US Q4 TiO2 headwinds will slow momentum - Jefferies

11 July 2016 22:57 Source:ICIS News

HOUSTON (ICIS)--US titanium dioxide (TiO2) prices are expected to increase marginally in the third quarter, partly on favourable inventory levels, investment bank Jefferies & Co said on Monday, but headwinds will return in the fourth quarter.

The company estimates current TiO2 inventories amount to fewer than 50 days’ supply versus more than 90 days about two years ago, giving domestic pigment producers recent pricing power that yielded increases of about 1% for Q2 and could bring gains of 2-3% in Q3.

Beyond that, however, seasonally weak Q4 demand, excess production in Asia and likely softness in the automotive markets are among headwinds that render talk of price gains in Q4 2016 and Q1 2017 “too optimistic”, Jefferies said.

Regionally, price movement will vary according to post-Brexit foreign exchange swings, the company added.

Only one US Q4 price increase initiative has surfaced, so far. Kronos is seeking a gain of 7 cents/lb, effective July 1.

Jefferies estimates global TiO2 volume at about 7m tonnes/year – 60% going into paints and coating markets, 20% into plastics, 10% into the paper market and about 10% into other applications. It assesses average industry production rates at about 85%. The industry’s historical production-rate ceiling is 91-92%, the company said.

Jefferies also commented on Huntsman’s recent announcement that it will close its TiO2 plant in Umbogintwini, South Africa. That closure would reduce global supply by about 0.4%, a step Jefferies described as “helpful but insufficient”.

US customers were surprised by the Kronos initiative, saying market economics expected by then – including many of those cited by Jefferies – are unlikely to support the effort.

If successful, the Kronos increase would not be implemented until 1 October or thereafter, allowing for 90-day price protection afforded to most customers.

“People are shocked that price efforts are continuing into the fourth quarter,” a buyer said.

Production probably will be completed for the year by that time, the source said, adding that it expects a surplus of TiO2 during Q4, which is typically the weakest demand period of the year.

Another buyer said the initiative is driven partly by momentum stemming from Q2 TiO2 gains, and the anticipated Q3 increases.

Several sources said demand has moderated since the spring peak, and that they expect a steady summer.

One paint maker said, however, that it hopes for better late-summer demand versus July and August of 2014 and 2015.

The market is currently negotiating third-quarter increases of 7-10 cents/lb proposed separately by each of the major US producers. Several sources, however, expect supply overhang to resurface during the traditionally weak fourth quarter.

Current TiO2 prices are in a Q2 range of $1.18-1.25/lb FD (free delivered), as assessed by ICIS for smaller-volume buyers.

TiO2 is used in products such as paints and coatings – including glazes and enamels – plastics, paper, inks, fibres, foods, pharmaceuticals and cosmetics.

Other major US TiO2 suppliers include Chemours, Cristal and Tronox.

Focus article by Larry Terry

INSET IMAGE: TiO2 used in paint. (Cultura/REX/Shutterstock)

By Larry Terry

http://www.icis.com/resources/news/2016/07/11/10015402/us-q4-tio2-headwinds-will-slow-momentum-jefferies/