tzmi’s tio2 review - · pdf filejuly 2004 tio2 review 3 jean-pierre monteny, president...

TiO2 Review

TZ Minerals International would like to welcome readers to its secondissue of TZMI’s TiO2 Review. This issue focuses on the dynamic Asia-

Pacific region, reviewing the trade statistics for the region and presentinga detailed feature article on the Chinese pigment industry, as well asfinancial summaries of pigment and coating manufacturers within theregion.

In our feature article for this month, Robert Louw, senior vicepresident - commercial for Huntsman Tioxide expands on the topicalsubject of TiO2 Pigment price dynamics. Based on current supply anddemand statistics, Mr Louw estimates that implied capacity utilisationrates are currently at or above 97%. The rate of rise in demand impliespigment inventories will continue to decline and that supply will remaintight for the near future maintaining upward pressure on prices.

The issue of TiO2 prices continues to be a popular topic, with allof the major TiO2 companies announcing further price increases for mostregions of the world, following similar announcements made in Februaryand late 2003 (see Table 1, page 2). So far, there appears to have beenonly a partial implementation of the announced price increases, but thetrend is definitely upwards when compared to the declining price trendexperienced in the second half of 2003. Rising prices corresponding tohigh customer demand for TiO2 have been reported for Q2 2004,particularly in Asia and the US. Demand in Europe is also positive, butto a lesser extent than other regions. In some areas supply appears to betightening as a result of shipping delays. The decision to reduce capacityby both Huntsman Tioxide and Millennium will possibly impact onfuture price levels. Huntsman Tioxide has announced that it will cutoutput by a combined 55,000 tpa at its Grimsby plant in the UK and itsUmbogintwini facility in South Africa over the next twelve months, andMillennium has also announced that it will be reducing capacity at its LeHavre facility by 20,000 tpa, although this will be offset slightly by a gainof 10,000 tpa capacity through small operational improvements at itsAshtabula and Kemerton plants.

The pigment price increases have been welcomed by the TiO2

pigment industry, as it tries to offset recent increases in costs associatedwith energy and raw materials. Like many commodities and rawmaterials, TiO2 prices have been on a long downward slide in real terms(see Figure 1, page 2) for several years, as pigment price increases havefailed to match CPI increases. The major pigment buyers are howeverunlikely to let pigment prices rise too rapidly, as they also have tocontend with rising raw material prices and higher energy costs.

1 News

4 Industry InsightPigment price dynamics

7 In ProfileChina - the awakening of a TiO2 pigment industry

11 In ReviewValue in use and relative economic value of TiO2

feedstocks

12 Pricing Trends

14 Trade StatisticsAsia-Pacific

21 End Use MarketsAsia-Pacific coatings

22 Financial Results

ISSUE 2 JULY 2004

TZMI’s

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TiO2 Review

Editor: Janelle OrmanEmail: [email protected]

Published byTZ Minerals International Pty Ltd

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DisclaimerThe information given in thispublication is from sources believedto be reliable and every effort hasbeen made to ensure that the data iscorrect and not misleading. However,TZ Minerals International Pty Ltdaccepts no responsibility for anyerrors, omissions or incorrectinformation or for any loss orconsequential losses arising from theuse of the material.

CopyrightThe contents of this document maynot be reproduced without writtenpermission of TZ MineralsInternational Pty Ltd. Reasonableextracts may be made for the purposeof comment or review provided thesource is acknowledged with “TZMinerals International Pty, Ltd; TZMI’sTiO2 Review”

ISBN 09750880 3 3

TTiOiO22 ReviewReviewISSUE 2 JULY 2004

2 TiO2 Review July 2004

Market News

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1973 1978 1983 1988 1993 1998 2003

Average Annual Price Index

Price Index Trendline

Figure 1: Real TiO2 price index: 1973 -2003

Source: Huntsman Tioxide

Table 1: TiO2 price increase announcements: late 2003-2004

Company Effective Date US Europe Asia- South Central MEast/Pacific America America Africa

US$/t Eur/t US$/t US$/t US$/t US$/tDuPont 1-Oct-03 88 100 100 100

5-Feb-04 15015-Mar-04 1105-May-04 20015-Jun-04 88

1-Jul-04 140 100 100 150

Millennium 1-Sep-03 1001-Oct-03 132 100 100 1001-Nov-03 100

15-Mar-04 1101-Apr-04 150 100 100 120

15-Jun-04 881-Jul-04 120 100 150 150 100

Kerr-McGee 1-Oct-03 1321-Nov-03 100 100 100 100

15-Mar-04 110 1001-Apr-04 100 1501-Jun-04 100 150

15-Jun-04 881-Jul-04 100 150 150 150

1-Aug-04 120 100

TiO2 Review 3July 2004

Jean-Pierre Monteny, president ofBASF Coatings has been electedchairman of the European Councilof the Paint, Printing Ink and ArtistsColours Industry (CEPE).

Kerr-McGee has announced thatMarty Rowland has been promotedto vice president of global pigmentoperations. Mr Rowland has a longassociation with the industry, andhe joined Kerr-McGee three yearsago as the manager of the TiO2

pigment plant at Hamilton. Earlierthis year Mr Rowland was promotedto director of North Americanpigment operations.

Akzo Nobel expands itspresence in China

Akzo Nobel continues to expandits coatings presence in China

with the formal opening of two newmulti-purpose coatingsmanufacturing sites in China atlocations at Tianjin (near Beijing)and at Jiashang (near Shanghai). Thetwo new facilities are producingindustrial finishes for end-usemarkets in the furniture industry,roofing and siding for construction,and plastics for consumerelectronics. Akzo Nobel currentlyoperates eight production sites inChina, and has two new powder-coating sites under construction. Itscoatings group in China recordedsales of nearly Eur300 million in2003 (US$263 million).

Tiwest reachesproduction milestone

Aproduction milestone wasreached for the Tiwest Joint

Venture in July, with output of

titanium dioxide pigment hittingone million tonnes. The pigmentplant is jointly owned by Ticor Ltdand Kerr-McGee Corporation andwas commissioned in 1991. Thechloride route plant producespigment dominantly for export inthe Asia-Pacific region.

Interest in nano TiO2hots up

Japanese TiO2 pigment firm, TaycaCorporation has announced that

its exports of photocatalytictitanium dioxide have beenincreasing. Whilst demand forphotocatalytic titanium dioxide hasbeen strongest in Japan, thecompany is reporting that is nowexporting products to Korea,Taiwan and Europe for fibre andexterior wall applications.

The use of nano sized TiO2 in airpurifiers for air-conditioning units isalso reportedly on the increase inthe Asian market, particularly inlight of the continued response tothe severe acute respiratorysyndrome (SARS) outbreak in 2002.

People

Coatings Conferences

Asia Coat 2004 (China)September 21-23 2004http://www.asiacoat.com

Powder Coating 2004 (US)September 21-23 2004http://www.pcishow.com

4th International Wood CoatingsCongress (The Netherlands)September 25-27 2004http://www.pra.org.uk

ICE 2004 (Chicago)October 27-29, 2004http://www.coatingstech.org

European Coatings Conferences http://www.coatings.de

• Parquet Coatings IIINovember 25-26 2004

Plastics Conferences

K 2004 (Germany)October 20-27, 2004http://www.messe-duesseldorf.de

Conferences

TiO2 Pigment News

Coatings Mergers and Acquisitions

Recent announcements include:

• Akzo Nobel's Decorative Coatings business has announced an agreementto acquire Timpe & Mocke, reported to be the second-largest architecturalpaint wholesaler in Germany. Timpe & Mocke has annual sales of aroundEur125 million.

• Akzo Nobel has also announced the acquisition of ALTANA Chemie Ag'sRhenacoat SA coil coatings business in France. The business had sales ofapproximately Eur11.6 million in 2003.

• SigmaKalon recently acquired Primalex Brasey, the largest Czech/Slovakpaint producer. Primalex has annual sales of approximately Eur20 million.

• Speciality coatings manufacturer Insl-X Products Corp. has announced anagreement to acquire Wattyl Ltd's US coatings businesses Coronado PaintCo. and Lenmar Inc. Wattyl said it was selling its remaining US coatingsbusiness as part of a plan to focus on its operations in Australia and NewZealand.

4 TiO2 Review

INDUSTRY INSIGHT

July 2004

Factors affecting price

Whilst there are clearlydemonstrated cycles in TiO2

pigment demand, pigment pricesseem to show much more volatility.In local currency terms, TiO2

pigment prices are never static; theyare either rising or falling. Keyfactors that affect TiO2 pigmentpricing include:

• demand

• inter-regional trade

• foreign exchange rates

• industry competition

• costs

Of these, it is the industry's responseto demand that is the majorinfluence on prices. With the supplyof pigment clearly dependent on theoverall capability of the industry toproduce, it is very important to gainan accurate estimate of theindustry's production capacity. Aswill be explained further below,effective production capacity can bequite different to official publishednameplate capacities of individualplants.

Modelling demand

Historically, it has generally beenassumed within the industry thatdemand for TiO2 grows in line withGDP, as shown in Figure 1. Thischart shows that TiO2 growth andgrowth in global GDP do appear tofollow each other very closely.However, upon closer inspection itbecomes apparent that therelationship between GDP and TiO2

growth is not static. It has constantlybeen changing, and overall there isa declining influence of long-termGDP as the industry has entered amature growth cycle in developedcountries

Between the 1980s and the

present, TiO2 demand has grown by1% for every 1% growth in GDP,however, since the late 1990s thisratio has reduced to only 0.7%. It isforecast that this ratio will decreaseeven further to levels of 0.5-0.6%during the period 2000-2010.Therefore, for a long-term forecastrate of GDP of approximately 3%pa, demand growth of TiO2 willonly be around 1.5% per annum.

Overlaying this TiO2 growth rateof approximately 1.5%, is the cyclicnature of TiO2 pigment demand.Huntsman relies on the recognitionof a 3 year cycle, and uses this toforecast forward demand, with aparticular emphasis on recognisingturning points in the cycle.

Pigment price dynamicsFeature article by Rob Louw*

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*Rob Louw is senior vice president -commercial for Huntsman Tioxide. Theideas presented here are summarisedfrom a presentation Mr Louw made atthe IM17 Conference held in Barcelonain March 2004.

The following article examines the dynamics of TiO2 pigment pricing and presents anoverview of a pigment pricing model developed by Huntsman Tioxide. The modelshows capacity utilisation "trigger points" for either upward or downward movementsin prices and is useful as a forecasting tool if accurate estimates of demand, productionand capacity utilisation rates are defined.


Demand and capacity

The reduction in demand growthhas had, and will continue to have,a significant effect on the fortunes ofthe TiO2 industry. During thegrowth phase of the TiO2 industry,between the 1930s and 1970s,where demand growth rates wereabove those of GDP, the periods ofbalance between supply anddemand were relatively short-lived.During high growth periods, whenproducers decided to invest in newcapacity, the short-term excess wasquickly consumed by the rapidlygrowing demand. However as thegrowth in TiO2 demand declines,excess capacity persists for muchlonger, leading ultimately todownward pressure on sellingprices and industry profitability.

The reaction by industry to thissqueeze on profitability canexacerbate the situation. Whenprofitability is low, overcapacity iscompounded by the need toimprove the competitiveness ofproduction facilities. This isachieved by cutting costs andincreasing production efficiencies.However, the very action ofincreasing production capacity (forthe same cost) in turn only increases

the oversupply situation. Pressureon selling prices is thereby furtherincreased and the return toprofitability by pigmentmanufacturers is further delayed.

TiO2 pigment prices andcapacity utilisation

There is a strong relationshipbetween capacity utilisation andprices. Unfortunately it is not easyto produce a capacity utilisationfigure for the industry. Capacityutilisation is defined as consumerdemand divided by the industry'seffective capacity, expressed as apercentage. Demand data is

relatively easy to establish.Similarly, reliable production datacan be obtained, but it is often verydifficult to obtain a reliable pictureof the true capability of the industryto supply product. Nameplatecapacity is not necessarily a usefulparameter, as published rates aregenerally unreliable. Manyproduction facilities consistentlyproduce above official nameplatecapacity due to continualdebottlenecking improvements,whereas other facilities are notcapable of operating at fullnameplate capacity, especiallywithout a significant lead time, dueto various local factors. Huntsmanhas therefore developed analternative approach to determining"implied capacity" as shown inFigure 2. By assuming that whenpigment demand is at its peak, allproducers attempt to run assets atmaximum rates, then an estimate ofimplied industry capacity can begained by interpolating between thepeaks in production. This producesa relatively simplistic, but usefullinear trend.

Capacity utilisation can thereforebe derived by taking the ratio ofimplied industry capacity anddemand as shown in Figure 2.


INDUSTRY INSIGHT

capacity utilisation smoothed demand implied capacity

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6 TiO2 Review

INDUSTRY INSIGHT

July 2004

Using these parameters, capacityutilisation has oscillated between85% and 103% since 1980. Whencapacity utilisation is above 100%,this corresponds to very tight marketconditions where producers mustsell from inventory. Similarly whencapacity utilisation is low, thisindicates a soft market whereproducers are building inventory.

The Huntsman price model

Huntsman have developed a marketprice model based on this analysisof capacity utilisation and sellingprice data. Figure 3, shows capacityutilisation and global selling price.Apparent trigger points are at 92%capacity utilisation and 97%capacity utilisation.

Above 97% capacity utilisationpigment consumers begin to feel theeffects of tightness in the market,and therefore find it more difficult tosource material. Prices in this periodtend to rise, as the market is moreaccepting of price risesimplemented by the producers.

Prices will continue to rise untilcapacity utilisation falls below thedownward pricing trigger level of92%. At this point, consumers ofTiO2 generally find that it is mucheasier to source TiO2 pigment andso the balance of pricing powermoves back in the favour of theconsumer and prices fall. Prices willcontinue to fall until capacityutilisation again passes through theupward trigger of 97% and pricesstart to rise again.

The period of time betweencrossing the upward pricing triggerfrom below and the downwardtrigger from above is essentially aprice increase or decrease window.In these windows the followingeffects are observed in theHuntsman model:

• Prices increase by US$20 pertonne per month during a price

increase window in Asia-Pacificand North America, and inEurope by Eur20 per month.

• Prices decrease by US$25 pertonne per month during a pricedecrease window in the case ofAsia-Pacific and North America,and by Eur25 per tonne permonth in Europe.

• A maximum of two priceincreases can be implemented inany 12 month period up to amaximum of US$250 per tonne.

• It is not possible to sustain a pricedifferential of >US$250 pertonne between Europe and NorthAmerica.

• Over the long term, Asia-Pacificprices have typically beenUS$200 per tonne lower thanthose in North America.

