 percent, producers are wary about investing large sums in new plants.
There are signs that TiO2 prices are beginning to flatten out in the wake of a slow-down in economic growth in Europe, with some large economies going into double-dip recessions.
Then the producers themselves face a squeeze on their margins from rising costs in their raw materials. Suppliers of titanium-containing ores like ilmenite have been pushing through steep price rises in the wake of shortages following a lack of investment in mining facilities. They want to take advantage of the high TiO2 prices to make up for a lengthy period of low profitability.
TiO2 producers perceive specialities as having more enduring margins because of their added value and the opportunities they provide to exploit niche segments.
Europe is particularly suitable for making speciality TiO2 because of the predominance of the sulphate as opposed to the chloride process for the production of the pigment in the region.
The sulphate process, which accounts for around two-thirds of the region’s TiO2 annual capacity of about 1.5 million tons, produces the pigment in both the rutile and anatase chrystal forms, with the latter being preferable for coatings and anatase for specialities like cosmetics, personal care products, foods and pharmaceutical excipients. The chloride process produces only the rutile form.
Sachtleben, which became a joint venture four years ago with Rockwood having the majority ownership, makes TiO2 for textiles, packaging films and inks, pharmaceuticals, cosmetics and food, liquid chromatography as well as the major uses of TiO2—coatings, plastics and paper. But even for these three sectors it makes mainly high-grade specialty grades.
Last year Rockwood reported that its titanium dioxide business comprising Sachtleben recorded a 23 percent increase in sales to $930 million with a 99 percent rise in earning before interest, tax, depreciation and amortisation (EBITDA) to $258 million—equivalent to a margin of 28 percent.
Crenox, which has annual sales of around €170 million ($217 million) with staff of 550 all of whom will be retained after the merger, says that it does not expect any objections from the competition authorities to the takeover because the two entities operate in different sectors of TiO2 market.
“At the moment 50-60 percent of our output goes into coatings, 25 percent plastics and the rest to paper production and specialities, such as catalysts for vehicle exhaust and chemicals and petrochemicals production,” said Berendt Koehler, crenox’s marketing director.
“Specialities are appealing to a sulphate TiO2 producer because of their margins,” Koehler said. “But a lot depends on demand. The volumes of speciality grades are pretty small. On the other hand there are segments where there is little competition.”
Sachtleben now plans to optimize production between its three plants in order to exploit market openings. The addition of the crenox unit “provides us with a financially attractive capacity expansion to meet the growing needs of customers in all market segments,” said Vernon Sumner, Sachtleben’s chief executive.
Besides offering opportunities to expand its specialities portfolio it would give Sachtleben scope to establish closer ties with coatings producers.
“It will help us grow in sectors like coatings which has not been possible in the past because we have not had enough production capacity,” said Axel Markens, Sachtleben’s head of communications. “But we won’t be changing our strategy. We are still not big enough to compete in a commodity mass market. We will focus on specialities in coatings like those with functional properties derived from high TiO2 grades.”
Sachtleben, which started business in 1878 as a barium sulphate producer for the coatings industry, already works closely with coatings producers in developing formulations using its barium sulphate and zinc sulphide as extenders or fillers for TiO2.
It has recently increased its capacity at Duisburg for barium sulphate and zinc sulphide by 15 percent to 100,000 tons a year. “We are helping coatings companies to reduce TiO2 consumption without sacrificing quality,” said Markens.
There is mounting evidence that coatings producers in Europe are reducing the use of TiO2 in their formulations by at least a few percentage points because of the rising cost of the pigment. This may help to offset the impact of reductions in TiO2 output for coatings due to moves into specialities.