Highlights from our TiO2 presentation:
1. TiO2 Prices have nearly reached bottom.
Prices moved lower in Q4 and there will
be some lead-lag affect flowing into 2016 so reported prices are probably lowest in
Q1. Prices may drift a bit lower but only
if titanium ore prices move lower with
TiO2 producers then passing that on to customers. Recently announced TiO2
price increases seem more defensive than
offensive so could act to stabilize price,
but without major producer plant shutdowns we don’t see meaningful price
increases sticking in 2016.
2. The near-term pain will be reinforced
by the pending ra
mp of Chemours’
Altamira plant.
This 200kt brownfield expansion is planned to come on line by
mid-year 2016 and represents ~3% of global supply in an already oversupplied
market. Altamira is one of the lowest cost
plants in the world so it should run full
out when operational.
3. Medium term has some bright spots
as a) demand seems to be growing ~2%/yr
even with the recent customer de-contenting
efforts, b) we believe that Altamira is
the last meaningful plant under constructi
on and therefore operating rates should
trough in 2016, c) Chinese net exports a
ppear to have peaked, and d) we think
some plant closures are likely.
4. We believe the Western TiO2 industry overestimates the competitiveness of its
plants, particularly those in Europe.
If all Western plants continue to run we think
the industry is oversupplied through 2017
and 4-7 plants have negative NPV. We
think between Huntsman, Kronos and Crista
l, 4 to 5 plants in Europe and Latin
America will need to be shuttered. If
such actions are not taken it may be two
years of negative cash flow and not until
2018 before the industry moves off of
trough level earnings. With the change in Chinese production over the last 10
years, a significant amount of European pr
oduction is not needed and in our mind
has a greater negative value continuing to
operate vs. paying the cash charge to
shut them down.

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