TORONTO (miningweekly.com) – Titanium dioxide producers would see their earnings under pressure at least into 2016, as the industry continued to weaken in the near term amid price pressures associated with increased supply and sluggish demand growth, ratings agency Moody’s Investors Service said on Wednesday.

In its report 'Titanium dioxide cycle yet to hit bottom, recovery possible by 2017', Moody's noted that demand had fallen as customers had found ways to reformulate, use less and substitute chloride titanium dioxide with a lower-cost slate titanium dioxide.

“Operating rates in the titanium dioxide industry have been low, leading to price declines in the first and second quarter. Prices will likely fall further as the industry enters the seasonally weak second half and new capacity in China and Mexico comes online,” Moody’s VP and senior analyst Joseph Princiotta explained.

New capacity in China and Mexico were expected to offset recent or pending closures.

Moody’s stressed that the supply dynamics for the whitening agent were exacerbated by customers now using more lower-cost sulphate titanium dioxide, rather than chloride titanium dioxide, or just less of the product overall.

China offered a mixed supply picture, but represented a wild card on the demand-front. The Asian country added about 2.5-million tons of production capacity in recent months, bringing global capacity to about 7.2-million tons.

Industry consolidation and rationalisation were taking place in China, but with more than 50 small-scale producers, it was difficult to see the net effects of capacity creep versus closures and consolidation. Net exports from the country were important and had grown over the last few years to roughly 140 000 t in 2014, with Moody’s expecting this to flatten out through the remainder of 2015. The recent weakening of the renminbi had also raised further concerns about Chinese exports. 


According to Moody’s, the titanium dioxide industry's second-quarter results were weak, with recovery unlikely before 2017. The agency noted that all major rated producers reported significant declines in year-on-year and sequential earnings before interest, taxes, depreciation and amortisation (Ebitda).

Prices had dropped between 11% and 20% when compared with the second quarter of 2014, pulling Ebitda down. “In light of where operating rates are today, we believe it could take until 2017, at the earliest and absent [mergers and acquisitions] activity, before the industry begins to recover,” Moody’s advised.

“Operating rates are now around 80%, but rates closer to 90% are necessary to give producers the ability to raise prices. Without meaningful capacity rationalisation, we expect the industry will not recover until 2017," Princiotta noted.

However, Moody’s added that significant titanium dioxide consumers were reaping the benefit. Coatings producers still used meaningful amounts of titanium dioxide as a raw material and lower prices were expected to benefit companies such as Sherwin-Williams, PPG Industries, Valspar, RPM International and Axalta Coating Systems.