The real test of the model is howwell it fits historical pricingobservations. Prices obtained fromthe Huntsman model in Figure 4show a very close agreement withactual prices achieved. Given thatthe model prices were generated bysetting initial conditions andallowing only changes in capacityutilisation and exchange rates to

affect global price, the results arestriking. Future forecasts of pricesusing the model are reliant onprojections of TiO2 supply anddemand. A major feature of themodel is its extreme sensitivity tosmall changes in supply or demand.In one scenario a capacity increaseprojection was simply increased bya further 20,000 tpa (equivalent toonly 0.5% of total availablecapacity), but resulted in a reductionin selling price of approximately10%. This shows the dramatic effecta slight imbalance in supply anddemand can have on price.

Current market situation

Based on current supply anddemand statistics it is estimated thatcapacity utilisation rates are at orabove 97%. The rate of rise indemand implies pigmentinventories will continue to declineand that supply will be tight for thenear future. This position appears tobe supported by the current supplysituation in the market place, whichhas resulted in a reluctant but partialacceptance of recent price increasesannounced by the major pigmentproducers. In real terms however, itmust be remembered that long-termpigment prices are still declining.

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Figure 4: Pricing model applied to historical global average price


The dragon awakens

It has only been since the turn ofthis century that the world hasbegun to truly recognise thepotential role that China will play inglobal pigment markets. Thispotential has been appreciated forsome years in iron ore, aluminiumand coal markets, but it is onlysince the appearance ofsubstantially higher official TiO2

pigment production andconsumption figures since 1999,that the full potential of China cameto be realised. Whilst the validity ofsome of the figures was initiallyquestioned, there now appears to

be little doubt that a huge explosionin both consumption andproduction of TiO2 pigment hasoccurred over the past five years, asillustrated by the following:

• Apparent consumption ofpigment within China has grownfrom an estimated 237,000tonnes in 1999 to approximately550,000 tonnes in 2003.

• Production from China hasgrown from an estimated170,000 tpa in 1999 to just under370,000 tpa in 2003 (excludingnon-pigmentary), making it thefastest growing producer in theAsia-Pacific and World.

• In 2003, China surpassed the USas the world's largest pigmentimporter, importing over250,000 tonnes of pigmentcompared to approximately100,000 tonnes in 1999.

As the standard of living anddemand for consumer productsgrows in China, it is clearly going tobe the dominant growth market forTiO2 pigment for the next 10-20years. China has 1.3 billion people,but the per capita pigmentconsumption in 2003 was onlyapproximately 0.3 kg per head.Chinese consumption merely needsto grow to the same level as in manyEast European countries(approximately 0.7 kg per head) torepresent a very significant growthrate.

China will therefore be the maindriver for world pigment growth, ifit continues on its current path ofrapid economic expansion.

Current production facilities

Chinese TiO2 plants are dominantlysulfate route, with only one smallchloride route plant located atJinzhou, Liaoning Province. Thisplant uses outdated Russiantechnology to produce rutile gradepigment from domestic slagfeedstock. The remaining 60 or sosulfate route plants are concentratedin the provinces of Sichuan, Hunan,


IN PROFILE

China - the awakening of aTiO2 pigment industry

This profile on China's TiO2 pigment industry draws upon information included in themonthly newsletter TZMI's InsideChina, together with additional analysis that TZMI hasrecently undertaken on the likely developments in the Chinese TiO2 pigment industry inthe period until 2008.

0

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imports exportsProduction Consumption

Figure 1: Chinese TiO2 consumption, production, imports and exports:1997-2003

Source: TZMI database Ref: 2469

8 TiO2 Review

IN PROFILE

July 2004

Guangxi and Jiangsu in the easternand western parts of the country(see Figure 1) and use ilmenite as afeedstock.

Anatase grade pigmentscurrently account for over 75% ofdomestic production, with rutilegrades generally only produced bythe larger plants. Table 1 lists thepigment plants with capacitiesgreater than 12,000 tpa. Theaverage Chinese pigment plant hasa capacity of less than 10,000 tpa,significantly lower than averagesulfate capacity for the rest of theworld. Total TiO2 pigment capacityin China is currently believed to beabout 450,000 tonnes. Productionestimates vary considerably due tothe reasonably large quantities ofnon-pigmentary TiO2 produced(90,000 tpa), and the propensity forsome plant managers to reportinflated production figures.

Trade and pricing of pigment

Chinese pigment import and exportdata is presented on page 16. Insummary, China importsdominantly rutile grade pigments,which are generally of much higherquality than locally producedpigments. In 2003, over 75% ofTiO2 pigment imports came fromjust 5 countries; Taiwan, Australia,Japan, the US and Germany. Theaverage price of imported pigmentin the 320611 category (containing80% or more by weight TiO2

pigment) was US$1,730 per tonnein 2003. It must be rememberedhowever, that this number is theaverage customs quoted price, andthere is a considerable variation inthe range of prices from differentsources. Import prices of material inthe 282300 category from Taiwanaveraged only US$1,630 per tonne,whereas material from Germanyaveraged US$1,980 per tonne.

Export volumes of Chinese pigment(mainly anatase) were reported atover 80,000 tonnes for 2003, for anaverage value of just over US$1,000tonne. The two major destinationsfor exports were the US and SouthKorea.

Local prices of domesticallyproduced pigment can exhibitdramatic fluctuations according tosupply availability. With the currentfocus on producing rutile pigmentgrades, there have been recentreports of an oversupply ofdomestically produced rutile gradematerial, which has resulted inreduced prices, particularly forlower quality rutile material.

Future production

There has been a trend forproducers to focus on improving thequality of their products over thelast two to three years. This hasbeen in recognition of the growingdemand for higher quality pigments,

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Figure 1: Location of major TiO2 pigment plants in China

Location numberscorrespond to plantsoutlined in Table 1.

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particularly for rutile grades.Extensive infrastructuredevelopment and capital workshave fuelled much of the demand inChina, with the consumer rolecurrently being much lessprominent. Consumer demandhowever, will become a muchlarger component in the future andthis is where the issue of pigmentquality could become even moreimportant. The rapid developmentof industries like automobilemanufacturing, has also contributedto increased demand for highquality coatings and therefore highquality pigment.

In 2003, an estimated 90,000tonnes of rutile grade pigment wasproduced in China compared to68,000 tonnes in 2002. Domesticrutile production capacity isexpected to increase toapproximately 150,000 tonnes bythe end of 2004. Some of thisincrease has come from theinstallation of additional rutile gradepigment lines in lieu of what wereprimarily anatase productionfacilities. It has also been a commonpractice for new demand to be metby simply building another smallplant of less than 20,000 tpacapacity. Whilst there are now

many plans in the pipeline for largerpigment plants to be constructed,many of these projects still requireadequate funding arrangements tobe made. The recent governmentmeasures to rein in the country'seconomic growth rate will probablyimpact some of the proposedprojects. Inevitably, however, therewill have to be increases in pigmentplant sizes and resultantimprovement in economies of scale.

Current expansion projectsunderway include thecommissioning of a new 18,000 tpacapacity rutile line by ChongqingYugang TiO2 Co which will bringsits total rutile pigment capacity to36,000 tpa, and the commissioningof a second rutile production line bySichuan Loman Titanium IndustryCo Ltd to increase its total rutilecapacity to 40,000 tpa.

Technology issues

As part of the drive to producehigher quality pigments, Chineseproducers are particularly keen tobuild chloride route plants but so farthey lack access to this technology.There is currently a concerted effortbeing made to develop their ownversion of this technology, and overthe next ten years it is likely that thechloride process will be introducedto China. Until this occurs, Chinawill continue to be a significantimporter of rutile grade pigmentmade by both chloride and sulfateprocesses.

The role of internationalgroups

Given the dominant position heldby five large international groups,which account for 73% of globalTiO2 pigment nameplate capacity,their involvement in the Chinesemarket is still somewhat restricted.All of the major global producersare watching China closely, butnone have as yet made any formal


IN PROFILE

Table 1: TiO2 pigment capacity and production by major Chineseproducer

Producer Location Capacity Production2003 2003

(‘000 tpa) (‘000 tpa)1 Shangdong Dongia Group Zibo, Shandong 45 18.0 r,a2 Zhenjiang TiO2 Zhenjiang, Jiangsu 36 20.0 r,a3 Jinan Yuxing Chemical Jinan, Shandong 23 22.5 r,a4 Nanjing TiO2 Chemical Nanjing, Jiangsu 20 21.1 r,a5 Sichuan Lomon Corporation Mianzhu, Sichuan 20 3.5 r,a6 Tenxian Yaozhao Tenxian, Guangxi 20 21.0 a7 Chongqing Yugang TiO21 Chongqing, Chongqing 18 19.2 r 8 Zhonghe Huanyuan TiO2 Yumen, Gansu 16 18.5 r9 Guangxi Cangwu TiO2 Cangwu, Guangxi 15 16.8 a10 Hunan Yongli Chemical Yongli, Hunan 15 10.8 a,r11 Luohe Xingmao Chemical Luohe, Henan 15 14.1 a12 PanJin TiO22 Jinzhou, Liaoning 15 12.2 r13 Guanzhou TiO2 Guanzhou, Guangdong 12 11.2 a14 Panzhihua Titanium Panzhihua, Sichuan 12 13.1 a15 Shaoguan Chemical Shaoguan, Guangdong 12 7.0 a

Others3 148 135

Total (exc non pigmentary) 442 364Notes:The obove capacities listed were current for year end 2003, minor changes haveoccurred in 2004.1. China's only publicly listed TiO2 company2. China's only chloride plant, which is currently being expanded to 30,000 tpa3. Estimate from approximately 45 plants with capacity below 12,000 tpar - rutilea - anataseSource: TZMI database

10 TiO2 Review

IN PROFILE

July 2004

commitment to build a plant there.This situation has probably arisenbecause of significant concernsabout intellectual property rights,particularly in regard to thewidespread release of chlorideprocess technology, which iscurrently very closely held. Therehave been reports in the past ofgroups such as Huntsman Tioxideand Millennium planning to buildsulfate process plants in China, butnone of these projects haveproceeded. Meanwhile, the globalproducers are building localrepresentative offices anddistribution systems to market theirproducts produced outside China.DuPont in particular has a wellestablished market supplyingpigment from its Taiwaneseoperation, as well as its servicecentre in Shanghai.

It is worthwhile noting that someof the major coatings groups aremuch more deeply committed toChina, and are carving outsignificant market share for highquality products. Most of the majorcoatings companies haveestablished either their own plantsand/or joint ventures in the country.Both Akzo Nobel and Sherwin-Williams have recently establishedfurther coatings facilities in thecountry (see page 3).

Economics of production

China currently enjoys favourableeconomics for pigment productionthrough its access to cheap, lowerquality domestic feedstocks. Theuse of these feedstocks however,results in the generation ofsignificant amounts of waste.Tighter environmental controls,which have in the past been notbeen rigorously enforced, havebegun to be implemented acrossChina's chemical industry,including the TiO2 industry. One

area that the central Chinesegovernment appears to be focusingon is the lack of waste acidrecycling facilities of many of thesulfate producers. The LuoheXingmao plant located in LuoheCity, Henan province has beenclosed by local authorities twicealready this year after it was foundto be discharging waste aciddirectly into the local river system.

As part of the push for greaterproduction efficiencies, andpossibly for environmental reasons,there is a trend to use higher qualityfeedstocks. In 2003, over 200,000tonnes of ilmenite (includingconcentrates from Vietnam) wasimported, compared with only35,000 tonnes the previous year,and by May 2004 ilmenite importshad already exceeded the 2003level. Also in 2004, the firstevidence of imports of sulfate gradeslag have been noted. It is forecastthat by 2006, imports couldbecome the primary feedstocksupply source.

Domestic sources of ilmenite arefound in large, albeit low grade,rock deposits and placer sanddeposits. Whilst there is potentialfor their exploitation and upgradingto higher quality feedstocks, so farthis has not occurred. PanzhihuaIron & Steel is still constructing itsfirst furnace to produce titaniumslag from rock ilmenite, but itscommissioning has been furtherdelayed until Q1 2006.

Future production andconsumption

As part of its supply/demand reviewfor both titanium feedstocks andTiO2 pigment to 2008, TZMI hasrecently focused closely on Chinaand reached the followingconclusions:

• On a conservative basis the levelof Chinese pigment production

will double from 343,000 tonnesin 2003 to 680,000 in 2008,representing a growth rate of20% pa, and imports of all gradesof pigment in the same periodwill increase from 280,000tonnes to 400,000 tonnes.

• If a more optimistic view is taken,production by 2008 could be ashigh as 830,000 tonnesrepresenting a 25% pa growthrate, and pigment imports in2008 could be as high as540,000 tonnes.

While at this stage it is not feasibleto give a clear view of how theChinese TiO2 pigment industry willevolve, because there are so manyconcurrent issues influencing theindustry, what can be said withcertainty is:

• The industry will continue togrow rapidly for at least thebalance of the decade.

• It will still have to be reliant onhigher quality imports of rutilegrade pigment.

• It will progressively improve thequality of its pigment products.

• There will be a greater diversityof feedstocks, includingbeneficiated products, many ofwhich will have to be importedwith some impact on projecteconomics.

• The chloride process will have tointroduced: the question iswhen?

In an ongoing attempt to answer thisand other questions, TZMIrepresentatives will be visitingChina next month to re-visit anumber of pigment plants and toupdate our market intelligence

TZMI released its inaugural multi-clientstudy of the relative economic value oftitanium feedstocks in July, entitled TiO2

pigment plant feedstocks: Value in use, astudy of relative economic value.

The purpose of the study is to highlight a number ofcritical factors to be considered when analysingfeedstock choices for pigment plants. This is achievedby adopting a standard methodology for calculating therelative values of feedstock options compared to a"reference feedstock" for use in a particular pigmentplant. The concept of relative economic value offeedstocks is supported by the complementary conceptof value in use. These two concepts look at the value offeedstocks from different perspectives, but incombination provide an integrated view of feedstockvalue to the pigment producer.

The 37 existing pigment plants modelled in thereport to validate the cost methodology togetheraccount for over 80% of global TiO2 pigmentproduction capacity, covering a range of technologies,plant sizes and geographic locations.

Key conclusions

Several key conclusions can be drawn from the study:

• The use of ilmenite in combination with a suitablewaste management strategy enables higher cashgeneration than the use of high TiO2 feedstocks inboth the chloride and sulfate processes.

• In 2003, rutile offered the best value to chloridepigment producers compared to other high TiO2

feedstocks.

• Chloride slag fines offered better value to sulfatepigment producers (at 2003 prices) than sulfate slag,provided that plants were technically able to acceptsuch material.

• Each geographic region has specific attributes whichchange the VIU and REV of feedstock choicescompared with other regions.

The concepts of VIU and REV are very useful tools forboth feedstock suppliers and pigment producers toevaluate feedstock selection and pricing decisions. Theyare best applied on a plant specific basis, incombination with strategic factors.


