TiO2 price recovery continue

TiO2 price recovery to continue

5:44 AM, 23rd February 2017
Titanium oxide is a natural occurring oxide of titanium with chemical formula TiO2. (File photo)

NEW YORK/CHICAGO, US: A more balanced global supply outlook, stable end-market demand and expected producer pricing discipline should enable prices for titanium dioxide (TiO2) to continue to rise throughout 2017 and into 2018, according to Fitch Ratings.

Continued TiO2 pricing momentum should also lead to stronger TiO2 feedstock prices over the medium term, although Fitch does not expect a significant recovery in the short term given a general lag in recovery of the feedstock market relative to the pigment industry. Stronger cash flow generation from higher prices and restructuring initiatives should help US producers repair balance sheets that have been hampered by the pressured conditions of the past several years. 

Global supply is currently more balanced due to notable closures over the past two years that have helped thin the global supply glut. Fitch expects these closures, which represent 270,000 tonnes of capacity, and the recent fire at Huntsman's sulphate plant in Pori, Finland, will lead to tighter supply in the near term. This should lead to more balanced market conditions that enable global demand to better catch up to global supply. 

Fitch believes top Western producers are strongly incentivized to adopt a more disciplined pricing strategy to offset earnings exposure to the pigment industry. Huntsman's decision to spin off its pigments business to Venator Materials Corp. means that, by mid-2017, two of the three largest TiO2 producers in the world will operate as stand-alone entities. These producers were previously business segments of larger conglomerates whose consolidated earnings were less sensitive to TiO2 price volatility. 

Utilisation rates are projected to increase to the upper 80% range by 2018 from the low 80% range in 2015, driven by tighter supply and recovering demand that should largely track GDP after years of sub-GDP growth. The agency believes the downward demand pressures of high customer inventories and paint reformulation by top coatings companies that led to a weaker demand profile in the past have largely abated.

However, the TiO2 industry as a whole will still be highly sensitive to historical stocking and destocking trends. Additionally, the supply reductions of the past two years should be offset in the long term as Chemours' Altamira expansion ramps up to full capacity, emphasising the importance of stable demand growth and producer pricing discipline in Fitch's projected recovery. 

Fitch expects prices for both sulphate and chloride TiO2 feedstock to eventually follow pigment prices directionally, given that around 90% of TiO2 feedstock produced is used for pigment production and projects the feedstock market will recover in the medium term. 

However, recovery will likely be modest in the short term, owing in part to what Fitch understands to be a general six- to nine-month lag between realising a price recovery in TiO2 and that recovery beginning to flow back downstream to feedstock producers. 

The credit profiles of US producers such as Chemours, Kronos Tronox have improved throughout 2016 and should continue to strengthen in 2017. Higher prices and restructuring initiatives have led to an influx of cash that has enabled issuers to replenish liquidity and deleverage balance sheets, which are currently elevated due to depressed pricing, and, in some cases, high debt loads as a result of acquisitions. 

However, liquidity, financial leverage and capital allocation strategies separate the directional momentum of issuer credit profiles. Chemours' b+*/positive* credit opinion rating benefits from high liquidity, projected deleveraging and the resolution of certain legacy liabilities inherited from its spinoff from DuPont; conversely, Tronox's b+*/negative* credit opinion rating stems from high leverage and a tendency to pursue more shareholder-friendly actions at the expense of its balance sheet.

© Worldofchemicals News 



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