T Z M I Where to with TiO2 - ASEFAPI DIOXIDO DE TITAN… · of the 6.0 million tonnes of global capacity. The extent of ... Kronos Kenmare Pangang Bemax, Cristal Source: Mineral Sands

20112011

T Z M I

Where to with TiO2?

Availability and price developments of TiO2 in the years ahead

10/11 CEPE ANNUAL CONFERENCE | WHERE TO WITH TIO2? © 2011

TZMI.COM

Machiel Keegel – Sr. Consultant

1 TiO2 demandMacro economic view, the rise of the emerging economies

2 SupplyIndustry structure, China, WE focus, the TiO2 supply chain

3 Bust to boom1990-2008, the GFC, recovery, pricing power shifts, scenarios

4 Summary and outlook

Agenda



DemandWhy TiO2?

Properties

• Inert, non-toxic, white.

• High opacifying capability due to its highrefractive index, a necessary condition forhigh opacity. Difference with surroundingsis key.

• Absorbs UV, thereby protecting the matrixin which it is incorporated.

26%

36%

Other

7%Inks

3%Paper9%

Arch Coatings

TiO2 demand by application: 2010


in which it is incorporated.

• Ability to mass produce. Particle sizecontrol allows further improvement ofopacity.

• Has substituted lead and lithopone as thewhite pigment of choice.

• Limited substitution of TiO2 possible,despite new developments. Substitutionmostly in non-optimised formulations.

19%Plastics

Other Coatings

Applications

• 55% of TiO2 used in coatings.

• Applications in paper now mostlycoated paper and laminates.

• Specialty applications remain limited.

Source: TZMI Database

Market Segment Consumption Ratio

(Mature: Emerging)

Architectural

Paint4:1

Industrial/

Special Purpose

Coatings2:1

Plastics 5:1

DemandEmerging economies drive growth

Germany

United StatesChina

Russia

Brazil

India

1.000

10.000

100.000

g TiO2/capita

TiO2 consumption vs GDP per capita: 2010


Plastics 5:1

Paper 7:1

Source: UN Food & Agriculture Organization, 2005 data for paper / paperboard; Plastics Europe Market Research Group, 2005 plastics data, Euromonitor 2007 coatings data, World Bank population data; TZMI Database


Russia

Ethiopia

India100

10

10 100 1.000 10.000 100.000

GDP, US$/capita

• On a global scale, TiO2 consumption grows with GDP

• Emerging economies tend to grow at rates faster than GDP growth

DemandEmerging economies gain demand share

Emerging economies:

• Have around 57% share of globaldemand for 2010.

• Expected to grow share of globaldemand to 62% during the next fiveyears.

• Responsible for about 85% of demandgrowth during the next five years.

Global demand share: 1990-2015F

78% 67%43% 38%

62%

20151990

Developed

2000 2010

33%Emerging 22%

57%


growth during the next five years.

• Will grow in excess of 6%, whiledeveloped economies will grow lessthan 2%.

• Developed economies mostly expectedto grow below GDP growth rates:spending cuts, housing andconstruction markets.

20151990 2000 2010


India

Pakistan

Indonesia

Phillipines

Vietnam

China

83

68

1,015

737

127

108

2030

2020

2010

Asian middle class forecast: 2010, 2020 & 2030, mil lions

Source: Worldbank





Agenda



Supply

• Highly consolidated industry withseven producers controlling 64%of the 6.0 million tonnes of globalcapacity. The extent ofconsolidation by region variessignificantly.

• 77% of the capacity operated by

SupplyTiO2 pigment industry structure - I

ISK

Sachtleben

Tronox

Kronos

Huntsman

Cristal Global

DuPont

chloride

sulfate

Capacity share by technology for producer and regio n: 2010

ktpa


• 77% of the capacity operated bythe top seven producers ischloride.

• The remaining producers operatevirtually all (93%) sulfate capacity;chloride technology protected.

0 500 1000 1500

ISK

0% 20% 40% 60% 80% 100%

Central Europe

Asia-Pacific

Western Europe

Central & South America

Middle East & Africa

North America

chloride

sulfate

ktpa

Source: TZMI database

SupplyTiO2 pigment industry structure – II

Share of regional capacity by producer: 2010

Sachtleben

Tronox

Kronos Huntsman

Cristal

Cristal

Cristal

DuPont

DuPont

China Other

Other

Central & South America

North America

Western Europe

Asia-Pacific

Central EuropeISKTronoxKronosHuntsmanCristalDuPontChina


• Based on supply base, markets are highly consolidated

• Trade is important, with US exporting as much as 700,000 tonnes annually in 2010

• Eastern Europe well integrated into Western Europe

• The rise of China

Cristal

0% 25% 50% 75% 100%

Middle East & AfricaChinaOther


SupplyThe rise of China

Chinese quarterly exports: 2009-2011• Imports have remained stableinto China since 2005.

• 25% of Chinese market suppliedby imports.

• China had significantly increasedmarket share abroad.