IN REVIEW

Value in use and relative economic

value of TiO2 feedstocks

0200400600800

1,0001,2001,4001,6001,8002,000

Feedstock A

VIU Feedstock costCost to convert to raw pigment FinishingCost of sales

US$ per tonne of pigment

Value inuse

Pigment price

Figure 1: Schematic representation of VIU

The concept of REVRelative economic value (REV) is defined as the value(expressed as a US$ FOB price) attributed to a particularfeedstock, including the costs to convert that feedstock to afixed quantity of raw TiO2 pigment , in comparison to thetotal cost of producing the same quantity of pigment from areference feedstock of known price.

The concept of value in useThe concept of REV is complementary with value in use(VIU), which is defined as the difference between the price offinished pigment in a particular market and all cash costsincurred in procuring and converting the particular feedstockto finished pigment, including selling and delivery costs.Therefore, VIU is related to the price of finished pigment andquantifies the net cash margin that can be realised per unit offeedstock used (Figure 1).

For further details about the study please contact TZMIdirectly or visit or website: www.tzmi.com.au

Bulk Shipping rates fell significantly over the first quarter of2004, but since mid June have began to rally once again.

Container shipping rates have also risen dramatically over thelast year, with the container sector somewhat lagging the dry-bulk market. A shortage of containers has resulted in adramatic increase in container freight rates. Eighteen monthsago it cost less than US$900 to ship a 40 foot container toEurope from Asia, but by the beginning of June it had risen toUS$3,000. According to the Far Eastern Freight Conference(FEFC), freight rates for boxes transported from Asia (exc.Japan) to Europe increased by US$150 per teu to US$250 perteu in May/June. (NOTE: teu = twenty-foot equivalent unit, astandard size container is 20 foot)

Westbound volumes on the Europe-Far East trade are said tobe 17% higher than in the first half of 2003. Asian port-growthfigures appear to support this. Chinese ports Shenzen andYantian are showing 32% increases in volume, whileMalaysia's Tanjung Pelepas says it has seen 26% growth andSingapore 15%. Asian trade growth is creating a shortage ofcapacity at virtually every large terminal in Western Europe.

12 TiO2 Review

PRICING TRENDS

July 2004

0

5

10

15

20

25

30

35

Q1 00

Q3 Q1 01

Q3 Q1 02

Q3 Q1 03

Q3 Q1 04

US$/tonne

Green Coke - >50 HGI Petroleum Coke*

* Top Price for >50 HGI Green Petroleum Coke FOB US Gulf

Source: Pace Petroleum Coke Quarterly

Coke prices are provided by Pace Petroleum Coke Quarterly,recognised as the authoritative source of objective analysis forthe petroleum coke industry. For further information on thecoke industry please contact:

email: [email protected]

Shipping Rates

May-04 Apr-04 Mar-04 Feb-04 Q4/03 Q1/04

US$/$A 0.714 0.722 0.759 0.771 0.725 0.765US$/Rand 6.83 6.53 6.65 6.78 6.76 6.79US$/Yen 109.4 110.4 104.3 109.1 109.0 106.4US$/Eur 0.821 0.835 0.812 0.801 0.831 0.805

Exchange Rates

0.40

0.60

0.80

1.00

1.20

1.40

Q100

Q3 Q101

Q3 Q102

Q3 Q103

Q3 Q104

0.08

0.12

0.16

0.20

0.24

0.28

A$ vs US$ Euro vs US$C$ vs US$ Rand vs US$ (rhs)

A$, C$, Euro Vs US$ Rand Vs US$

Coke

0

1,000

2,000

3,000

4,000

5,000

6,000

4/01

/200

2

4/04

/200

2

4/07

/200

2

4/10

/200

2

4/01

/200

3

4/04

/200

3

4/07

/200

3

4/10

/200

3

4/01

/200

4

4/04

/200

4

4/07

/200

4

Baltic Dry Index

Source: Baltic Exchange


PRICING TRENDS

Pricing Commentary

Latest monthly prices Annual prices Quarterly prices YTD1

May-04 Apr-04 Mar-04 Feb-04 2002 2003 Q3/03 Q4/03 Q1/04

Titanium MineralsIlmenite Aust export, FOB2 US$/t 100 127 85 119 141 120 121 103 101 100Rutile (bulk) Aust export, FOB3 US$/t 430-480 420-460 420-460 420-460 442 449 433 435 440 443Syn rutile US import, FOB4 US$/t na ns ns 376 313 374 384 392 374 371Ti slag US chloride, FOB4 US$/t na ns 409 389 427 397 390 387 392 392(imports) Europe sulfate, CIF5 US$/t na 339 359 371 350 350 347 354 363 355

Titanium Dioxide PigmentNorthern America CIF3 US$/t 1,888 1,874 1,874 1,830 1,753 1,830 1,830 1,830 1,845 1,859Asia-Pacific CIF3 US$/t 1,900 1,900 1,900 1,894 1,725 1,855 1,875 1,844 1,890 1,894Western Europe CIF3 Eur/t 1,853 1,843 1,843 1,850 1,803 1,891 1,919 1,873 1,855 1,852

Titanium Feedstock and TiO2 Pigment Prices

1 Average from January to most recent month available2 Australian Bureau of Statistics export figures3 Prices derived from contact with industry sources4 Weighted average price from all import sources

5 Average prices for imports into Belgium, France, Italy, Germany and the Netherlands.ns = no shipments that monthna = statistics not yet released for this month

15

20

25

30

35

40

7/01

/200

0

7/07

/200

0

7/01

/200

1

7/07

/200

1

7/01

/200

2

7/07

/200

2

7/01

/200

3

7/07

/200

3

7/01

/200

4

7/07

/200

4US$/bbl

Weighted World Spot Price fob

Asia Murban Spot Price fob

Source: EIA (Official energy statistics from the US Government)

0

5,000

10,000

15,000

Jan-04 Feb-04 Mar-04 Apr-04 May-04 Jun-04

tonnes

0

1,000

2,000

3,000price/tonne

volume A$ per tonne US$ per tonne

Australian TiO2 pigment* exports to Asia-Pacific: 2004

* HS code 326011 containing >80% TiO2Source: Australian Bureau of Statistics

Oil prices have continued their rising trend during 2004.One factor contributing to the continued escalation of pricesis the high growth in demand for oil from China. Between2000 and 2004 China accounted for 40% of the total growthin oil demand, and it is now the second largest oil market.For the first half of 2004, Chinese demand for oil grew at13%. Whilst there is a wide variation in forecasts for oilprices it would seem likely that oil prices will stay aboveUS$30 per barrel for a number of years. This will have long-term implications for all sectors of the chemical industry,including the TiO2 industry.

TiO2 pigment prices have reportedly started to move upwardagain with another round of price increases recentlyannounced. For Europe, the major producers haveannounced price increases of Eur120 per tonne, with theexception of DuPont who has announced an increase ofEur140 per tonne, to become effective around August 1, oras contracts permit. In the US market, the top five globalproducers have all announced price increases of 4c/lb(US$88 per tonne) effective from mid June or as contractsallow. Prices for Australian imports to the Asia-Pacific regionhave remained relatively static in US$ terms for the first halfof 2004.

World and Asian oil prices: 2000-2004

14 TiO2 Review

TRADE STATISTICS

July 2004

Asia-Pacific - TiO2 pigment production: 1998-2003

0

200

400

600

800

1,000

1,200

1998 1999 2000 2001 2002 2003

'000 tonnesChina

Singapore

South Korea

Malaysia

India

Taiwan

Australia

Japan

Source:TZMI database Ref: 2418

Asia-Pacific TiO2 statisticsThe following pages provide anoverview of pigment trade statistics forthe Asia-Pacific region. In each issue ofTiO2 Review, TZMI will provide asummary of trade developments in oneof the three major regions of theinternational pigment market; theAmericas, Asia-Pacific and Europe. Forthis first issue covering Asia-Pacific, adetailed summary of the region isprovided on a yearly basis for theperiod 1998-2003. In the Septemberissue TZMI will be providing a detailedsummary of pigment trade in Europe. Insubsequent issues TZMI will thenprovide a six monthly update of thepertinent trends shown in pigment tradefor the particular focus region.

As import and export data is derivedfrom customs statistics, in some casesthe volumes will be understated due tomiscoding and other reporting issues.Small discrepancies do occur betweenimporting and exporting country data,but these are mainly due to shipmenttimings. For the period 1998-2003there has been a significant increase inboth import and export volumes for theregion, largely due to the rapiddevelopment of China in the period.Regional production has also increaseddramatically in the same period, withmost of the increases also due to China.

Asia-Pacific productionTZMI has recently updated itsproduction estimates for the region toinclude the latest market intelligence onChina. This has resulted in considerablyhigher numbers for the regioncompared to our previous estimates.TiO2 pigment production in the regionhas grown from an estimated 790,000tonnes in 1998 to 1,170,000 tonnes in2003. There has been a dramaticchange in the regional balance over thisperiod. In 1998, Japan accounted for adominant 32% of total regionalproduction, followed by Australiawhich accounted for 22% of regionalproduction, and China with 18%. By2003, however, Japanese productiononly accounted for 22% of regionalproduction as its production ratesremained relatively static throughoutthe period, whilst Chinese production

Table 1: Asia-Pacific TiO2 pigment plant capacities: 1998-2003

‘000 tonnes 1998 2003Country Company Plant Chloride Sulfate Chloride Sulfate

Australia Millennium Kemerton 85 — 95 0Tiwest JV (50% KMCC) Kwinana 83 — 100 0Total Australia 168 0 195 0

China Various various 15 122 20 422Non-pigmentary various 27 90Total China 15 149 20 512

India Kerala Minerals & Metal Quilon 22 — 30 0Kilburn Chemicals Tuticorin — 8 — 8Kolmak Chemicals Calcutta — 3 — 3Travancore Titanium Trivandrum — 15 — 15Total India 22 26 30 26

Japan Fuji Titanium Hiratsuka/Kobe — 16 — 16Furukawa1 Osaka — 10 — closedIshihara Sangyo Kaisha Yokkaichi 63 92 68 87Sakai Chemical Onahama — 43 — 60Tayca Corp Okayama — 60 — 60Tohkem2 Akita — 30 — closedTitan Kogyo Ube — 17 — 17Total Japan 63 268 68 250

Korea Hankook Titanium Inchon — 25 — 25Hankook Titanium Onsan — 16 — 30Total South Korea — 41 — 55

Malaysia Huntsman Tioxide Telok Kalong — 50 — 56Singapore Ishihara Sangyo Kaisha Jurong 45 — 45 —Taiwan DuPont Kuan Yin 93 — 97 —

Others various 11Total Taiwan 93 11 97 0

Total Asia-Pacific 406 545 455 899

Note: 1 Furkukawa plant closed in September 2003.2 Tohkem plant closed in March 2000

increased dramatically, it accounting for40% of regional production in 2003.

Matching this growth has been adramatic increase in productioncapacity in the region during the sameperiod, with production capacityincreasing from 950,000 tonnes to justover 1,350,000 tonnes. The majority ofthis increase is due to new productionfacilities in China. Significantly,excluding China, production capacityin the region has only increased by4.5% in the period from 1998 to 2003.Japan is the only country in the regionwhere there has been an overallreduction in production capacityfollowing the closure of two smallsulfate plants, which was only partiallyoffset by minor capacity increases atother plants.

Production in the region is dominatedby smaller sulfate route plants. Of thesix chloride route plants within theregion, the five largest are located inAustralia, Japan, Taiwan, and Singaporeand are owned by major globalproducers DuPont, Millennium, Kerr-McGee and Ishihara Sangyo Kaisha,producing high quality rutile pigmentgrades. The other two smaller chlorideroute plants located in China and Indiaare owned by local companies that hadno previous experience with chloridetechnology. The only chloride plant inChina has been beset by a range ofperformance issues associated with thetechnology since it began operations in1996. The development of chlorideroute plants remains a major goal of theChinese TiO2 industry.

With the exception of China, no newsulfate route plants have beenestablished in the region since 1997when Hankook Titanium opened its30,000 tpa sulfate plant at Onsan, SouthKorea. There is considerable variationin the quality of pigment produced bythe sulfate route plants in the region,ranging from high-quality rutile andspecialised anatase pigments (includingnanaoparticle TiO2) from Japanesemanufacturers, to low quality anataseand non-pigmentary grades from manyChinese pigment manufacturers. Therehas been a large expansion in thedevelopment of specialised anatase and

rutile grade pigments by the domesticChinese producers since 2000, butgenerally Chinese pigment is still of alower quality than pigment producedby other countries in the region.

Asia-Pacific consumptionTotal TiO2 pigment consumption in theregion has grown from 760,000 tonnesin 1998 to 1,325,000 tonnes in 2003.China accounted for over 40% ofregional consumption in 2003compared to only 21% in 1998.Chinese pigment consumption in thisperiod has shown annual growth rate ofapproximately 27% With consumptiongrowth in the Japanese market beingrelatively static, the remainder of theAsia-Pacific region (excluding China)showed a growth rate of approximately8% pa in the same period.

Average export pricesThe significant differences in the qualityof pigments produced in the region canclearly be seen in the accompanyingchart that illustrates the yearly averageexport prices for the various countries.Japanese TiO2 pigment has consistentlyshown the highest average price,particularly for the HS Code 282300(titanium oxide). Japanese export pricesdo include some small volume, higherprice material but the average price forHS code 320611 (pigments containing>80% TiO2) for 2003 was US$1,835per tonne. Chinese TiO2 pigmentexports are dominantly anatase grades,and the average 2003 export price forthe HS Code 320611 (pigmentcontaining >80% TiO2) was just overUS$1,000 per tonne.


TRADE STATISTICS

Asia-Pacific - TiO2 pigment consumption: 1998-2003

0

200

400

600

800

1,000

1,200

1,400

1998 1999 2000 2001 2002 2003

'000 tonnes

Japan Other Asia-Pacific China


Asia-Pacific - TiO2 pigment export prices: 1998-2003

500

1,000

1,500

2,000

2,500

3,000

1998 1999 2000 2001 2002 2003

US$ per tonneJapan - titanium oxideJapan - >80% TiO2Taiwan - >80% TiO2South Korea - titanium oxideChina - >80% TiO2China - titanium oxide


16 TiO2 Review

TRADE STATISTICS

July 2004

China - TiO2 pigment exports and imports: 1998-2003

0

50

100

150

200

250

300

1998 1999 2000 2001 2002 2003

'000 tonnes

0

400

800

1,200

1,600

2,000

2,400US$/tonne

imports exports>80% TiO2 import price (rhs) >80% TiO2 export price (rhs)


China - imports of TiO2 pigment by source: 1998-2003

0

50

100

150

200

250

300

1998 1999 2000 2001 2002 2003

'000 tonnes

Other World

North America

Europe

Other AsiaPacificTaiwan

Australia

Japan


China - exports of TiO2 pigment by destination: 1998-2003

0

20

40

60

80

100

120

1998 1999 2000 2001 2002 2003

'000 tonnes

Other World

North America

Europe

Other Asia-PacificIndia

S. Korea

Japan


Chinese imports and exportsChinese imports of TiO2 pigment havegrown from 99,000 tonnes in 1998 tojust over 250,000 tonnes in 2003.Significantly, Chinese imports ofpigment surpassed imports of pigmentinto the US in 2003. Imports accountedfor over 45% of total Chinese TiO2

pigment consumption in 2003, and aregenerally higher quality rutile gradepigments that are not produced withinthe country.

