constant motio2n an industry on the move · tzmi congress 2016 | constant motio 2n : an industry on...

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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.


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

© TZMI - NOT FOR REPRODUCTION


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


GFC: 2008-09

Credit bubble: 2001-07

1980-2000

New normal: 2012-20

China stimulus: 2010-11


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


TZMI.COM


CURRENT STATE OF THE INDUSTRY


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


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


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



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



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 .



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)


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



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



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$


TZMI.COM


NEAR-TERM OUTLOOK


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.


• 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 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 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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