TZMI.COM
CONSTANT MOTIO2N:
AN INDUSTRY ON THE MOVE?
David McCoy
TZMI.COM
2TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE?
FUNDAMENTALS
TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 3
Long-term demand ‘eras’
• The ‘mature era’ is one in which TiO2 demand very closely tracked global GDP.
• GDP grew steadily, despite many upsets in the global economy (Cold War,Asian financial crisis, oil crisis, stagflation, rise of Japan).
• Global trade highly limited vis-à-vis today.
• US and European growth more closely coupled to global GDP.
The mature era:1980-2000
The credit bubble era:2000-2007
Global instability:2008-2015
• The ‘credit bubble era’.
• Banks bundled mortgage backed securities with lower standard and allowedconsumers in mature economies to use debt as an instrument for everydaypurchases as well as high-cost durables.
• The rise of China –massive infrastructure investment; rise of the middle class.
• The credit-fuelled spending artificially drove up demand in many regions abovehistorical GDP trends.
• China passed a significant stimulus that significantly drove up fixed assetspending in 2010/11. Credit spending slowed significantly due to tighterlending standards and market discipline (ex China).
• Significant year-on-year changes in demand were driven by supply concernsand then inventory build in the supply chain. The bust was as equallyimpressive as the boom.
• Substitution and thrifting have partially ‘reset’ global demand to a lower point.
TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 4
Long-term global demand trends
Demand per capita versus GDP per capita: 1980-2020
4,500 5,000 5,500 6,000 6,500 7,000 7,500 8,000 8,500 9,000
1.4
1.0
1.3
1.2
1.6
1.5
1.1
Demand per capita
GDP per capita
2016
2015
2014
2012
2013
China stimulus: 2010-11
New normal: 2012-20
GFC: 2008-09
Credit bubble: 2001-07
1980-2000
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TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 5
Long-term global demand trends
Demand versus urban population: 1980-2020
1.6 2.0 2.4 2.8 3.2 3.6 4.0 4.4
5
1
2
6
3
4
7
2014
2013
2012
2015
Urban population, billions
2016
Demand, millions
© TZMI - NOT FOR REPRODUCTION
GFC: 2008-09
Credit bubble: 2001-07
1980-2000
New normal: 2012-20
China stimulus: 2010-11
TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 6
Global TiO2 demand
• Demand has shifted from mature economies in
the Americas and Europe to emerging economies
in Asia
– this trend is expected to slow down as China’s
economy downshifts.
• Asia became the world’s factory as global trade
mechanisms were put in place to support the
shift.
• TiO2 demand generally followed the expansion of
the industrial base in Asia, and expansion of TiO2
capacity in Asia (China specifically) provided
domestic or regional supply for the new demand.
29% 30%25% 21% 20% 18%
34% 31%
26%
17% 18%17%
6% 6%6%
6% 6%6%
7%
8%7%
7%
9% 16%24% 25% 28%
18% 16% 18% 19% 19%
4%5%
7%
21%
2015201020052000
3%3%3%
6%
1995
3%
4%
2020f
Million tonnes
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7TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE?
CURRENT STATE OF THE INDUSTRY
TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 8
Summary of 2015
Closures by global producers
Sales decline
• Chemours shuts down its facility in Edge Moor, Delaware and Line 3 in NewJohnsonville.
• Huntsman shut down the front end of the Calais site. With the finishing plantstill operational, some portion of this capacity should still be considered‘available’ to finish calciner discharge (‘raw pigment’) from other Huntsmansites.
• Demand declines in emerging economies were a result of economic weakness(and recession in some cases) and customer de-stocking.
• In mature economies, de-stocking at the customer level was the primary causefor the demand declines – where they occurred.
Resistance to closure by regional
producers
• Regional producers fought permanent closure – particularly in China.• Some Chinese producers, due to substantial cash losses, temporarily idled
capacity. Some closed permanently. But many more have thus far survived thedownturn than TZMI initially expected.
Cost savings measures could
‘cost’ the industry
• To manage cash effectively, many producers restricted capital spending from late2014 through 2015.
Trends Commentary and observations
TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 9
TiO2 profitability curve by technology: 2015
PTOI, US$/tonne
50%25% 100%75%0%
Chloride
Sulfate
Cumulative production, ‘000 tonnes
US$/tonne
2015 weighted average PTOI
100%© TZMI - NOT FOR REPRODUCTION
TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 10
TiO2 profitability curve by region: 2015
PTOI, US$/tonne
25% 75%0% 50% 100%
Asia-Pacific
North America
Western Europe
Other
2015 weighted average PTOI = US$178 per tonne
Cumulative production, ‘000 tonnes
US$/tonne
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TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 11
Operating rates
Operating rates, by producer type: 2010-2020
50
55
60
65
70
75
80
85
90
95
100
Percent
2015 2018f 2020f2016f2011 2017f2014201320122010 2019f
ChineseRegionalGlobal
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TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 12
China capacity evolution
0
20
40
60
80
100
# sites operating
2018f2016f
Avg capacity per site (ktpa)
2017f 2019f2015 2020f20142013201220112010
Note: The definition for ‘site’ as it pertains to this chart is a co-located operation with the same or similar products soldinto the market. The number of sites in this report may differ slightly from TZMI’s ‘Tai Bai Fen’ report .