Imports from Taiwan reached 59,000tonnes in 2003, surpassing the levelsourced from Australia at 55,000tonnes, and Japanese pigments at43,000 tonnes. Imports are dominantlyfrom the Asia-Pacific region, whichaccounted for nearly 64% of totalimports in 2003. The average yearlyprice of Chinese TiO2 pigment importsfor the HS Code 320611 (pigmentcontaining >80% TiO2) was just overUS$1,725 per tonne for 2003.

There is a noticeable trend of greatervolumes being sourced from outsidethe Asia-Pacific region. This may be dueto supply scarcity. Imports of pigmentfrom Europe have grown to over 30,000tonnes in 2003 to surpass imports fromNorth America at 20,000 tonnes. Inparticular, imports from Germany havegrown to over 21,000 tonnes, including7,000 tonnes of HS Code 282300(titanium oxide) for an average price ofUS$2,240 per tonne. The high price ofsome of these German imports wouldappear to correspond to specialisedanatase grades, possibly for thesynthetic fibre sector.

Exports of Chinese pigment have alsoshown a dramatic increase reachingover 100,000 tonnes in 2003. The bulkof this material (80,000 tonnes) was HSCode 320611 at an average price of justover US$1,000 per tonne. Of particularnote is the relatively large volume ofpigment material now being exportedto the US. Over 17,000 tonnes of HScode 320611 (pigment containing>80% TiO2) was exported to the US in2003, at an average price of US$1,100per tonne. This low grade anatasematerial was destined for lowspecification coatings, including roadmarking paints.


TRADE STATISTICS

Japan - TiO2 pigment exports and imports: 1998-2003

0

25

50

75

100

125

150

1998 1999 2000 2001 2002 2003

'000 tonnes

0

400

800

1,200

1,600

2,000

2,400US$/tonne



Japan - imports of TiO2 pigment by source: 1998-2003

0

10

20

30

40

50

60

70

80

1998 1999 2000 2001 2002 2003

'000 tonnesOther World

North America

Europe

Other Asia-PacificMalaysia

China

Taiwan


Japan - exports of TiO2 pigment by destination: 1998-2003

0

20

40

60

80

100

120

1998 1999 2000 2001 2002 2003

'000 tonnes

Other World

North America

Europe

Other Asia-PacificKorea

China

Taiwan


Japanese imports and exportsIt has been many years since Japan wasthe dominant force in the Asia-Pacificpigment industry. Japan's TiO2 pigmentindustry has been relatively static overthe last ten years in terms of bothproduction and capacity. There arecurrently five TiO2 pigment producersin Japan. With the exception of ISK allproducers operate small sulfate routeplants with nameplate capacities of60,000 tpa or less. ISK is the largestproducer, accounting for approximately50% of total Japanese productioncapacity. Consumption has also beenstatic for the last ten years atapproximately 240,000 tpa, andproduction rates have averaged around250,000 tpa during the same period.

Throughout most of the 1990s Japanesepigment imports exceeded pigmentexports. This changed in 1998, andJapan has remained a net exporter ofpigment ever since. Japanese importsof TiO2 pigment were consistentlyabove 80,000 tpa before 1998, butsince then have been below 70,000tonnes, and averaged around 60,000tpa in 2002 and 2003. Over a third ofimports are derived from the US, andother major sources include Malaysia,Taiwan and China. Imports fromEurope have decreased by over 50%since 1998, and only 7,000 tonnes wasreported for 2003.

In 2003, customs data indicates exportsof approximately 100,000 tonnes, thisis higher than the Japanese TitaniumDioxide Industry Association report of86,000 tonnes. Export prices forJapanese pigments in the HS Code3206111 (pigment containing >80%TiO2) are generally US$200 per tonnehigher than for imported pigment.Exports to Europe, Taiwan and Koreahave been falling slightly since 1999,but have been offset by the growth inJapanese pigment exports to Chinawhich reached 43,000 tonnes in 2003.

Taiwanese imports andexportsTaiwanese TiO2 pigment production ismostly from DuPont's 97,000 tpacapacity chloride plant in KuanYinwhich was commissioned in 1994.

18 TiO2 Review

TRADE STATISTICS

July 2004

Taiwan - TiO2 pigment imports and exports: 1998-2003

0

20

40

60

80

100

120

1998 1999 2000 2001 2002 2003

'000 tonnes

0

400

800

1,200

1,600

2,000

2,400US$/tonne



Taiwan - imports of TiO2 pigment by source: 1998-2003

0

10

20

30

40

50

60

70

1998 1999 2000 2001 2002 2003

'000 tonnes

Other World

North America

Europe

Other Asia-PacificAustralia

Japan


Taiwan - exports of TiO2 pigment by source: 1998-2003

0

20

40

60

80

100

120

1998 1999 2000 2001 2002 2003

'000 tonnes

Other World

China

Other Asia-Pacific

Korea

Japan


Production from the plant is dominantlyexported to other countries in the Asia-Pacific region. DuPont also has a20,000 tpa finishing plant located inTaiwan, which is used to finishimported raw pigment.

The country is a net exporter of TiO2

pigment, importing between 50,000 to60,000 tonnes of pigment a year andexporting around 80,000 tpa. Thepattern of imports has been relativelystable since 1999. North America andEurope are the dominant source forimports and accounted for over 60% ofimports in 2003, followed by Japan(25%), Australia (6%), and Singapore(6%). Prices of imports varyconsiderably but averaged US$1,700per tonne for HS Code 320611(pigment containing >80% TiO2).Over 12,000 tonnes of pigment codedHS Code 282300 was imported fromGermany for an average price ofUS$3,900 per tonne.

There was a sudden increase inreported exports in 2003, with exportsreaching over 110,000 tonnes. Whilstthere were small increases in exportsreported for most Asia-Pacific countries,exports to China increased by over 37%to 55,000 tonnes in 2003, accountingfor 55% of total Taiwanese exports.Export prices for HS Code 320611(pigment containing >80% TiO2)averaged US$1,570 per tonne for 2003.

South Korea exports andimportsSouth Korea has two small sulfate plantsowned by Hankook Titanium whichhave a combined capacity of 55,000tpa. The largest of the two plants,located at Onsan, was commissioned in1997, but first production from theplant was not shipped until 1999. Themajority of production from thecompany is general purpose anatase,but approximately 7,000 tpa is ofspecial textile grades which aremanufactured at the Incheon plant.Approximately 50% of Hankook'sproduction is exported.

South Korea is a net importer of TiO2

pigment and imported 118,000 tonnesin 2003, and exported 28,000 tonnes.Pigment imports are derived from a


TRADE STATISTICS

South Korea - TiO2 pigment exports and imports: 1998-2003

0

25

50

75

100

125

150

175

200

1998 1999 2000 2001 2002 2003

'000 tonnes

0

250

500

750

1,000

1,250

1,500

1,750

2,000$US/tonne



South Korea - imports of TiO2 pigment by source: 1998-2003

0

20

40

60

80

100

120

140

1998 1999 2000 2001 2002 2003

'000 tonnesOther World

NorthAmericaEurope

Other Asia-PacificChina

Taiwan

Australia

Japan


South Korea - exports of TiO2 pigment by destination: 1998 - 2003

0

5

10

15

20

25

30

35

1998 1999 2000 2001 2002 2003

'000 tonnes

Other World

North America

Europe

Other Asia-Pacific

Malaysia

Japan


wide range of sources. Sources locatedin the Asia-Pacific region account forover 50% of its imports, includingAustralia which accounted for 23% ofSouth Korean imports in 2003. Theremainder of imports come dominantlyfrom North America (21%) and Europe(19%). Pigment imports for the HSCode 326022 (pigments containing>80% TiO2) were reported at 101,000tonnes at an average price of US$1,700per tonne.

Some speciality anatase pigment gradesare also imported into Taiwan,including higher priced material fromGermany and Japan under the HS Code282300 (titanium oxide). Imports ofGerman pigment under this codetotalled 4,600 tonnes in 2003, for anaverage price at US$2,500 per tonne,and Japanese imports under this codetotalled 2,800 tonnes at an averageprice of US$2,800 per tonne. Thiscompares to the lower specificationanatase material from China under thiscode totalling 7,500 tonnes at anaverage price of US$1,000 per tonne.

Exports of South Korean pigment haveincreased significantly since 2000, dueto the extra availability of material fromthe new plant at Onsan. It wouldappear that new markets were found forthis material, particularly in NorthAmerica. Over 7,800 tonnes of pigmentwas exported to the US in 2003 at anaverage price of US$1,200 per tonne.In total, over 27,000 tonnes of SouthKorean pigment was exported underthe HS Code 282300 (titanium oxide) atan average price of US$1,300 per tonnein 2003.

Australian imports andexportsAustralia is the largest exporter ofpigment in the Asia-Pacific region. Ithas two large chloride plants located inWestern Australia, owned by globalpigment producers, Millennium andKerr-McGee. A large proportion ofAustralian production is exported,dominantly to the Asia-Pacific region.The two plants are generally operated ata high operating capacity, particularlywhen demand is strong in the Asia-Pacific.

20 TiO2 Review

TRADE STATISTICS

July 2004

Australia - TiO2 pigment exports and imports: 1999-2003

0

50

100

150

200

250

1999 2000 2001 2002 2003

'000 tonnes

0

400

800

1,200

1,600

2,000$US/tonne

imports exports>80% TiO2 import price >80% TiO2 export price

Source:TZMI database Ref: 2432

Australia - exports of TiO2 pigment by destination: 1999-2003

020

406080

100

120140

160180

1999 2000 2001 2002 2003

'000 tonnes

Other World

Europe

China

Other Asia-PacificKorea

Japan


India - imports of TiO2 pigment by source: 1999-2003

05,000

10,00015,00020,00025,00030,00035,00040,00045,000

1999 2000 2001 2002 2003

tonnesOther World

Europe

North America

Other Asia-PacificChina

Australia

Taiwan


Pigment imports into Australia arerelatively small, only totalling 13,000tonnes in 2003. The majority ofmaterial imported into Australia is rutilegrade under the HS Code 326011(pigments containing >80% TiO2), ofwhich 11,000 tonnes was imported atan average price of US$1,500 in 2003.The remainder of imports in 2003included anatase material from Koreaand China for an average price ofbetween US$1,100 and US$1,300 pertonne, and small volumes of specialityanatase grade material imported fromJapan for an average yearly price atUS$2,300 per tonne.

Exports of Australian pigment totalled150,000 tonnes in 2003. The dominantexport market that has emerged overthe last few years for Australia is China.Australia exported 49,000 tonnes toChina in 2003, at an average price ofUS$1,725 per tonne. Other majormarkets include South Korea, with25,000 tonnes exported during 2003 ata yearly average price of US$1,780 pertonne, and Thailand with 13,000tonnes exported at US$1,700 pertonne. Exports to the Asia-Pacificregion accounted for 92% of totalAustralian exports in 2003, with onlysmall volumes being exported out ofthe region.

Indian imports and exportsIndia’s small domestic TiO2 industry isunable to provide sufficient pigment forits own consumption and the country istherefore a net importer of pigment.Reported imports of pigment have risento over 40,000 tonnes in 2003. Importprices for HS Code 320611 (pigmentcontaining >80% TiO2) averagedUS$1,740 per tonne for 2003. Otherimports included higher priced materialclassified as titanium oxide fromGermany at US$2,425 per tonne, andlow quality anatase material from Chinaat approximately US$1,000 per tonne.

Exports of Indian pigment rose to justover 4,000 tonnes in 2003, and are setto increase in coming years particularlyas Indian producer, Kerala Minerals andMetals Ltd has indicated that it plans toexpand its pigment production capacityto approximately 100,000 tpa by2006/07.

In this analysis of Asia-Pacific end-use markets, TZMI looks at the

current situation in the Chinesecoatings market.

The Chinese coatings market hasshown some dramatic changes overthe last ten years. Of particular note,has been the investment by globalcoatings companies in the countryin production facilities and servicecentres. It has been recentlyestimated by Chinese sources thatforeign companies control 45% ofmarket share of the coatings market,and control the mid and high gradeends of the market. Nippon Paint inparticular is very strong in theChinese coatings market and isexpected to move to a 17% share ofthe total Chinese market by 2005,as current expansions at itsLangfang, Suzhou, Shanghai, andGuangzhou facilities will increaseproduction capacity to 370,000 tpa.

Shipments of Chinese coatingsreached 2.2 million tonnes in 2003,an increase of 10% over theprevious year. Coatings productionhas become increasinglyconcentrated in three main areas:Zhu River triangle (22%), YangtzeRiver triangle (36%), Bo Sea triangle(23%). There are now estimated tobe more than 1,000 coatingmanufacturers in China, rangingfrom large single and joint-venturemanufacturers to small, private, andlocal authority companies.According to Chinese statistics,revenues for the industry increased26% for 2003 compared to 2002.

Fierce competition in the lowerend of the Chinese market has seenprofit margins of many of the localcompanies drop to low levels in2003. Overall operating margins forthe industry fell to an average 6.4%in 2003, compared to 8% in 2002.


END-USE MARKETS

Each issue, TZMI will provide a summary update of developments in the major end-usemarkets for the Americas, Europe and Asia-Pacific.

