Expectations the market will increase capacity to meet the rising demand are limited by the ability to source titanium feedstock, which is also forecast in deficit
(PRWEB) March 25, 2011
The US$12 billion global titanium dioxide pigment industry improved profitability in 2010 compared to 2009, as rebounding demand led to fixed cost dilution and real price recovery from mid-year.
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 increased by 2% in 2010, while at the same time sector revenues increased by 28% on a US dollar basis (21% relating to volume increases as demand rebounded). The net result was further improvement in the industry revenue to cash cost (R/C) ratio to 1.29, taking the sector back to profitability levels last seen in 2006.
In 2008, the global TiO2 sector was financially at rock-bottom. Short-term cost spikes in energy and sulfur had significantly inflated the cost base, while at the same time real pricing was declining. Cost relief led to improved profitability in 2009, at a time when pricing and volume was under pressure. In 2010, pricing was leading the rebound in profitability; however, cost inflation is expected in the next two to three years, particularly as titanium feedstock producers insist on high prices to fund necessary resource replenishment.
In 2010, chloride plants regained control, accounting for 6 of the 10 lowest cost plants in the world. According to TZMI’s independent analysis, E. I. du Pont de Nemours and Company (DuPont) held the lowest cost position with its 340,000 tpa plant in DeLisle, Mississippi. Plants operated by all five of the major global producers (DuPont, Cristal Global, Huntsman Corporation, Kronos Worldwide and Tronox Inc) were in among the 20 lowest cost facilities. Half of the 20 lowest cost plants were located in China.
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 DeLisle plant was again the most profitable facility in this year’s study, with the company’s other 4 chloride facilities ranking among the world’s top 10 most profitable for 2010. Huntsman’s 60,000 tpa Malaysian operation was the most profitable sulfate plant, coming ninth in the global rankings. The most profitable Chinese sulfate pigment plant came in at 16 out of 57 plants analysed in 2010.
On average, industry profitability expanded by more than US$140 per tonne in 2010 relative to 2009. The cost gap between chloride and sulfate technology expanded 13% in 2009, primarily as a result of higher energy prices and two high-cost chloride plants eliminated from the 2010 analysis due to closure in 2009: Cristal’s Baltimore, MD and Tronox’s Savannah, GA facilities.
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 1.54, approximately 19% higher than the industry wide average for 2010.
North American plants were the most profitable in 2010 (R/C of 1.46), followed by those in Asia-Pacific (R/C of 1.22) and Europe (R/C of 1.17). All regions had plants at both ends of the industry-wide profitability curve; however, North American plants dominated the most profitable end of the spectrum.
The combined weighted average revenue to cash cost ratio increased 6% for the five global producers (DuPont, Cristal Global, Tronox, Huntsman and Kronos) in 2010, accounting for 65% of the production covered in the study. The R/C ratio for the regional producers increased by 4% in 2010, and this collective of companies accounted for 29 plants, of which 87% was sulfate-route production.
There was another significant decrease in the number of plants operating in a negative cash-margin position in 2010, building on the improvement seen in 2009. 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%. In 2010, only 3% of the output covered in the study, or 4 plants, were below the cash breakeven level.
“Manufacturing cost is expected to increase by around 30% over 2010 levels by 2015,” TZMI senior partner David McCoy said. “Although rising costs are substantial, it is likely that margins will expand further in the coming years as a result of a global TiO2 pigment supply shortage, as already witnessed with sharp price increases in the first quarters of 2011.”
Mr McCoy also cautioned that, “expectations the market will increase capacity to meet the rising demand are limited by the ability to source titanium feedstock, which is also forecast in deficit”.
New mining operations take on average about six to eight years to enter the supply chain. TZMI’s view is the current supply shock is a direct result of an industry driven to unsustainable profit levels over many years, resulting in a lack of necessary investment to ‘keep the wheels turning fast enough’. There are not expected to be any new TiO2 pigment plants built outside China before 2013 to 2014.
In 2010 global pigment demand was estimated at 5.3 million tonnes, up 12% from 2009. Regionally, the main consuming markets for TiO2 pigment are the major industrialised economies of North America, Europe and the increasing role of 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.
Each year TZMI releases its Global TiO2 Pigment Producers Comparative Cost and Profitability Study, the benchmark analysis of the leading industry producers. The study covers 57 pigment plants spread across 27 countries and covers almost 89% of the 2010 output. The study is an independent analysis built up from individual plant cost structures plus an analysis of global pigment trade during 2010.
TZMI operates a team of expert consultants from global locations including Australia, United States, South Africa, China and Europe. With more than 150 years of accumulated experience, TZMI’s consultants have been closely involved in the mineral sands and TiO2 pigment industries since the 1970s. TZMI specialises in confidential consulting services for the titanium minerals, zircon, titanium sponge, TiO2 pigment and coatings industries as well as publishing specialised market studies and reports based on its comprehensive database of production and market data. http://www.tzmi.com
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