Titanium dioxide: “World demand shows a pattern that is far from smooth”

How has the situation on the titanium dioxide market been recently?

Reg Adams: The paint industry consumed nearly 3.5 million tonnes of TiO₂ in 2019, accounting for 55% of total world consumption. Per capita TiO₂ consumption lies within the range 2.0-4.0 kilos for most industrialised countries and is less than 1.5 kilos for most emerging markets and less developed economies. Long-term TiO₂ demand growth over the past 40 years has averaged 3.05% per annum, which is slightly higher than long-term GDP growth in real terms, essentially reflecting above-par growth in consumption for plastics and specialty décor paper.

However, the chart of annual world TiO₂ demand shows a pattern that is far from smooth. Year-on-year growth has been above 5% in 12 of the past 40 years and negative in 11 years. The fluctuations in demand growth have been particularly pronounced over the past decade. Typically, the building-up and drawing-down of inventories all along the value-chain exacerbates “normal” cyclical growth. Consumers tend to order volumes of TiO₂ in excess of their needs during periods of rising prices, with the aim of “beating the next price rise.” Relying on accumulated stockpiles, they then hold off placing fresh orders during periods of falling prices. Senior executives at all the major multinational TiO₂ companies have reported witnessing the longest protracted period of sales volume recession in living memory and they have attributed this partly to the general macroeconomic malaise and partly to consumers, especially paintmakers, destocking TiO₂.

Reg Adams, Founder of Artikol. He will also speak at the European Coatings TiO₂ Forum on the 28 and 29 January in Berlin.

Looking ahead to 2020 and 2021, the business outlook ought to be slightly brighter: the IMF is forecasting global GDP growth at 2.7% for 2020 and at 2.9% for 2021. Against that background of rising business and consumer confidence, higher levels of construction activity, investment and household expenditure, demand for paint, plastics and decorative laminates should increase, leading to a bounce-back in world TiO₂ pigment consumption. Some industry observers and participants are anticipating demand growth at 5% per annum or more over the next couple of years. Artikol’s forecast is for 4.6% in 2020 and 4.7% in 2021, bringing world TiO₂ consumption to 6.75 million tonnes in 2021.

Has the market been – or will it be – affected by proposals to classify titanium dioxide as a possible carcinogen?

Adams: Within Europe, considerable concern has been expressed about the validity and relevance of some isolated toxicological studies conducted in 1985 and 1995, indicating that prolonged exposure to TiO₂ dust clouds over many months can cause lung tumours in rats. On the basis of these studies and acting under delegated powers on 4 October 2019, the European Commission formulated a new Regulation, with two Annexes. Annex 3 defines as a Class 2 carcinogen (possibly carcinogenic for humans) any powder containing >1% TiO₂in the form of particles of ≤10 microns. This applies to products such as certain artists’ colours and children’s powder paints, the labels on which will have to carry a mandatory GHS-08 cancer-warning icon, with notification that the product contains a carcinogen. Recognising that spraying any liquid paint can generate airborne droplets of ≤10 microns of a thus-defined carcinogen, Annex 1 of the Regulation states that the labels on cans of liquid paint must carry the words: “Warning! Hazardous respirable droplets may be formed when sprayed. Do not breathe spray or mist.” Annex 1 also states that packaging labels for solid mixtures containing >1% TiO₂ must carry the words: “Warning! Hazardous respirable dust may be formed when used. Do not breathe dust.” But products affected by Annex 1 will not be required to carry a GHS-08 cancer-warning icon and the mandatory warning words do not include ‘carcinogen.’ Also, the disposal of empty or partly-full cans of paint and the disposal of TiO₂-containing solid residues as waste will be subject to more stringent regulations. As of the published delegated regulation by European Union on 18th February 2020, these new labelling and waste disposal regulations affecting TiO₂-containing products will be enacted into law from 1^st October 2021.

Will this deter customers from buying and applying TiO₂-containing paint, thus dampening down the future demand potential for TiO₂? The best-known precedent for making a judgment on this is the Proposition-65 legislation in California, which requires cancer-warning labels for products that contain or could generate airborne particles of TiO₂ with a dimension of 10 microns or less. Such products include aerosol sprays for hair colorants or vehicle refinishing paints and products sold in powder form for cosmetics, artists’ colours, food colorants, etc. The Californian labelling law was enacted in September 2011. Since that date, the presence of cancer-warning labels has undoubtedly had a dampening effect on TiO₂ demand in the food and cosmetic sectors, but it has had practically no impact in the aerosol or powder paint sectors.