Table 1: Production for top 10 paint and coatings producersin China: 2003 (‘000 tonnes)

Company 2003 2002 %ChangeNippon China 75.2 63.4 18.6Langfang Nippon 58.5 46.5 25.8Shandong Lehua Group 55.6 44.5 24.8Hunan Xiangjiang Paints 46.4 37.3 24.3China Paint Shanghai 42.8 30.1 42.2Guangzhou Zhujiang Chemical 36.6 38.6 -5.0Kansai Shanghai 36.6 20.6 77.1Shanghai Paint 36.3 26.9 35.0Shanghai International Paints 33.9 28.2 20.3Shandong Changyu Group 31.6 30.2 4.4Total 453.3 366.3 23.8Percentage of total industry 18.8% 18.2%

Table 2: Revenue for the top 10 paint and coatings producers inChina : 2003 (million US$)

Company 2003 2002 %ChangeNippon China 145.5 124.1 17.2Shanghai Paint 101.4 46.3 119.0Guangzhou Zhujiang Chemical 86.2 79.3 8.7Langfang Nippon 83.1 71.4 16.4PPG Tianjing 75.6 52.1 45.1Shanghai International Paints 65.4 57.5 13.9China Paint Shanghai 63.0 44.3 42.3Hampel Kunshan 58.9 46.3 27.2Shunde Huarun Paints 58.1 49.8 16.3Hunan Xiangjiang Paints 54.8 45.5 20.5Total 791.8 616.6 28.4

Percentage of total industry 16.8% 16.4%

Table 3: The economic index of paint and coatings industry in China: 2003 (million US$)

Turnover No of Income Profit OperatingCompanies before tax margin

>24 million 38 1,797.4 199.5 11.1%12-24 million 38 611.5 45.0 7.4%>6-12 million 77 625.5 43.9 7.0%<6 million 923 1,687.4 67.6 4.0%Total 1,152 4,721.4 301.5 6.4%

Source: TZMI’s InsideChina



22 TiO2 Review

FINANCIAL RESULTS

July 2004

Paint & Coatings Industry Magazine hasreleased its annual ranking of the top

global coatings manufacturers for 2003.The ranking of the Top 5 coatingscompanies has remained unchanged from2002 (see Table). Completing the top 10 areBASF at number 6, SigmaKalon at number7, Valspar Corp at number 8; Nippon Paintat number 9 and Kansai Paint at Number10. There were some position changes withSigmaKalon moving up from 8th position to7th position and Kansai Paint moving up tothe 10th position, just edging past RPM.

Table 1: Top 5 Coatings companies : 2003

Rank Company 2002 Sales 2003 Sales %changeUS$million US$million

1 Akzo Nobel Coatings 5,789 6,074 4.92%2 PPG Industries 4,482 4,836 7.90%3 Sherwin-Williams 4,096 4,272 4.29%4 ICI Paints 3,511 3,859 9.91%5 DuPont Coatings & Color 3,150 3,575 13.49%

Source: PCI Paint & Coatings Industry Magazine (www.pcimag.com)

Top 5 coatings companies retain their global ranking for 2003 and increase sales

Major Japanese paint manufacturers Kansai PaintCo. and Nippon Paint Co have reported financial

results for the financial year ended March 31 2004.Nippon Paint Co. reported an increase in sales to

¥198.67 billion for the year ended March 31 2004,compared to ¥197.83 billion for the previous financialyear. The fine chemical business segment accounts forapproximately 6% of net sales, the remainder is splitbetween various coating segments. Nippon is one ofthe leading global coating suppliers (ranked number 9for 2003 sales according to PCI Magazine). Thecompany has many subsidiaries, and supplies coatingsand paints across a wide range of market segmentsincluding architectural, automotive OEM and refinish,industrial and powder coatings. The company is in theprocess of expanding its business network through theestablishment of Nipsea, a joint venture corporate groupit has set up with Asian joint venture partner WuthelamHoldings, spanning the construction, automobile andindustrial coatings sector in Asia. The company hasforecast that it expects to see sales rise to 201 billion yenyear for the FY2004/05 financial year.

Kansai Paint is the largest paint manufacturer inJapan, but it is not as strong in international sales asNippon Paint, with approximately 76% of sales being inJapan. The company reported net sales for FY2003/04 of¥185.68 billion, compared to ¥180.13 billion for theprevious year. The majority of its overseas business isconcentrated in Asian countries that accounted forapproximately 22% of FY2003/04 sales. The companyis one of the world's leading manufacturers ofautomotive OEM and refinish paints for Japanese madevehicles and automotive paints accounted for 43% of itssales for FY2003/04. The company reported afavourable increase in its automotive sales forFY2003/04 for South East Asia and furtherimprovements are expected in FY2004/05 as sales fromits subsidiaries in China (Chongqing Kansai Paint) andMalaysia (Sime Kansai Paints) will be included. Thecompany has two new industrial, decorative coatingsplants under construction in Delhi and Kanpur in India,and two new automotive coatings facilities underconstruction in China. Kansai Paint states that it expectsoverall demand for paint in India to rise at a rate of 10%-20% pa, and highlights India as a region that has highpotential for future growth.

Japanese paint companies report increased sales for FY2003

Table 1: Nippon Paint CoResults and margins (US$million)

Period Net Sales Income Margin(pre-tax)

FY 2000/01 1,788 97 5.4%FY 2002/03 1,530 23 1.5%FY 2002/03 1,635 88 5.4%FY 2003/04 1,762 88 5.0%

Table 2: Kansai Paint CoResults and margins (US$million)

Period Net Sales Income Margin(pre-tax)

FY 2000/01 1,573 68 4.3%FY 2002/03 1,432 96 6.7%FY 2002/03 1,535 121 7.9%FY 2003/04 1,703 153 9.0%


FINANCIAL RESULTS

Indian paint/coatings sector

The market for paints and coatings in India is reportedto be approximately 600,000 tpa. This translates to

an extremely low rate of paint consumption per capitaof less than 1 kg. Consumption per capita in India is stilllower than consumption in China. It is, however, aregion that has high growth potential. The increasingpenetration of the media (particularly television) intorural areas is expected to increase demand for lifestyleproducts and therefore decorative coatings. The majorarchitectural coating in the rural and sub-urban areasremains limewash, but paint manufacturers are hopingthat this habit will change in the coming years. Anumber of issues that still will need to be addressed

before the full potential of the market can be exploitedinclude India's lack of infrastructure and associated hightransportation costs. According to local producer, AsianPaints, domestic paint industry sales grew by around15% in the FY2003/04 year. Decorative paints grew by13% due largely in part to exterior paints growing byover 20%, and industrial coatings grew by close to20%. The country has experienced real GDP growthrates in excess of 5% pa in recent years, and there aresimilar projections for the next 5 years (see Figure 1).Overall the growth in paint and coatings consumptionin India is expected to far outstrip GDP projections.

The Indian market is currently dominated bydomestic producer Asian Paints, but all of the top tenglobal companies have some association in India, eitherthrough wholly owned subsidiaries, joint ventures ortechnical collaboration arrangements. Asian Paintsreported consolidated sales in excess of US$500 millionfor the first time in FY2003/04 to reach Rs22637million(US$513 million), a 30% increase from theprevious year. Profit before tax, but after goodwill,increased 6.4% over the previous year to Rs2415million (US$55 million). The greatest improvement wasfrom its international segment which now contributes19% of total sales, compared to 4% for FY2002/03.Most of its international growth can be attributed to the50.1% stake it acquired in the Singapore-listed BergerInternational Limited in late 2002. Berger Internationalreported profits for the first time in six financial years.

0123456789

10

1996

1997

1998

1999

2000

2001

2002

2003

2004

e20

05e

Real GDP % change

Figure 1: India’s GDP growth: 1996-2005e

Source: IMF World Economic Outlook April 2004

Ink companies report higher profits

The two largest Japanese ink companies havereported improved profit growth in FY2003/04 due

to strong sales in Japan, China and other countries inthe Asian Region.

Dainippon Ink& Chemicals Inc reported a netincrease of 163.4% for consolidated net profits to Yn6.4billion, (US$56 million) compared to the previous year.The increase in profit was largely due to the company'seffort in implementing drastic cost reduction across itsproduction facilities, including closing and/orintegrating plants and improving production processes,as reported sales only showed a 1.3% year-on-yearincrease to ¥974.8 billion (US$8,643 million). Moves tocapture high-growth markets in Asia included thebuilding of a new plant for organic pigments in Chinaand the construction of a new gravure inks plant inThailand. The company has not had a very strong

presence in China in the recent past but has targeted thecountry for future investment through a recentlyestablished holding company. The company iscurrently establishing a new printing ink productionand sales joint venture in Yunnan Province.

Toyo Ink reported a 65.6% increase in net profits asprofits rose to ¥3.48 billion (US$31 million) comparedto ¥2.10 billion (US$17 million) for the previous year.Sales figures, however, were marginally lower at¥216.41 billion (US$1,919 million) compared to¥217.05 billion (US$1,794 million) for FY2002/03. Thecompany is currently establishing Malaysia as a majorproduction and development hub for its SoutheastAsian operations. The company is also increasing itsproduction capacity in China, particularly for dyes tomatch increasing demand for home appliances andautomobiles. The company had sales of approximately¥15 billion (US$133 million) in China in FY2003/04and hopes to double that level for FY2004/05.

24 TiO2 Review

NEXT ISSUE

July 2004

Our next issue of TiO2 Review will be released in the last week in September, thefollowing bi-monthly issues will then be released in the last week of November, Januaryand March.

The September issue will be focusing on the region of Europe, with specific trade data, profiles and commentaryrelating to this region. TZMI will also be reviewing the first six months results of the global pigment companies

for 2004, which will provide an overview of the global trends in the industry.

TZMI’s InsideChina is a monthly newsletter introducedin late 2003, dedicated to the titanium minerals andzircon industry in China. The role of China in theseindustries is often underestimated in the western world,mainly due to the lack of readily available detailed dataand information. InsideChina bridges this gap bringing abrief review of economic trends and reviews of thesesectors, as well as news, developments and statistics. Thenewsletter is only available electronically in PDF format.A sample copy is available on our website:www.tzmi.com

Price: US$495 (12 issues)TZMI’s InsideChina 1

Trade statistics

Note: 1 Customs data provides official statistics based on a single customs code for Titanium Ores and Concentrates and Zirconium Ores andConcentrates. The breakdown by individual product group is estimated by TZMI based on monthly price information from individualcountries/ports.

2 Y-O-Y % change compares the YTD total in the current year to the corresponding period in the previous year.

Chinese trade statistics: Titanium minerals, zircon and TiO2 pigment

Latest month YTD total Y-O-Y2 Total 2002Oct 2003 Jan-Oct 2003 (% change)

Volume Av. price Volume Av. price Volume Av. price Volume Av. price(tonnes) (US$/t CIF) (tonnes) (US$/t CIF) (tonnes) (US$/t CIF)

ImportsTitanium minerals1

Ilmenite 16,621 47 154,284 55 306.3% -9.5% 37,974 61Rutile 117 525 1,569 583 14.1% 3.7% 1,375 562

Zircon & Zrproducts1

Zircon sand 8,419 388 156,949 403 14.6% 0.9% 136,906 399Zircon concentrates 3,764 164 54,653 157 31.1% 7.7% 41,692 146Other Zr products 181 1,445 4,847 624 38.0% -27.1% 3,512 856

Total 12,364 335 216,449 346 18.9% -1.2% 182,110 350

TiO2 pigmentTitanium oxides 1,673 2,054 16,689 2,154 18.9% -4.0% 14,031 2,244TiO2 pigment 21,235 1,722 189,896 1,727 19.1% 4.0% 159,436 1,661(>80% TiO2)

Pigments based on 599 2,511 7,066 2,436 6.5% 10.7% 6,632 2,201titanium dioxide

Total 23,507 1,765 213,651 1,784 18.6% 3.4% 180,099 1,726

Latest month YTD total Y-O-Y Total 2002Aug 2003 Jan-Aug 2003 (% change)

Volume Av. price Volume Av. price Volume Av. price Volume Av. price(tonnes) (US$/t FOB) (tonnes) (US$/t FOB) (tonnes) (US$/t FOB)

ExportsTiO2 pigment

Titanium oxides 1,524 816 16,790 795 20.9% 6.4% 13,893 747TiO2 pigment 6,430 995 64,704 998 13.6% -0.1% 56,949 999(>80% TiO2)

Pigments based on 42 2,395 121 2,583 245.7% 2.0% 35 2,533titanium dioxide

Total 7,996 969 81,615 959 15.2% 0.9% 70,877 950

Mineral Sands Report is a monthly 16-page reportdedicated to the titanium minerals, TiO2 pigment andzircon industries. Each month, Mineral Sands Reportcontains industry news, data, analysis and pricing onthese industries, providing subscribers with an up to date,unrivalled source of industry information. A samplecopy of Mineral Sand Report can be requested by mail oremail or accessed on our website: www.tzmi.com

Price: US$1,200 (12 issues)

Other TZMI publications www.tzmi.com

Published by:TZ Minerals International Pty Ltd3 Ventnor AvenueWest Perth, WA 6005, AustraliaPostal Address:PO Box 48, West Perth,WA, 6872, Australia

Telephone: 61 8 9321 5888Facsimile: 61 8 9321 5919Email: [email protected]

Issue 3 January 2004

Visit us online atwww.tzmi.com

TZMI’S InsideChinaMonitoring Titanium and Zircon Industries

Inside this issue..

TiO2 pigmentTitanium feedstocksZircon and Zr productsTrade Statistics

Chinese TiO2 pigment capacityexpansions continue

All of this additional capacity usessulfate route technology and almost90% is for production of rutile gradepigments.

Some 78,000 tonnes of capacityexpansions are currently in progressand should be completed by end2004. A further 195,000 tonnes ofnew and expanded capacity isplanned or under consideration forimplementation before end 2006.These projects, totalling 273,000 tpa,are summarised by producer in Table2 on page 3.

Again, most of the plannedexpansions are based on sulfate route

technology. PanJin TiO2 isimplementing the only confirmedchloride route pigment capacityexpansion, although severalproducers are known to be pursuingaccess to chloride technology.

The move towards increased TiO2

pigment capacity in China is beingdriven by strong domestic demandgrowth and continued buoyantgrowth is forecast. Chinese producersare increasingly focusing onimproving product quality to matchinternational standards, and in manyinstances, this can only be achievedby introducing new production lines.

In contrast to the rest of the world, Chinese pigment producers areactively installing new capacity or expanding existing facilities. In2003, a total of 72,000 tonnes of capacity was commissioned asshown in Table 1.

continued page 3

Table 1: Recently commissioned new or expanded capacity: 2003

Company Additional Capacity (tpa) Pigment gradeZibo Cobalt Chemical 20,000 rutileSichuan Lomon Corporation 20,000 rutileZhenjiang TiO2 Co 18,000 rutileHunan Yongli Chemical 5,000 rutileHutong Co 4,000 anataseTongling Annada TiO2 Co 5,000 anataseTotal 72,000

Mineral Sands Mineral Sands Report

Data and Analysis on the Global Titanium Mineral, TiO2 Pigment and Zircon Industries


Inside this month

1 News

3 Industry InsightThe challenge of

supply deficits forthe zircon industry

6 In DetailCopperas

9 Product ProfilePig Iron

10 Trade DataWorld slag production

and mineral productionfor South Africa, Canada

and Norway

14 Pricing pages

16 Quarterly UpdateZircon

Published by TZ MineralsInternational Pty Ltd

Copyright reserved

Developments in new minsands projects for 2004

During 2004, there will be a lot of interest taken in several proposed newmineral sands projects, with final production and funding approval

decisions likely to be made during the year.

Iluka Resources Ltd’s (Iluka) Douglas Project in the Murray Basin isscheduled for a final investment decision early in Q2 2004, following thecompletion of a detailed feasibility study. If the feasibility study is successful,the company has indicated that it expects to commence construction in themiddle of Q2 2004. Iluka recently received a planning permit to construct a20km pipeline from the Rocklands Water Reservoir to the proposed minesite, which was the last government planning permit required for the project.