• Largest supplier into NorthAmerica, Central and Eastern 60.000

80.000

100.000

120.000

140.000 Others

Spain

Malaysia

Japan

Iran

Indonesia


America, Central and EasternEurope and Middle East.

• China now second largestexporter to Western Europe andCentral and South America.

• Most growth in H1 satisfied byChina.

0

20.000

40.000

60.000

2009 Q2

2009 Q4

2010 Q2

2010 Q4

2011 Q2

Indonesia

Thailand

Turkey

India

Brazil

Source: Pigment Industry Report August 2011

SupplyWestern Europe

WE

86%

65%

87%

68%

89%

73%China

Ukraine

Slovenia

14%

2%

2%11%

1%

2%

1%0%

3%

2%

13%

4%

3%

2%3%

2%

2%

Poland

Czech R.

Major WE suppliers: 2000-2010 Minor WE suppliers: 2000-2010Western European production: 2010

17%

Kronos4%

Tronox

5%

crenox

8%

Cristal


Mexico

US

2010 1,157kt

5%

16%

2005 1,203kt

4%

15%

2000 1,205kt

1%15%

Others

2010

1%1%

2000

4%

2%

3%

2005

2%

• Relatively stable market. DuPont supplies from US and Mexico

• Largest shifts in additional supply from Mexico, Ukraine, China

11%16%

SachtlebenHuntsman

Source:TZMI database

Pyro-metallurgical upgrading

Mechanical upgrading

Naturally occurring minerals Minerals sands

Sulfate ilmenite

Sulfate slag

Rutile Chloride ilmenite

Synthetic rutile

Chloride slag

SupplyThe TiO2 feedstock supply chain


Pyro-metallurgical upgrading

SPP

Sulfate slag

SPP CPP CPP

Synthetic rutile

CPP

Chloride slag

CPP

• 92% of TiO2 feedstock used to produce TiO2 pigment, 6% used to produce Ti-metal

• Pigment plants are designed for a particular ore blend

• Products are interchangeable to a limited extent

SPP = Sulfate pigment plant

CPP = Chloride pigment plant

SupplyDredge and heavy mineral separation


SupplySynthetic rutile production


SupplyFeedstock supply affecting pigment supply

Industry

• Consolidated industry: top three control 50%.

• Major participants have a diversifiedportfolio.

• Cost to find/mine new deposits ↑, lag timefrom discovery to production is more thaneight years (average).

0,3

0,4

0,5

0,6

0,7

0,8

0,9

1

Market share by TiO 2 units produced: 2010


Past

• Value chain “squeeze”: TiO2 real pricesdepressed for two decades. TiO2 pigmentcost pressure applied to feedstockproducers.

• Resulting under-investment to replacedepleted mines – particularly by those withother investment alternatives.

• Historical supply sources are depleting.

0

0,1

0,2

0,3

Rio

Tin

to

Iluka

Exx

aro,

Tro

nox

Ost

chem

Tita

nia,

Kro

nos

Ken

mar

e

Pan

gang

Bem

ax, C

rista

l

Source: Mineral Sands Annual Review 2011

SupplyNet effect of feedstock supply shortage

TiO2 feedstock S/D balance: 2001-2015FCurrent situation

• “Hand to mouth” supply chainsituation.

• Feedstock prices rapidly increasing.New contracts to see double-digitprice increases.

Future 6.000

7.000

8.000

9.000

Likely new projects

Existing and approved

‘000 TiO2 units


• Tight supply forecast out to 2015.

• Upgraded feedstocks affectedmostly.

• Back integration can leave someproducers exposed.


4.000

5.000

2001

2003

2005

2007

2009

2011

2013

2015

approved productionUnderlying demand





Agenda



Declining real prices

1990-2008

Financial Crisis Late 2008 to mid 2009

Recovery

Mid 2009 to 2010

• High pigment price stimulates greenfieldsplants.

• Real prices decline as a result of oversupply.

Bust to boomTiO2 misses commodities boom


a result of oversupply.

• Industry profitability plummets in 2007 and 2008 as energy and commodity prices surge.

• TiO2 pigment industry in very poor shape.

Bust to boomReal price declines

0

100

200

300

120

140

160

180

200

-3%

Greenfields, Closures – ‘000 tpa capacity TiO2 Real Price Index, 2010 = 100

Excludes:1. Chinese capacity

changes2. Brownfields expansions


• Nearly all of the closures from 1990-2010 were sulfate capacity. However, 2009-2010 closuresincluded two chloride operations that were high cost.

• Real price declined 3% per annum since 1989.

-200

-100

0

60

80

100

120

’90’88 ’10’08’06’04’0200’98’96’94’92

ClosuresTiO2 Real Price Index

Greenfields plants

1.15

1.41

1.12

1.30

1.08

1.291.25

1.04

1.27

Sulfate

Chloride

Industry Revenue : Cost: 2006-2010

200

300

400

500

600

Canadian sulfur export price, FOB:2006-2011

Bust to boomprofitability falls on high commodity pricing

‘000 TiO2 units


’10’09’08

0.96

’07

1.04

’06Source: TZMI’s Global Cost and Profitability Study 2007-2011

0

100

’09’08’07’06 ’11’10

Source: Global Trade Atlas

Cost escalations:

• Producers with sulfate based operations were particularly hard hit. Most globalproducers are diversified. DuPont and Tronox now pure play chloride.