From the viewpoint of paint manufacturers, there is no viable technical substitute for TiO₂ that could be used in paint formulations without having a serious adverse effect on paint product performance. Therefore, the honest answer to the question is this: the legislation is unlikely to have any significant negative impact on future potential demand growth in the paint industry.

How can buyers react to the volatility of TiO₂ prices?

Adams: In the previous business cycle, the average benchmark price for standard rutile-grade TiO₂ pigment delivered to customers in Northwest Europe rose by 90% from EUR 2.20 per kilo in mid-2009 to a peak of EUR 4.16 per kilo in Q3 2011 and then dropped to a new low-point of EUR 1.96 per kilo in Q1 2016. In the current business cycle, the average benchmark price rose by just over 50% from EUR 1.96 per kilo to a peak of 2.985 per kilo in Q2 2018 and then declined steadily, but at a fairly gentle pace, reaching EUR 2.60 per kilo by the end of 2019.

One of the main points of difference between the 2009-2016 business cycle and the current business cycle is the fact that the multinational suppliers have been careful to adjust their plant operating rates in line with sales trends so as to avoid building-up excessive inventories. A second important point is that the major Chinese TiO₂ producers have faced much more rigorous Government scrutiny of pollution control at their plants since the beginning of 2016, so that their unit operating costs – and pigment selling prices – are now much closer to those of their Western counterparts than before.

With the objective of addressing consumer concerns about price volatility, Chemours pioneered a “value stabilisation initiative” at the end of 2017, offering regular customers long-term contracts at “equilibrium prices” that are adjusted in accordance with a pre-agreed independently determined index. Tronox and Venator have also begun offering longer-term contracts at inflation-indexed prices. Tronox refers to its “margin stability programme.” Venator speaks of its “tailored approach to reducing price volatility.” So far, there has been a reasonably good uptake on these long-term contracts on the part of North American customers in the paint industry, less so on the part of European customers and least of all in Asia and Latin America. For the typical buyer of TiO₂ in a paint manufacturing company, taking up a long-term purchase contract with satisfactory price and volume commitments can offer considerable advantages in terms of more predictable cashflow, diminishing risk and freeing up valuable management time that may have been spent on bargaining sessions with suppliers in the past.

How will the exhaustion of high-grade titanium mineral deposits affect the TiO₂ value-chain  market prices for TiO₂ pigment in particular?

Adams: The TiO₂-containing feedstock used for making TiO₂ pigment comes in a variety of forms. There are the naturally occurring minerals: rutile (90-96% TiO₂ content), leucoxene (70-91% TiO₂ content) and ilmenite (45-63% TiO₂ content). And then there are the upgraded feedstocks, derived from ilmenite by smelting and/or chemically processing: titania slag (75-95% TiO₂ content) and synrutile (92-94% TiO₂ content). The world’s TiO₂ pigment plants employ either a chloride-route process (involving the use of chlorine) or a sulfate-route process (involving the use of sulfuric acid). Manufacturers typically use a blend of different feedstocks from different sources, the composition of the blend being adjusted according to individual feedstock prices, the required pigment output level, the marketability of by-products, waste disposal criteria, etc.

Operators of long-established mature mines are now facing declines in accessible ore grades – the percentages of titanium and other valuable minerals in the ore are declining. New deposits that are being considered for exploitation tend to have lower quality ores, to have more overburden requiring removal and they are often located in areas of moderately high political risk. Consequently, mining companies are looking at feedstock projects with higher capital and operating costs, which will require higher long-term ilmenite, rutile and zircon selling prices in order to earn a decent return on the investment.

Actually, the mining industry as a whole has been relatively reluctant to invest in exploration, with the result that in recent years there have been no discoveries of really major new deposits. Consequently, the supply/demand situation for all the different types of TiO₂ feedstock has been quite finely balanced throughout 2018/19, with temporary shortages appearing as a result of outages due to accidents or labour problems at various mines and smelters. Feedstock prices are currently at relatively high levels and in real terms they are expected to increase by at least 1% per annum over the next ten years or more. The increase in costs cannot be fully absorbed by the TiO₂ pigment manufacturers and will therefore create a constant upward pressure on TiO₂ pigment selling prices.

The interview was conducted by Vanessa Bauersachs

Update: In a first version of this article the end-date for the transition period was stated as 9 September 2021. We updated this date to 1 October 2021 since it changed recently.

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