Tiomin Resources has received all of the major environmentalapprovals required for its Kwale titanium project, and is currently waiting forthe results of an updated feasibility study and related pilot plant test dueearly in 2004. A production decision and the start of the detailed design andconstruction phase are expected in 2004.

Kenmare Resources has announced that it is at an advanced stage inits negotiations with a main contractor for the full development contract forit's Moma Project in Mozambique, which the company expects to be ableto sign early in the first quarter of 2004. The process of securing projectfinancing is also proceeding and it is intended that lender institutions willseek remaining approvals shortly after the finalisation of the fixed pricedevelopment contract. The former Beenup mineral separation plant that waspurchased from BHP in August 2000, has been dismantled and is awaitingshipment from the Australian port of Bunbury.

A bankable feasibility study for Mineral Commodities Ltd’s TorminZircon Project is currently scheduled for completion in mid-2004. Theproject involves the proposed production of up to 16,000 tpa of zircon froma deposit on the west coast of South Africa.

The development of the Pooncarie project of BeMax Resources NL islikely to be influenced by the merger of the mineral sands assets of BeMaX,Nissho Iwai Corporation (owner of Cable Sands/RZM) and Sons of Gwalia(joint venture partner with RZM in Murray Basin Titanium) announced latein 2003. A final decision on project funding is expected in early 2004.

Southern Titanium NL is currently awaiting the receipt of all requisiteoperating and finance approvals. The company is also still to make adecision regarding the project's principal contractors.

TiO2 pigment plant feedstocks - Value in useA study of relative economic value

Price: US$4,950 published July 2004

TZMI's pigment technology and market team encompasses over 50 years combined industryexperience. For this new TZMI study, detailed technical models have been developedrepresenting a large range of TiO2 pigment plants worldwide, covering all the major plantconfiguration types. Based on this model, the study analyses six generic plants to provide anunderstanding of feedstock value drivers in the TiO2 pigment industry.

The study highlights the relative economic value of typical pigment plant feedstocks andprovides an understanding of feedstock purchasing decision drivers. The study highlights the differences betweenfeedstocks and their value to different pigment process routes and covers the inter-relationships between feedstocksand other major variable cost inputs, identified by process route and plant configuration. www.tzmi.com

TTiOiO22 pigment plant feedstockspigment plant feedstocksVValue in usealue in use

AA study of relative economic valuestudy of relative economic value

IntroductionMethodologyDefinition of relative economic valueThe TiO2 supply chainTiO2 pigment manufacturing industry

• history • market overview • processesPigment plant feedstock selection drivers

• feedstock considerations• pigment technology considerations• waste option considerations • logistics considerations

REV modelling and analysis of results• hypothetical pigment plant selection • feedstock selection • chloride route technology

- modelling results and analysis- sensitivity analysis

• sulfate route technology- modelling results and analysis- sensitivity analysis

TZMI’s pigment technology and market team encompassesover 50 years combined industry experience. Detailedtechnical models have been developed representing a totalof 40 pigment plants worldwide, covering all the major plantconfiguration types. Based on this model, the study analysessix generic plants to provide an understanding of feedstockvalue drivers in the TiO2 pigment industry.

Diagrams and technical summaries are provided to describethe important stage features of both sulfate and chlorideplants to enable an understanding of the relationshipsdetermining cash costs of pigment production. This alsofacilitates an overall understanding of the technicalconstraints on feedstock selection.

The importance of geographical location is discussed. Keyprocess input costs, transport, and environmentalconsiderations are highlighted in realistic examples ofmodern pigment plants, to provide the reader with anunderstanding of the relative economic value of eachfeedstock option available to a specific type of TiO2 pigmentplant.

Why this study is important to your business.. This study highlights the relative economic value of typical pigment plantfeedstocks.

The study provides increased understanding of feedstock purchasingdecision drivers for pigment producers.

The study highlights the differences between feedstocks and their valuedrivers to different pigment process routes. Inter-relationships betweenfeedstocks and other major variable cost inputs are identified by processroute and plant configuration.

The study provides insight to critical factors including technologicaldiversity, geographical location, capacity utilisation and market locationaffecting the relative value of feedstocks.

In response to many client requests over recent years, TZMI is expanding its popular publication and consulting servicesto the global TiO2 industry.

TTiOiO22 pigment plant feedstocks pigment plant feedstocks VValue in usealue in use

is due for release in June 2004

Order your copybefore 31 May 2004and receive a 10%discount. Please

see order formoverleaf.

Published by:TZ Minerals International Pty Ltd, 3 Ventnor Avenue, West Perth, WA 6005, AustraliaPostal Address: PO Box 48, West Perth, WA, 6872, AustraliaTelephone: 61 8 9321 5888 Facsimile: 61 8 9321 5919Email: [email protected]


TiO2 Review

TZ Minerals International Pty Ltd (TZMI) is proud to announce, in responseto increased enquiries from a diverse group of clients over the past two

years, the launch of its new bi-monthly publication TZMI's TiO2 Review.

TZMI has established a substantial reputation over the past decade asthe authoritative source of information on the titanium feedstock and zirconindustries through a spectrum of publications which includes a weekly freenews service, the monthly Mineral Sands Report, Mineral Sands AnnualReview, and finally, special commercial and technical multi-client studies.In the process TZMI has progressively developed a comprehensive databasefor the TiO2 pigment industry and its major end-users, because it is theseindustries that underpin the titanium feedstock industry.

For an initial period the two monthly publication will, on a rotationalbasis, cover the three major pigment markets in the world, North America,the Asia-Pacific and Europe. In this inaugural issue the focus is on NorthAmerica. Timely and reliable market and technical commentary willestablish TZMI's TiO2 Review as a leading industry information source.Through alliances with several pigment and coatings consultants andassociations in all major market regions, TZMI can provide high qualitysupport service to all aspects of the TiO2 supply chain.

The special feature article for this month in our Industry Insight seriesis provided by David Callow, a well known figure in the European TiO2

pigment industry. The feature provides an appraisal of the effect that thecurrent exchange rates are having on the TiO2 pigment industry, in particularthe effect on the cost competitiveness of US versus European pigment plants.Using additional consulting resources, TZMI proposes to maintain thisformat and also to provide on a regular basis, summary data relevant tounderstanding the growth and economics of the TiO2 pigment industry.Regular pricing trends will be presented, with a focus on raw material costsfor the TiO2 pigment industry (including titanium feedstocks).

For this first issue, the evolution of TiO2 pigment manufacturing isprovided in our In Profile series. Future In Profile reports will be provided onthe major end-use markets of paints and coatings, plastics, inks, pulp andpaper either as an industry review, or on an individual company basis. Thesereports will be complemented by a summary of regional end-use marketsthat will be included in each issue.

For the inaugural issue, copies have been provided free of charge to aspectrum of potential users. Thereafter the publication will be available bysubscription as an electronic version (PDF format).

TZMI invites all recipients to read this inaugural issue and our editorJanelle Orman would be very pleased to receive any feedback by email. MrsOrman’s contact details are shown on page 2.

1 News

4 Industry InsightImplications of exchangerate changes for the TiO2industry

7 In ProfileThe evolution of the TiO2pigment industry

10 Pricing Trends

12 Trade Statistics

13 End Use MarketsNorth America

14 Financial ResultsTiO2 pigment companies

16 Next Issue

ISSUE 1 MAY 2004

TZMI’s

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TiO2 Review

2 TiO2 Review May 2004

Editor: Janelle OrmanEmail: [email protected]

Published byTZ Minerals International Pty Ltd

ABN 99 003 492 5193 Ventnor Avenue, West Perth

Western Australia 6005

PO Box 48, West PerthWestern Australia 6872

Tel: +61 8 9321 5888Fax: +61 8 9321 5919

Web: www.tzmi.com

Annual SubscriptionTZMI’s TiO2 Review (6 issues):

US$975/A$1,390*

* The A$ price is for Australian

subscribers only and includes GST.

FormatElectronic (pdf version)

DisclaimerThe information given in thispublication is from sources believedto be reliable and every effort hasbeen made to ensure that the data iscorrect and not misleading. However,TZ Minerals International Pty Ltdaccepts no responsibility for anyerrors, omissions or incorrectinformation or for any loss orconsequential losses arising from theuse of the material.

CopyrightThe contents of this document maynot be reproduced without writtenpermission of TZ MineralsInternational Pty Ltd. Reasonableextracts may be made for the purposeof comment or review provided thesource is acknowledged with “TZMinerals International Pty, Ltd; TZMI’sTiO2 Review”

ISBN 09750880 3 3

TTiOiO22 ReviewReviewISSUE 1 MAY 2004

PPG Industries and Kansai Paint haveentered into an alliance to sell coatingsto the automotive original equipmentmanufacturer (OEM) industry. Thealliance will initially serve Japanese automakers operating in North America andEurope, but the two companies thenhope to establish joint marketing andsales operations in Shanghai, China, and

later in other Asian countries.Kansai, Japan's biggest automobile

coatings maker, had been seeking aglobal partner to cater for increasingdemand from Japanese auto makersoperating overseas since it ended analliance with DuPont in December2003.

Kansai and PPG form alliance for auto coatings

Sherwin-Williams increases US presence

Market News

Developments in the coatings industry

Sherwin-Williams has further strengthened its market position in the US architecturalcoatings market by acquiring Duron Inc, a US based manufacturer and distributor ofarchitectural and light coatings designed principally for professional contractors. Thismove follows the sale by Duron of 27 of its paint stores in Chicago, Indianapolis andOhio to PPG Industries in 2002. The remaining 235 paint and wallcovering storeswere part of the sale to Sherwin-Williams. Net sales for Duron Inc in 2003 wereUS$280 million. Global net sales for Sherwin-Williams in 2003 were US$5,185million.

BASF has expanded its coatingsmanufacturing site in Tultitlan Mexico,with the addition of a new plant for theproduction of plastics coatings inbatches of less than 2,000 litres.BASF is also expanding its coil coatingsbusiness in China by establishingproduction facilities in Shanghai tocomplement its existing marketing andtechnical service functions. Coilcoatings products are currently importedfrom Germany. The company has yet to

indicate when construction of thefacilities will begin.Akzo Nobel has started construction of anew architectural coatings plant inVietnam. The company has beenmanufacturing decorative coatings inVietnam since 1992, and its existingfacilities are running at full capacity withno room for expansion. The new plant isplanned to be in production in Q12005.

Small TiO2 pigment manufacturers increase production

Several of the smaller TiO2 pigment companies, located outside the more dominantmarket regions, have been expanding production rates and improving product qualityin a bid to secure lucrative export markets.

One of these is Kerala Minerals and Metals Ltd, a Government of Keralaenterprise, which is India's only chloride route TiO2 pigment manufacturer. Themanaging director of the company, Mr K.P. Rajendran recently addressed the AJMMinSands 2004 Conference in Australia and revealed the recent developments at thecompany. The company’s plans to expand its pigment production capacity to100,000 tpa by 2006/07, and production has already grown to approximately 30,000tonnes for 2003/04. The company has clearly set its sights on expanding its rutilegrade pigment exports to countries like China, South Korea, South Africa, Philippinesand Malaysia. The company is targeting exports of 14,000 tonnes for 2004/05.

Lower performance material is also in demand, due to its low price. Ukrainianstatistics show that the country’s two TiO2 pigment producers, Krymsky Titan andSumy-Khimprom, produced a combined 78,790 tonnes in 2003, 21% higher than in2002. Whilst most of the production is utilised by Russian and Ukrainian paintmanufacturers, there has been a small rise in exports to other regions. Total exportsin 2003 rose by 29% compared to 2002 to 85,158 tonnes. Net exports in March 2004were reported at 10,267 tonnes for a value of US$11.996 million. This is equivalentto an average price of only US$1,145 per tonne.

Kerr-McGee Chemical LLC has namedTom Adams as its new vice presidentand general manager of the company’stitanium dioxide pigment division. MrAdams responsibilities includeoperations, production, sales andmarketing.

Rohn and Haas Co. has recentlyappointed three new vice presidents:Carlos A. Festa was recently named vicepresident and director for the LatinAmerican Region, Geoffrey B. Hurwitzwas named vice president and directorof Government Relations Worldwideand Thomas D. Macphee was namedvice president and director of CorporateDevelopment and Strategic Planning.

Valspar Corp has recently announcedseveral internal promotions including:William L. Mansfield has been namedexecutive vice president and chiefoperating officer responsible fordirecting all business groups; SteveErdahl has been named executive vicepresident of Coatings; and GaryHendrickson has been named groupvice president for Global WoodCoatings and president of Asia Pacific.

Two of the top eight TiO2 pigmentproducers have recently been acquiredby new entrants to the TiO2 industry.

Lyondell Chemical Co has recentlyagreed to acquire MillenniumChemicals for approximately US$1billion in stock, and the assumption ofapproximately US$1.3 billion ofMillennium debt. Millennium is thenumber two TiO2 pigment producer inthe word with a global TiO2 capacity of690,000 tpa. The takeover was,however, driven by the acquisition ofEquistar, a North American producer ofethylene, propylene, polyethylene andaromatics, which both companiescurrently operate. Lyondell has publiclyexpressed a desire to continue operatingthe TiO2 business, even though thebusiness may appear to lie outsideLyondell’s core interests. The TiO2

business accounted for 33% ofMillennium’s total sales revenue ofUS$3.6 billion in 2003, with Equistaraccounting for 52%, acetyls 12% andspeciality fragrances 3%.

Rockwood Specialties Group Inc.will also become a new entrant to theTiO2 industry after it acquires fourbusinesses of Dynamit Nobel AG forEur2.25 billion (US$2.67 billion),including the specialist pigmentbusiness of Sachtleben Chemie GmbH.The acquisitions will create a newspeciality group that will havecombined sales revenue of US$2.5billion pa. The four businesses have nooverlap to Rockwood's current portfolioof chemical businesses, but thecompany sees some synergies with itscurrent customer base. Rockwoodproduces inorganic pigments, woodsurface treatment chemical, clayadditives, water treatment chemicals,speciality compounds, electronicchemicals and advanced materials.Sachtleben Chemie currently operates a100,000 tpa TiO2 pigment plant inGermany. TiO2 pigments account forapproximately 65% of Sachtleben'sannual sales revenues of approximatelyEur340 million.

TiO2 Review 3May 2004

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Recent ownership changes in the TiO2 pigment industry

DuPont Titanium Technologies officially opened a new "TiO2 customiser" facility atthe Katoen Natie terminal at Kallo (Antwerp - Belgium) in March 2004. The newfacility, which has been in operation since January, allows the company to applycustomised coatings to raw TiO2 pigment imported from the US. The facility has adesign capacity of up to 30,000 tpa of "customised" TiO2 pigments in lots of 20tonnes and upwards, but its initial capacity is only 10,000 tpa. Target customers arethe plastics industry, producing products for masterbatch manufacturers and plasticprocessors. The plant however, could easily meet specific requirements for paint andcoatings manufacturers, paper mills or other end-users.

