Friday, August 23, 2013

Dragged by lower TiO2 prices in Q2, DuPont plans to strip out its TiO2 business

Lower TiO2 prices which declined by nearly 25% from the average in H1 2012, crimped DuPont's Q2 financial results. The operating earnings from DuPont's Performance Chemicals segment (including TiO2 products and fluoroproducts) declined by 55.56% from USD594 million in Q2 2012 to USD264 million in Q2 2013. As TiO2 prices declined and downstream end users' inventory level turned to be normal, DuPont's TiO2 sales volume in Q2 increased by 12% compared with that in Q2 2012 and 18% compared with that in Q1 2013.

Meanwhile, DuPont expressed primary decision to strip out its Performance Chemicals segment. The decision is based on the fact that the business has higher volatility, cyclicality and lower-growth profile, which bring fluctuation to the company's portfolio, despite the attractive financial strength and cash-generating capability of the business. DuPont explained that it has limited ability to create new growth opportunities with the segment by integrating its science across their markets, customers and products. 

DuPont has not reached a final decision yet, but it claimed it won't prolong the process.

A lower-growth expectation may be the primary reason for DuPont's decision to strip out its TiO2 business.

First of all, there will be limited demand growth in the future. As known, TiO2 consumption depends on the demand from the downstream, including coatings, plastics and decor paper. China, the second largest economy in the world, consumes about one third of the global TiO2 production. After thirty years of double-digit growth, China's economy faces the risk of lower growth and urgently needs to adjust its industrial structure. The Chinese government's efforts to turn the economy into one led by domestic consumption and reduce its reliance on fixed assets investment and exports will limit its demand for coatings, plastics and decor paper accordingly.

Secondly, its TiO2 business is confronted with an overcapacity and intense competition. DuPont's TiO2 business faces tough competition, especially from China. According to CCM's monitoring data, China's TiO2 capacity was about 2.78 million t/a in 2012, with an output of around 1.90 million tonnes, indicating an overcapacity and it is expected to reach about 3.40 million t/a in 2015, including 300,000t/a of chloride process TiO2. Although China-made TiO2 products are inferior to DuPont's, the price war started by Chinese TiO2 producers would erode DuPont's profits in TiO2 business because cheaper prices would attract rivals' customers.

Thirdly, uncommon and favorable factors will hardly happen again. The booming TiO2 market that brought enviable profits to producers during 2011-H1 2012 was caused by many outer uncommon factors. For instance, the permanently close-up of some European and American TiO2 factories around 2009 because of environmental protection and losses led to a rip of global TiO2 supply volume. For another, the USD647.25 billion (RMB4 trillion) stimulus plan launched by the Chinese government in late 2008 largely stimulated the country's consumption of coatings, plastics and decor paper in 2011. These favorable factors would seldom emerge in the future, indicating a small opportunity for the reappearance of a flourishing global TiO2 market.

Actually, before DuPont's decision to strip out its TiO2 business, another international TiO2 giant–Rockwood Holdings Inc. (Rockwood), with a TiO2 capacity of 340,000t/a, ever searched for investors to take over its TiO2 business. The divesture plan of Rockwood did not progress smoothly under the current weak market condition. It added a special adhesive business into the selling batch to attract investors upon the failure to sell its TiO2 business solely. It's reported that another major international TiO2 player–Huntsman, intended to take over Rockwood's TiO2 assets, which will probably increase the concentration of the global TiO2 industry. If DuPont sold its TiO2 assets to other giants in the industry, such as Huntsman, Tronox and Kronos, it will accelerate the integration of the global TiO2 industry.

Nevertheless, DuPont is not pessimistic about the TiO2 market in Q3 2013. It said that the TiO2 industry's value chain inventory level is near normal and its TiO2 sales volume is expected to see a double-digit growth in Q3 thanks to the possibly modestly higher demand for TiO2. In addition, the price increase of DuPont's TiO2 products movement effective since July 1 will also help the company perform better in next half year. Finally, DuPont reaffirmed a full-year outlook of earnings of about USD3.85 per share in 2013.

Editor's notes
Headlines of this issue
Industrial Information
Import volume of TiO2 saw massive decline while export volume declined slightly in June 2013
Total titanium feedstock supply volume continues slide in June compared with that in May
Domestic TiO2 price edged down slightly from mid-July to mid-Aug.
Company dynamics
Dragged by lower TiO2 prices in Q2, DuPont plans to strip out its TiO2 business
GPRO Titanium succeeds in backdoor listing and starts trading since July 26, 2013
Tronox's adjusted loss decreased and gross margin improved in Q2 2013
Pangang Group delivered bad operating performance in H1 2013 and accounts receivable soared
Iluka's rutile production witnessed a YoY decline of 49.06% in H1 2013 due to the subdued global demand
Kingfa sold 519,400 tonnes of modified plastics in H1 2013 with a YoY growth of 17.46%
Shandong Qifeng maintained strong growth in H1 2013 as benefited from the falling TiO2 price
AkzoNobel saw smaller decline in revenue in Q2 2013
Titanium Dioxide China Monthly Report, issued by CCM on 25th, is mainly comprised of five columns of news and reports related to TiO2 market, including “Supply & Demand”, “Company Dynamics”, “Upstream”, “Downstream” and “Price Update”. You can find out more business opportunities through the latest and helpful information provided in the report.

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