• Energy, sulfur, coke, ilmenite and others.

• Credit disappears

• Demand disappears in Q4 of 2008

• Global production in Q1 of 2009 down 30%

Declining real prices1990-2008


RecoveryMid 2009 to 2010

• High pigment price stimulates greenfields plants

• Real prices decline after as a result of

Bust to boomthe Global Financial Crisis


of 2009 down 30%

• ‘Cash is king’ results in run down of industry inventories to match new demand level

• High cost capacity mothballed or shut down permanently: Le Havre, Baltimore, Grimsby, Savannah

after as a result of oversupply


• TiO2 pigment industry in very poor shape

• Credit disappears

• Demand disappears in Q4 of 2008

• Global production in Q1 of 2009 down 30%

Declining real prices1990-2008


RecoveryMid 2009 to 2010

• Demand recovery: slow in mature economies, but dramatic in emerging economies

• Restocking of the supply chain

• Producers incapable of bringing

• High pigment price stimulates greenfields plants

• Real prices decline after as a result of

Bust to boomrecovery


of 2009 down 30%

• ‘Cash is king’ results in run down of industry inventories to match new demand level

• High cost capacity mothballed or shut down permanently: Le Havre, Baltimore, Grimsby, Savannah

mothballed capacity on fast enough to meet market demand

• Production problems – inventories cannot be built fast enough

• Low inventories result in strong prices increases, especially in the second half of 2010

• Producer profitability in 2010 surges on the back of stable input cost and higher pricing

oversupply


• TiO2 pigment industry in very poor shape

• Price increases started in mid 2009

• Initial adoption rate was low

• Historically, adoption rates of price increases have been less than 30%

• Pricing power clearly shifted to the pigment producers in mid 2010

• Price announcements after mid 2010

Bust to boomPricing power moves to the producers

Price announcements vs actual trade data: 2009-2011

4.500

5.000

5.500

6.000

6.500

1.500

2.000

2.500

3.000

3.500

North America Western EuropeAsia-Pacific Avg global trade US$/t,CIFUS$/t


• Price announcements after mid 2010 2011 have high implementation ratio (70%).

• Price increase mid 2010 - mid 2011: US$1,000 per tonne ~ 40%.

2.000

2.500

3.000

3.500

4.000

4.500

(1.000)

(500)

-

500

1.000

1.500

2009 2010 2011Source: Company announcements, TZMI database

0%Actual price increase US$1000 per tonne

Bust to boomWestern European pricing

2,000

2,200

2,400

2,600

WE intraregional pricing (CIF): 2000-2011 June WE intraregional pricing (CIF) & cumulative average price announcements: 2009-2011 OCT

653

2,155

500

1,000

1,500

2,000

2,500

cum. price announcements

WE price (jan 2009 = 0)

€/t €/t


• Price adoption has been high asconsumers are more concerned withsecurity of supply than price: estimate>80%.

• Declining pricing in Europe in nominalterms through the last decade.

• Price increase from Jan 2010 – Jun 2011was almost € 650 per tonne.

1,600

1,800

’11’10’08’06’04’02’00

-500

0

2009 2010 2011Source: TZMI database

Status Quo Stagnation GFC #2

Annual demand growth >0% 0% to -5% -5 to -10%

Pricing power With producers With producers Consumers

Input cost Feedstock: Feedstock: Feedstock :

Scenarios2012


Input cost

(W.E. = 25% of cost)

Feedstock:

> 20-60%

Feedstock:

>20-60%

Feedstock :

moderated

2011 H2 EBITDA margins

(~30%)

Expansion

~40%

Consolidation

~30%

Decrease

Estimated net price impact

on TiO2

30% 20% 0%





Agenda



Summary and outlook

• Demand growth will be fueled by theemerging economies.

• Major producers losing market share toChina.

• Market remains supply restricted, limitedby feedstock supply and limitedexpansion by non-Chinese operators.

• Capacity liberated by de-bottlenecking

• Some pushback on price increases in Q4due to seasonality and uncertain globaleconomic outlook.

• Margins of TiO2 producers should continueto improve despite significant increases onthe input cost side.


• Capacity liberated by de-bottleneckingand Asian expansions expected to justkeep up with global demand growth.

• Large suppliers hesitant to add newcapacity due to historic financialperformance. Additional issue: lack offeedstocks.

20112011

T Z M I

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Mineral Sands Annual ReviewPublished June 2011

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Documents

T Z M I Where to with TiO2 - ASEFAPI DIOXIDO DE TITAN… · of the 6.0 million tonnes of global capacity. The extent of ... Kronos Kenmare Pangang Bemax, Cristal Source: Mineral Sands