DuPont currently imports approximately 200,000 tpa of TiO2 pigment from itsplants in the US and Mexico into Europe through the Katoen Natie terminal, fromwhere they are stored and bagged into final product. This facility however allows thecompany to provide its customers with small batches that are coated for their specificrequirements. From this one facility DuPont could easily replicate the customiserfacility in other regions of the world, depending on the success of the new operation.

Recent capacity change announcements include:

• Huntsman Tioxide has announced that it will reduce production capacity at itsGrimsby UK plant from 80,000 tpa to 40,000 tpa, and at its Umbogintwini, SouthAfrican plant from 40,000 tpa to 25,000 tpa. These changes will be completedover the next 12 months, as part of a larger organisational review.

• Kemira Pigments Oy plans to increase titanium dioxide capacity from130,000 tpa to 160,000 tpa through debottlenecking. The company is currently evaluating three options with a decision expected around mid-2004.

DuPont’s new “customiser” centre in Belgium

Recent TiO2 pigment capacity changes

TiO2 Pigment News

4 TiO2 Review

INDUSTRY INSIGHT

May 2004

The fall over the past two years inthe value of the US dollar

against the euro, as well as againstother major trading currenciesimportant in the TiO2 global market,has brought a new competitivelandscape to which producers arehaving to adjust. Although there aresigns that the decline in the USdollar has slowed, exchange ratecompetitiveness today looks verydifferent to how it did at thebeginning of 2002.

The US dollar has fallen morethan 25% against the euro over thelast two years, and more than 10%in the last year (Table 1). Fallsagainst the British pound, Canadiandollar and Japanese yen were onlyslightly smaller, but the falls againstthe Australian dollar and the SouthAfrican rand were more severe.Only the US and China, where theYuan is tied to the US dollar, havebenefited from these fluctuations.

The effects of these currencychanges on the TiO2 industry maybe summarised as follows:

• relatively higher costs ofproduction outside the US;

• in a global market there ispressure on local prices to adjustdownwards to US levels;

• increasing attractiveness of non-US dollar based markets to USmanufacturers;

• exports from non-dollar basedplants are progressively lessprofitable.

These points will be discussedfurther below. In summary, thechanges in exchange rates can beviewed as being positive for US andChinese manufacturing plants, andnegative for European, Canadian,Japanese, South African andAustralian plants.

Operating costs

The major cost item for TiO2

production is titanium feedstock,

which can average 35% of totalproduction costs. Since almost allfeedstock contracts are now fixed inUS dollars, there is no competitivedisadvantage for pigmentmanufacturers outside the US forthis raw material.

However, the average 65% ofproduction costs which are incurredin local currency - principallylabour, maintenance materials andcontracts, utilities including fuel,and purchased supplies and services- add up to a competitivedisadvantage for pigment plants inhigh-currency countries comparedto the US.

For a European manufacturer,who has seen up to a 26%appreciation of the euro against thedollar over two years (Figure 1),manufacturing costs will haveincreased in relative termscompared with a US pigmentmanufacturer by 65% x 26% , i.e.

Implications of exchange ratechanges for the TiO2 industry

The following article examines the effects of exchange rate fluctuations on the TiO2

pigment industry, particularly in terms of costs and benefits to individual manufacturingplants. The prevailing low US$ may impact on long-term strategic planning for theindustry.

Table 1: Exchange rate variations 2002-2004Percentage value of the US dollar at April 2004 compared with:

January 2002 January 2003 January 2004Euro 71.7% 89.9% 104.1%British Pound 79.3% 92.7% 102.6%South African Rand 59.4% 82.1% 100.8%Australian Dollar 70.3% 81.5% 105.9%Canadian Dollar 86.3% 90,2% 103.6%Japanese Yen 82.0% 92.1% 104.5%

Feature article by David Callow*

*David Callow has been a consultantto TZMI since early 2003. He has overthirty six years’ experience in the TiO2

pigment industry, and has worked withboth Kerr-McGee and Tioxide at themanaging director level.

by about 17%. Similarly, operatingcosts for Canadian, Australian,South African, UK and Japanesemanufacturers have on averagerisen, compared with their UScompetitors, by about 11%, 20%,28%, 14% and 12% respectively. Inan industry where margins havebeen low for a decade, thesedifferences are substantial.

Pigment pricing

In the past, pigment pricing variedon a regional basis and quite largedifferences could be seen betweenregions as particular local marketcircumstances changed (Figure 2).However, with the increasedglobalisation of both pigmentproducers and their customers overthe last decade, global (as opposedto local) market forces haveincreasingly come into play toprevent the range in prices frombecoming too large. The differencesin prices between regions havetherefore reduced, although somedifferences still exist. Theunderlying level of global pigmentprices is ultimately a function of thesupply and demand balance. Attimes of tight supply, prices acrossthe world tend towards the higher ofthe regional levels, whereas witheasy supply and lower demandthere is a tendency for prices toequilibrate towards the lower of theregional levels.

Lately, European prices havemoved significantly ahead of USprices, but this has largely been dueto currency fluctuations. Sales inthe euro-zone are almost invariablyconducted in euros, while in theUK, Canada, Japan and Australiathey are conducted in the localcurrencies. A price is agreed in aparticular currency denomination,and then may move up or downaccording to local marketcircumstances. A price difference

between the US and Europe of up to10%, or about US$200 per tonne, isgenerally thought to be sustainablein view of the shipping and customsduty costs of moving pigment fromone region to the other.

At recent exchange rate values,however, a typical European priceof Eur1,855 per tonne (MineralSands Report: March 2004 page15), equating to approximatelyUS$2,200, may be some 15-20%above a reported US price ofUS$1,800-$1,900 (Mineral SandsReport: March 2004 page 6). Whilethis currently higher European price

will certainly help Europeanmanufacturers at a time ofuncompetitively high eurocurrency, the difference may be toogreat to be sustained in the mediumterm. Unless there are successfulprice increases in the US to narrowthe difference, or there is a currencyexchange rate correction leading toa lower euro rate, it is hard to seethe European price increasingfurther by any significant amount.

Prices in the rest of the world,other than the countries specifiedabove, are all conducted in USdollars and price is therefore only


INDUSTRY INSIGHT

Figure 2: TiO2 pigment pricing: 1983-2003Nominal US$ tonne fob, standard rutile grade

500

1,000

1,500

2,000

2,500

3,000

1983 1985 1987 1989 1991 1993 1995 1997 1999 2001 2003

US$/tonne

US Europe Asia

Source: Artikol “The Global TiO2 Pigment Industry, TZMI

Figure 1: US$ vs Euro: 2000-2004

0.50.6

0.70.80.9

1.01.1

1.21.3

Jan2000

Jul Jan2001

Jul Jan2002

Jul Jan2003

Jul Jan2004


Ref: 2302

6 TiO2 Review

INDUSTRY INSIGHT

May 2004

affected by market competitivefactors, as there is no globalcurrency effect. Non USmanufacturers selling into thesedollar denominated markets thushave no currency cushion to helpovercome their highermanufacturing costs.

International trade

The higher value of the euro againstthe US dollar, and the higherpigment price currently available inEurope, makes Europe an attractiveexport market for US manufacturers.Equally, the lower value of the USdollar and the relatively lower USprice makes exporting from Europeto the US less attractive and lessprofitable for Europeanmanufacturers.

There is a substantial amount ofinter-regional trade in the TiO2

industry. Exports from the US toWestern Europe have increasedsignificantly in the past 3 years. Thefavourable exchange rate (for USmanufacturers) is of course only one

reason for this, although it doesserve to make the exports moreprofitable than they wouldotherwise be. Table 2 shows thistrend more clearly.

There has also been an increasein US imports from Europe,demonstrating that the high eurohas not dissuaded companies fromexporting from Europe to the US,even if it results in significantlylower returns. The increase, at 15%from 2001 to 2003, was howeversmaller than the 39% increase in USexports to Europe in the sameperiod.

Industry structure

Almost all of the West EuropeanTiO2 industry is now US-owned.Following the recently announcedsale of Sachtleben, Kemira remainsas the only major European-ownedproducer. With most of the UScompanies having operations inboth Europe and the US, they willbe clearly assessing the likely trendsof currency competitiveness when

deciding which operations todevelop, and from where to sourceexports. Pigment plants in Canadaand South Africa, and one of thetwo in Australia are also fully US-owned, while the other Australianplant is 50% US-owned.

While currency exchange ratesmay only form one factor in thedecision-making process, thecurrent high euro and other levelsagainst the US dollar would appearto disadvantage plants outside theUS, in a US-dominated industry.

Conclusions

Over the past two years, the euro aswell as the Canadian and Australiandollars, British pound, South Africanrand and Japanese yen haveincreased by between 17% and45% against the US dollar.

This has made TiO2 productionin Europe, and the other countriesmentioned, significantly moreexpensive than in the US, and hascaused the range of global TiO2

pigment prices to broaden.Exports from the US in total , and

specifically to Europe, haveincreased significantly in the pasttwo years. Exports from Europe tothe US have also increased, but by asmaller margin.

China, whose currency is linkedto the US dollar, has also benefitedsubstantially from the changes.

US corporations in the TiO2

business will have to take the newcurrency trends into account whenmaking decisions about the futureof specific plants. Theannouncement in April byHuntsman Tioxide of capacityreductions at its UK and SouthAfrican operations (see News, page2) may be indicative of a companyadjusting to this new competitivereality.

Table 2: US TiO2 exports and imports: 2001-2003

EXPORTS 2001 2002 2003

Total US TiO2 exports (tonnes) 424,713 547,839 589,901Total US exports 31.7% 38.5% 41.5%

(% of US production capacity)US exports to W. Europe (tonnes) 149,112 198,007 220,044US exports to W. Europe 35.1% 36.1% 37.3%

(% of total US exports)

IMPORTS 2001 2002 2003

Total US TiO2 imports (tonnes) 208,762 227,493 241,008US imports from W. Europe (tonnes) 89,572 102,797 110,742US imports from W. Europe 42.9% 45.2% 46.0%

(% of total US imports)US imports from W. Europe 7.45% 8.22% 8.62%

(% of European production capacity)

Source: TZMI database

Titanium dioxide has beenavailable as a commercial

product for nearly 90 years, sincethe sulfate manufacturing processwas independently developed inNorway and the US. The productwas little more than a high pricedspecialty additive until productiongrew rapidly in the 1950s asdemand increased with the demiseof white lead pigments, partly dueto toxicity issues, but also due to theexcellent opacifying properties ofTiO2 (see box on page 7).

This increased demand for TiO2

pigments during the 1950s and the1960s also coincided with thecommercialisation of the chloridemanufacturing process. The newtechnology was rapidly adoptedfrom the late 1950s onwards withchloride plants quickly becomingthe preferred greenfields choice.Many sulfate route plants wereretrofitted with chloride technologyto produce raw pigments during the1970s and 1980s, and as thechloride process gainedmomentum, several older sulfateplants around the world werepermanently closed. Outside ofChina, the most recentlyconstructed greenfields sulfate plantwas built in Korea in 1997.

By the 1970s, TiO2 had becomethe most important pigment for usein the paint industry, a position thatit still holds today, particularly invalue terms. It also enjoys a strongposition in the plastics, paper andink end-use markets. Smaller niche

markets, including synthetic fibresand catalysts are often dominated byspecialty anatase grades that areonly produced by the sulfateprocess. The TiO2 industry isdominated by mature end-usemarkets in developed economies.

For most paint manufacturersexpenditure on TiO2 pigment is fargreater than for any other single rawmaterial. Whilst many consumersblend in less expensive pigmentextenders like calcined kaolin andcalcium carbonate, that are stillfairly good opacifiers andbrighteners, the partial replacementof TiO2 always entails somesacrifice in quality.

Production processes

The sulfate route was developedalmost simultaneously in Norwayand the US with Titan Co (Norway)commencing production in 1918and The Titanium PigmentCompany (New York) startingaround the same time. The spread ofthe technology occurred after theUS based National Lead Company

acquired a significant interest in theTitanium Pigment Company, andlater acquired Titan. National Leadlicensed the technology to othergroups, and with several othercompanies also developing theirown variations on the process(including DuPont), sulfate routepigment production expandedrapidly in the period 1930-50.These new pigment plants werebuilt in various countries but allused ilmenite as the titaniumfeedstock. The sulfate processremains the easiest technology fornew producers to adopt, but theprocess nevertheless requirescareful control at the hydrolysis andcalcination stage to ensure optimalparticle size for pigments.

By 1960, the newer chlorideroute pioneered by DuPont in the1950s began to develop as thepreferred process route forgreenfield plants. Other earlypioneers in the chloride process alsoincluded the American Potash &Chemical Company (Ampot) andLaporte.

IN PROFILE


TiO2 - the white pigment of choice

In terms of its opacifying ability, there is no technical substitute for TiO2. It is theideal pigment due to its high refractive index and its ability to be manufactured ina narrow particle size range. It is a non-toxic, stable product that offers brilliantwhiteness, particularly for rutile grade pigment.

Over 4 million tonnes of TiO2 was consumed in 2003, and whilst the globalvolumes of other whitening agents such as kaolin, calcium carbonate consumedworldwide are substantially greater than TiO2 (mainly because of their roles asfillers), in terms of value, the world's consumption of TiO2 pigment is far greater.Over US$7.5 billion of TiO2 pigments were consumed in 2003.

Evolution of TiO2 pigment In this article we review the evolution of TiO2 pigment in term of changing productionprocesses, and a brief look at changing structure of the industry in terms of capacityownership and consumption trends. Future articles in this series will concentrate onend-use markets such as coatings, plastics, paper and inks, including profiles onindividual companies.

8 TiO2 Review

IN PROFILE

May 2004

Through licensing agreementswith Ampot and Kerr-McGee (whoacquired Ampot in 1967) the use ofchloride technology expandedrapidly from the 1970s onwardswith new chloride route producersincluding Glidden, SCM, AmericanCyanamid and Ishihara. SCM alsoacquired the Sherwin-Williamsplant at Ashtabula in 1975 whichwas built using DuPont technologyin the 1960s. The chloride processwas not the easiest technology todevelop and there were somefailures including Bayer AG'sunsuccessful 20,000 tpa plant atUerdingen which was beset bycorrosion issues and high runningcosts throughout the 1970s leadingto its eventual closure. Similarproblems were experienced by theoriginal Kronos Titan plant atLeverkusen which were resolved inpart after a technology transferagreement with Kerr-McGee.