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TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 13
China exports: Q1 2011 – Q2 2016
0
100
50
150
0
100
-50
40
80
-20
60
20
Q2
-15
Q2
-14
Q2
-13
Q2
-12
Q4
-15
Q4
-11
Q2
-16
Q4
-14
Q4
-13
Q4
-12
Q2
-11
North America
-50-20
60
40
100
0
20
80
200
50
0
150
100
Q4
-13
Q2
-15
Q2
-16
Q4
-14
Q2
-14
Q2
-11
Q4
-15
Q2
-12
Q2
-13
Q4
-11
Q4
-12
Central & South America
100
2000
100
-100
6080
400
300
200
-20
40
Q4
-14
Q2
-15
Q4
-12
Q2
-16
Q4
-15
Q2
-14
Q4
-13
Q2
-13
Q2
-12
Q4
-11
Q2
-11
Europe
40
60 50
150
0
100
10080
20-50
0
-100-20
Q4
-14
Q4
-15
Q2
-11
Q2
-13
Q2
-16
Q2
-12
Q4
-13
Q2
-15
Q4
-12
Q4
-11
Q2
-14
Middle East & Africa
Other Asia-Pacific
80
20
-20
0
60
40
0
150
100
50
-50Q
2-1
6
Q4
-15
Q2
-15
Q4
-14
Q2
-14
Q4
-13
Q2
-13
Q4
-12
Q4
-11
Q2
-11
Q2
-12
Volume (LHS)
% change y/y (RHS)
TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 14
Inventory
30
40
50
60
70
80
90
100
110
Q2
-13
Q3
-12
Q4
-12
Q1
-13
Q1
-12
Q3
-13
Q2
-12
Q2
-16
Q4
-15
Q4
-14
Q1
-14
Q4
-13
Q4
-16
f
Q3
-16
e
Q1
-16
Q2
-15
Q3
-15
Q1
-15
Q3
-14
Q2
-14
Inventory, DSI
TZMI DSI Model
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TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 15
Capacity overhang: 2010-2020
0
500
1,000
1,500
2,000
2,500
10
20
30
40
50
60
Capacity overhang, ‘000 tonnesOverhang as % of demand
2016f
-11%
2020f2019f2017f
+44%
20152014 2018f2012 20132010 2011
Total capacity overhang (RHS)
Capacity overhang % of demand (LHS)
Note: capacity overhang = global capacity minus global demand
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TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 16
TiO2 pricing fundamentals
Global weighted price average: 1988-2015
2,500
1,500
2013
3,000
2,000
4,000
5,000
4,500
3,500
2001 2007
0
19951989 1998 2004 20101992
US$ per tonne
Nominal
2015 US$
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17TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE?
NEAR-TERM OUTLOOK
TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 18
2016-17 outlook
Trends Commentary and observations
Tight supply/demand fundamentals to persist through
2016
Economic concerns
outweighed by cyclical strength
• Many postulate that China’s domestic demand is weak.• 11 consecutive price increases – the pressure on some suppliers has lessened,
breathing new life into a significant portion of the supply base.• The obvious risk here is slowing or even flat demand with increasing output,
leading to more exports.
China remains a supply and
demand risk to the global market
• Excepting an unforeseen recession or other supply/demand disruption, TZMIbelieves the current cycle will continue through the end of 2016.
• Emerging Asia appears to be the most vulnerable region near term. This regionappears to have the level of demand that has exceeded underlying demand thegreatest thus far in 2016 and thus the most likely to experience a strongerdownturn when the cycle inflects.
• The key to managing the cycle near term for producers is to maintain inventorydiscipline through early 2017 when demand is at its seasonal low point.
• The cycle could persist through 2017 if producers maintain discipline and avoidmarket share battles. Critical in this fight are the actions of China’s supply base,which is improving quality and global competitiveness.
TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 19
• Some production decreases are creating a difficult situation in areas where supplies are tight.
– Below normal inventory levels for most producers, the impact is much more dramatic than it would beunder normal circumstances.
– Can often lead to an increase in apparent demand to producers as customers scramble for supplies,occasionally ‘buying forward’ of needs.
– The risk of overshooting the market during Q4 2016 remains a possibility.
• The Chinese continue to export a surging volume.
– The current estimates of 550,000 tonnes of net exports - could be exceeded if demand weakens in thecountry and/or the Chinese continue to produce.
– Some of the early exports were supplied from inventories which are now diminished.
• Henan Billions continues to push chloride products into the market
– Reports of acceptable quality are circling the industry.
– While the full transition to consistent, stable production and quality will continue to take time, Billions’chloride plant continues to hold up to expectations of the firm leading the way in the ‘chloride race’ inChina.
Some key observations
TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 20
• TZMI now believes the cycle peak for supply/demand balance will be in mid/late 2017
– Followed by some de-stocking in the seasonally slow period of the year and will continue through2018.
• Latin America is showing some signs of a return to growth after extensive demand disruption in parts of theregion in the past 12 to 18 months.
– The region is still gripped by recession, structural reforms and lower government spending levelscompared to the past five years.
• European demand has been a positive surprise vis-à-vis expectations earlier in the year
– near-term outlook based on Brexit and consumer confidence?
– Demand in Q3 driven more by supply concerns and tight overall global supply/demand balance thanby Brexit concerns.
– Inventory levels remain tight as a result of some minor production outages in the region.
Some key observations
TZMI CONGRESS 2016 | CONSTANT MOTIO2N : AN INDUSTRY ON THE MOVE? 21
TZMI Multi-client studies and periodicals
Mineral Sands Report | Mineral Sands Industry Data Report
TiO2 Market Insight | TiO2 Pigment Industry Report
PDF reports - published monthly
Titanium Feedstock Price Forecast | TiO2 Pigment Price Forecast
PDF report - published quarterly
Titanium Feedstock Producers | TiO2 Pigment Producers
Comparative Cost Study Comparative Cost & Profitability Study
PDF reports - published annually
China Taibaifen (China
titanium)PDF report - published quarterly
Titanium Feedstock Supply/Demand | Zircon Supply/Demand
PDF report - published quarterly
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