Paint industry pricing increases on TIO2 costs escalation

The biggest input cost factor in the manufacturing of paints is the cost of TiO2 pigment used. It affects upto 40 % of the cost. The other is the resin used in the paint. Hover for the premium range of paints, forming the high growth segment today, the cost ratio is higher due to the high quality of TiO2 pigment required to be used. TiO2 with its property of a very high refractive index coupled with its inherent chemical stability and  resistance to weathering makes it an essential ingredient in paint manufacture.

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The global economics of TiO2

Annual global TiO2 demand is estimated to be over six million metric tons. The major industrial  end-user are paints and coatings with 60% followed by plastics at 25%.

TiO2’s market  dynamics follow a cyclic pattern. The cycle is influenced by general economic slowdown or uptake of the world markets.  The demand expansion initially drives an increase in manufacturing capacity utilisation or new capacity creation. When this happens it sets in motion the next phase of supply exceeding the demand expansion. In this situation  the buyers power increases.This leads to a price stabilisation period followed by a price reduction. The manufacturer’s responds with a reduction of capacity utilisation to offset the feedstock buildup. This helps to correct the price realisations for the manufacturers.

In mid-2016, as demand picked, the Chinese government cracked down on highly polluting (mostly small) TiO2 operations, which severely decreased supply. In early 2017, Huntsman’s Pori Finland plant (~130,000 metric ton capacity) suffered a catastrophic fire that further curtailed TiO2 supply, driving up prices worldwide. Between 2017 and 2018, quarterly price increases were passed through the supply chain, albeit this successful price pass-through may be short lived as the preceding inventory shortfall continues to be offset, not only by increased Chinese capacity, but by overall increases in global production through 2019.

The India scenario

As, secondary research sources indicate that around 70% of the india’s  domestic demand for TiO2 is met through import deliveries and China is the leading exporter of TiO2 to India. In 2013-14, the production stood at around 53,000 tonnes with a capacity utilisation of 70%. TiO2 manufacturing is a very mature processing technology and changes relate to use of better equipment and tweaking for energy conservation and cost reduction

India’s recent ban on mining of beach minerals has further affected the whole chain of inter-related  connected producer and user industries.India imports upto 70% of its domestic requirement. The shortage in supply will end up with an increase in consumer paying higher prices. The devaluing rupee will magnify the cost escalation for the input for our industry users and a spiral of inflation will set in. The beach minerals  ilmenite and rutile are the basic feedstock for the manufacture of TiO2. The “make in India” will remain a hollow slogan with such disastrous fencing of the industrial environment.

Creating high technology manufacturing capacity for TiO2 costs far more than putting up a paint factory which is basically a much less technologically involved. Mineral processing into TiO2 (producers) are straddled by  the heavy investment in plant ,machinery and maintenance than any other player in the TiO2 value chain, while only periodically reaping attractive returns. The government policies is  choking the basic raw material – rare earth minerals processing segment the repercussion on the economy is being highly underestimated. The global trade protectionisms that has set in will further aggravate the Indian industry, as we are forced to put up trade tariff  barriers. As pointed above the rupee’s fall will only make the situation worse. Indian industry is moving dangerously close into an uncontrolled spin to uncompetitiveness.  

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