Sep 2 2010
The US$10 billion titanium dioxide pigment 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 portfolio’s.
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 annual independent in depth analysis of the global TiO2 sector, the weighted average manufacturing cash cost decreased by 11% in 2009, while at the same time sector revenues contracted by only 4.5% on a US 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.
Sulfate plants from China led the manufacturing cash cost tables in 2009. At number one position was Guangxi Dahua, a 30,000 tpa plant, which benefited from a sharp decrease in sulfuric acid pricing and high capacity utilisation throughout the year. Amongst the 10 lowest cost plants in 2009 were 5 more Chinese sulfate plants, two North American chloride operations owned by DuPont, a Ukrainian sulfate plant and Cristal Global’s leading chloride facility located in Saudi Arabia.
However, operating with a low manufacturing cash cost platform was not the only precursor to profitability: product quality and price were key factors requisite for producers to return acceptable margins. DuPont’s 340,000 tpa chloride plant in DeLisle, Mississippi, was the most profitable facility in this year’s study. Sichuan Lomon’s Mianzhu sulfate pigment plant came in as the second most profitable facility in 2009.
On average, industry profitability expanded by over US$100 per tonne 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 tonne 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% higher than the industry-wide average for 2009.
North American plants were the most profitable in 2009 (R/C of 1.36), followed by those in Asia-Pacific (R/C of 1.20) and Western Europe (R/C of 1.08). All regions had plants located at both ends of the industry-wide 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.
The combined weighted average revenue to cash cost ratio increased 7.6% for the five global producers (DuPont, Cristal Global, Tronox, Huntsman and Kronos) in 2009, accounting for 67% of the production covered in the Study. The R/C ratio for the regional producers increased by 11.8% in 2009, and this collective of companies accounted for 29 plants, of which 85% was sulfate-route production.
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% of the output that year was operated with negative cash margins, in 2009 that had decreased back to 11%, 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 5 sulfate plants with costs below the industry weighted average. In 2009 the number increased dramatically to 14 plants, representing 15.5% 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 tonnes, down 3.0% from 2008. Regionally, the main consuming markets for TiO2 pigment are the major industrialised economies of North America, Europe and the 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 utilisation 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.
Source: http://www.tzmi.com/