Industry veteran sees likelihood of continued increases in TiO2 prices, warns of pressure on coatings makers’ margins

Citation

(2003), "Industry veteran sees likelihood of continued increases in TiO2 prices, warns of pressure on coatings makers’ margins", Pigment & Resin Technology, Vol. 32 No. 4. https://doi.org/10.1108/prt.2003.12932daf.001

Industry veteran sees likelihood of continued increases in TiO2 prices, warns of pressure on coatings makers’ margins

Industry veteran sees likelihood of continued increases in TiO₂ prices, warns of pressure on coatings makers’ margins

Keywords: Coatings, Industry

A potential upward spiral in titanium dioxide (TiO₂) prices could exert significant additional profit-margin pressure on coatings manufacturers in the next several years, a longtime TiO₂-industry executive warned at a recent industry conference. Bruce Zwicker, formerly vice president of Millennium Chemicals’ Global Coatings Business who remains active in the industry as a consultant, said further hikes in TiO₂ prices are a good bet – with TiO₂-capacity tightness a real possibility as early as 2004.

Zwicker offered these views during a presentation titled “Titanium Dioxide Pigment and the Paint and Coatings Industry,” given during the recent “TiO₂ 2003” conference in Orlando, FL. The conference was sponsored by Intertech, based in Portland, ME.

Recent price-increase moves by TiO₂ suppliers will be accelerated, Zwicker said, if growth in the world’s major industrial economies proceeds as expected. “If the economy does recover, price-rise momentum will strengthen for coatings’ raw materials,” Zwicker said during an interview with Insider News following his presentation. “The danger for coatings companies is that they are in the process of being squeezed by raw-material suppliers on one side who need to restore some pricing, and the leverage on the part of their customers – home centers, contractors, OEMs, pushing back on paint price increases.”

Zwicker, however, added the caveat that economic recovery, particularly in the United States, could be derailed by war in Iraq, new terrorist attacks in this country or other “geopolitical issues.” Those events could send the economy back into recession, put a halt to TiO₂ price increases and “return TiO₂ producers to a dismal state,” he said.

Zwicker, in a review of recent developments in the TiO₂ industry, said major TiO₂ producers have been forced to take major cost-cutting actions to deal with serious price erosion that shaved an estimated 18 percent from TiO₂ prices between early 2001 and early 2002, due to economic downturns. He estimated that TiO₂ consumption declined 5-6 percent in 2001. As a result, TiO₂ producers were caught in a squeeze between high ore prices and demand weakness. High ore costs were the result of very tough long-term contracts set when the pigment industry was enjoying good times in the 1990s. Meanwhile, demand slowed and too much capacity existed. Price erosion began to emerge in 1999 but turned serious in 2001. In response, TiO₂ producers moved to slash operating and administrative costs just to keep their heads above water, which they managed to do.

With demand staging a rebound in 2002 – rising by 6-8 percent when averaged on a worldwide basis – TiO₂ producers have acted to push prices up with three price-hike announcements in 2002. Further announcements have been made in recent weeks.

Zwicker characterizes the current supply-demand situation as “in balance,” but says supply tightness could develop, depending on whether economic growth meets or even exceeds current projections that call for worldwide growth averaging 2.9 percent in 2003. Such growth, if sustained, could send TiO₂-production operating rates up to 95 percent by 2004 or 2005, with signs of tightness potentially appearing as early as the seasonal demand peak period of April to June of this year.

For a more detailed report on Zwicker’s views on the outlook for TiO₂ supply and price trends, see the PCI Web

site at www.pcimag.com