Some sulfate route plants wereretrofitted with chloride technologyto produce raw pigments during the1970s and 1980s. As the chlorideprocess gained momentum, severalolder sulfate plants in the US,Europe and Australia werepermanently closed. During 1992,global chloride process capacityexceeded sulfate process capacity

the first time (Figure 1)Both processes exist side by side

now, and whilst the large chlorideplants undoubtedly have greatereconomies of scale and efficienciesof production, the sulfate plantsremain the only plants capable ofproducing both rutile and anatasegrades of pigments. Rutile gradepigment of both the sulfate andchloride manufacturers is generallyinterchangeable for the majority ofapplications.

Titanium feedstock choices

Environmental pressures onpigment producers began toincrease in the late 1960s and1970s, primarily due to the largequantities of acidic wastes producedin the manufacture of pigment bythe sulfate route. With sulfate routeproducers historically usingilmenite as a feedstock (TiO2

content of 45%-55%), largequantities of copperas and spentacid waste were generated. In 1957,QIT-Fer et Titane commercialisedthe production of titanium slag inSorel, Canada which could be usedas a feedstock for sulfate TiO2

pigment manufacture. The newfeedstock had lower levels of otherelements, especially iron, whichmade it easier to produce a TiO2

pigment of better colour. Growingenvironmental pressures from the1960s onwards forced somepigment producers to also adopt thenew feedstock, which enabled thesame pigment production, buteliminated the copperas problemand reduced spent acid waste by25%-50%. Interestingly, much ofthe sulfate capacity that was retiredsince the mid-1990s was fromsulfate plants that were utilisingslag, including plants in Antwerp,Belgium; Tracey, Canada; andBaltimore in the US.

In comparison, sulfate capacitythat uses ilmenite as its dominantfeedstock choice actually grewsince 1990, particularly with thedevelopment of the HuntsmanTioxide's Teluk Kalung plant inMalaysia (50,000 tpa) in 1992, andHankook Titanium's Onsan plant inSouth Korea (30,000 tpa) in 1997and the reversion of some plantsfrom using sulfate slag to usingilmenite. Many of the plants that useilmenite now have a greateremphasis on the development andproduction of by-products based oniron sulfate, and revenue from theseby-products offsets some of thecosts of waste treatment.

Chloride route plants wereinitially based on the chlorination ofnaturally occurring rutile ores (90%-95% TiO2) and high TiO2

leucoxenes. In response toincreasing demand for high TiO2

feedstocks, the feedstock industrydeveloped processes to beneficiateilmenite to supply the chlorideroute plants with rutilereplacements. This included thedevelopment of chloride gradetitanium slag (85%-87% TiO2) andsynthetic rutile (90%-93% TiO2).

Dupont was alone in the pursuitof directly chlorinating ilmenite,and remains today the only chlorideroute pigment producer capable of

Figure 1: TiO2 pigment capacity by process type: 1970-2003

0

1,000

2,000

3,000

4,000

5,000

6,000

1970 1974 1978 1982 1986 1990 1994 1998 2002

'000 tonnes

Chloride Sulfate Total Capacity


chlorinating feedstock blends withless than 70% TiO2. Dupontcurrently has three large chlorideplants that dominantly use ilmenitefeedstock (DeLisle, Edge Moor andAltamira).

Current industry structure

Over the years more than 100separate companies and enterpriseshave been involved in TiO2

pigment manufacturing operations.Substantial rationalisation withinthe industry has concentrated theownership, such that in 2003 over70% of global capacity wascontrolled by just five companies;DuPont, Millennium, Kerr-McGee,Huntsman Tioxide and Kronos(Figure 2). The top eight companiescontrolled 82% of global capacityin 2003.

The recent acquisition of two ofthese top eight companies by newentrants to the industry (Millenniumby Lyondell Chemical Co, andSachtleben by RockwoodSpecialties Group Inc) could see achange to the existing structure ofthe industry (see News, page 3). Atthis stage it is understood that thenew owners have no immediateplans to alter these existingbusinesses, but as the TiO2 pigment

businesses were not necessarily theprime acquisition target of thesetwo new entrants, there is thepotential that further changes mayoccur in the industry structure overthe next few years. Kerr-McGee hasalso announced that it will mergewith oil and gas explorer WestportResources Corp. of Denver, in adeal valued at US$3.4 billion. Thismay also impact on Kerr-McGee'sTiO2 pigment business, if thecompany moves to increase itsfocus on its core oil and gasbusinesses. The merger is expectedto be promptly settled followingreceipt of shareholder approvalsafter special meetings on June 25.

Changing consumption

The industrialised countries havealways been the dominantconsumers of TiO2. In 1980, thegeographical breakdown of TiO2

consumption was 37% NorthAmerica, 28% Western Europe, 7%Japan and 2% Australia and NewZealand. This year also marked aturning point for consumptionpatterns. Until this date the majorTiO2 pigment suppliers generallyregarded some market regions asoutlets for absorbing excess stock,and TiO2 pigment availability in

these regions was therefore oftenerratic. Since 1980, there has been alarger focus on these other regions,particularly Asia as consumptionlevels have grown. Consumption inChina has grown substantially from78,000 tonnes in 1994 toapproximately 460,000 tonnes in2003 and China has recentlyemerged as the largest pigmentimporter in the world. According toChinese statistics, the countryimported nearly 250,000 tonnes ofTiO2 pigment in 2003. Thiscompares to the US, whichreportedly imported 241,000tonnes for the year.

Accompanying the developmentof markets away from the traditionalregions of Europe and the US, hasbeen an increase in the volume ofinternational trade. Internationaltrade now accounts for over 60% ofglobal TiO2 sales, compared to just30% in the 1970s. TiO2 pigmentplants have been traditionallyestablished close to their markets,however with freight costs onlyaccounting for between 3%-5% ofthe total unit cost of pigment there islittle reason why TiO2 plants cannotbe established in locations somedistance away from theirconsumers. With over 60% of TiO2

pigment consumed crossinginternational borders, there wouldappear to be more incentive to siteplants closer to their feedstocksupply, or next to cheap rawmaterial or energy sources. Thelatest development by DuPont inestablishing a "customiser" centre inBelgium to coat raw pigments fromits US based plants to individualspecifications of customers, maysee further such facilitiesestablished if this one is successful(see News page 3).

TZMI will continue to follow theconstantly evolving dynamics of theTiO2 pigment industry.

IN PROFILE


Figure 2: TiO2 pigment capacity by company: 2003

Sachtleben2%

ISK4%

Kemira3%

Kerr-McGee14%

Kronos10%

DuPont22%

Other18%

Huntsman Tioxide

13%

Millennium14%


0

20

4060

80

100

Q100

Q3 Q1 01

Q3 Q1 02

Q3 Q1 03

Q3 Q1 04

US$/tonne

10 TiO2 Review

PRICING TRENDS

Green Coke - Category D - PaceBlend*

May 2004

* Category D - anode grade green coke, delivered to US Gulf Coast calciner

Source: Pace Petroleum Coke Quarterly

TZMI will be presenting regular pricing trends in later issues forthe following raw materials:

• coke,

• chlorine,

• sulfur.

Coke prices are provided by Pace Petroleum Coke Quarterly,recognised as the authoritative source of objective analyses forthe petroleum coke industry. For further information on thecoke industry please contact:

email: [email protected]

Raw Material Prices

20304050607080

Q1 00

Q3 Q1 01

Q3 Q1 02

Q3 Q1 03

Q3 Q104

US$/tonne

US - Tampa delivered

Sulfur

Source: TZMI Database

50

100

150

200

250

300

Q100

Q3 Q101

Q3 Q102

Q3 Q103

Q3 Q104

US$/tonne

US Gulf

Chlorine

Source: TZMI Database

Shipping Rates

01,0002,0003,0004,0005,0006,000

Index Shipping rates have have risen dramatically since Q3 2003.TZMI will present a regular update on shipping rates withcommentary on bulk freight rates, and on container shippingrates in the Atlantic.

Source: Baltic Exchange

Apr-04 Mar-04 Feb-04 Jan-04 Q4/03 Q1/04

US$/$A 0.772 0.759 0.771 0.764 0.725 0.765US$/Rand 6,53 6.65 6.78 6.93 6.76 6.79US$/Yen 110.4 104.3 105.7 105.7 109.0 106.4US$/Euro 0.835 0.812 0.802 0.802 0.831 0.805

Exchange Rates

0.40

0.60

0.80

1.00

1.20

1.40

Q100

Q3 Q101

Q3 Q102

Q3 Q103

Q3 Q104

0.08

0.12

0.16

0.20

0.24

0.28

A$ vs US$ Euro vs US$C$ vs US$ Rand vs US$ (rhs)

A$, C$, Euro Vs US$ Rand Vs US$

Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q101 02 03 04

TZMI will be presenting a regular commentary onpricing trends to accompany the charts shown onthese two pages. The charts shown in this issueare indicative only of the data that will beincluded in later issues, based on the regionalfocus of the issue and on topical pricing trends.As a subscriber, if you have a suggestion on apricing series you would like to see in thenewsletter, please do not hesitate to contact theeditor Janelle Orman (details on page 2).

TiO2 pigment prices have started to respond to priceincreases posted by pigment producers over the last

nine months. During 2003, most pigment producersreported global increases in prices in the first half of2003, compared to the first half of 2002, but pricegrowth faltered, and in some regions actually declinedtowards the end of the year. To counter this decline,price increase announcements were made in Q3 orearly Q4 2003 in most regions of the world in the orderof approximately 5% and 7%.

Whilst many pigment producers were still trying toestablish these price increases, a further round ofannouncements began in February with DuPontannouncing a US$150 per tonne price increase onshipments to Middle East markets on 10th February2004. Most producers followed suit with increases ofbetween 6% and 9% effective for April or Mid-Q2 formost regions except Europe. There is evidence of market

acceptance of some of these price increases with smallincreases noted in US and Asia-Pacific markets. A furtherround of price increases started in May. This latest roundof announced increases are to come into effect in June,covering all major regions.

In the next issue (July), TZMI will be examining TiO2

pigment prices in more depth with a feature article onpigment pricing cycles by Rob Louw, Senior VicePresident - Commercial for Huntsman Tioxide.

Pricing Trends


Pricing Commentary

Quarterly TiO2 Pigment Prices: 2000-2004 Q1

Source: TZMI database

Latest monthly prices Annual prices Quarterly prices YTD1

Apr-04 Mar-04 Feb-04 Jan-03 2002 2003 Q3/03 Q4/03 Q1/04

Titanium MineralsIlmenite Aust export, FOB2 US$/t 92 66 85 86 77 79 80 75 77 79Rutile (bulk) Aust export, FOB3 US$/t 420-460 420-460 420-460 420-460 449 433 430 435 440 440Syn rutile US import, FOB4 US$/t na ns 376 ns 313 374 384 392 374 376Ti slag US chloride, FOB4 US$/t na 409 389 386 427 397 390 387 392 392(imports) Europe sulfate, CIF5 US$/t na na 371 355 350 350 347 354 363 363

Titanium Dioxide PigmentNorthern America CIF3 US$/t 1,874 1,874 1,830 1,830 1,753 1,830 1,830 1,830 1,845 1,852Asia-Pacific CIF3 US$/t 1,900 1,900 1,894 1,875 1,725 1,855 1,875 1,844 1,890 1,893Western Europe CIF3 Eur/t 1,843 1,843 1,850 1,872 1,803 1,891 1,919 1,873 1,855 1,852

Titanium Feedstock and TiO2 Pigment Prices

1 Average from January to most recent month available2 Australian Bureau of Statistics export figures3 Prices derived from contact with industry sources4 Weighted average price from all import sources5Average prices for imports into Belgium, France, Italy,

Germany and the Netherlands.ns = no shipments that monthna = statistics not yet released for this month

1,400

1,600

1,800

2,000

2,200

2,400

Q1 00

Q3 Q1 01

Q3 Q1 02

Q3 Q1 03

Q3 Q1 04

US$/tonne

1,400

1,600

1,800

2,000

2,200

2,400Eur/tonne

US US$/tonne Asia US$/tonneEurope US$/tonne Europe EUR/tonne (rhs)

12 TiO2 Review

TRADE STATISTICS

May 2004

NORTH AMERICA

0

100,000

200,000

300,000

400,000

500,000

600,000

700,000

2000 2001 2002 2003 Q1 '03 Q1 '040

10,000

20,000

30,000

40,000

50,000

60,000

70,000

Europe North America Asia-PacificJapan Africa & M East C & S America

US pigment exports 2000-2004 Q1

Source: US Census Bureau

0

50,000

100,000

150,000

200,000

250,000

300,000

2000 2001 2002 2003 Q1 '03 Q1 '040

5,000

10,000

15,000

20,000

25,000

30,000

Europe North America Asia-PacificJapan Africa & M East C & S America

US pigment imports: 2000-2004 Q1


TZMI will be presenting a regularupdate on pigment trade trends inupcoming issues. This issue we lookat US import/export data. The nextissue will examine Asia-Pacifictrade data, particularly the rapidrise of Chinese imports.

US TiO2 imports and exportsTotal US exports of TiO2 pigment haveincreased steadily since 2001, andreached 590,00 tonnes in 2003, up 8%on 2002 volumes and up 22% on theunusually low figures reported for 2001.Export volumes in Q1 2004 of 149,000tonnes, were 3.5% higher than Q1 2003. This increase is probably due to thefavourable US$ exchange rate for USexporters. Quarterly exports to Asia-Pacific (exc. Japan) increased by 13%,and exports to Europe increased by 9%compared to Q1 2003. These increaseswere marginally offset by decreasedexports to Africa and the Middle Eastand Japan.

US imports of TiO2 pigment have alsobeen showing a similar upward trend,except during 2001, when H1 pigmentimports were unusually low. USpigment imports reached 241,000tonnes in 2003, 6% higher than 2002.The current US exchange rate mayalready be dampening this upward trendwith Q1 2004 imports reported at59,000 tonnes similar to Q1 2003.

Whilst US customs prices can becomplicated by internal transfer pricingarrangements and special discounts,there is a distinct upward trend inaverage monthly export prices sinceJanuary 2002. The average export pricefor Q1 2004 of US$1,660 is 1% higherthan the average export price for 2003and 9% higher than for the averageexport price in 2002. Average USimport prices only showed a mildupward trend in 2003 in comparison,and actually started to show a declineduring Q1 2004, largely due to theimport of lower priced material (in US$terms) from Europe in March. Theconvergence of the two pricing series isprobably indicative of a morecompetitive market environment.

Yearly tonnes Quarterly tonnes

Yearly tonnes Quarterly tonnes

1,400

1,500

1,600

1,700

1,800

1,900

2,000

Jan-00 Jul-00 Jan-01 Jul-01 Jan-02 Jul-02 Jan-03 Jul-03 Jan-04

US$/tonne fob

Average Import Price Average Export Price


US TiO2 pigment monthly customs prices: 2000-2004

Ref: 2305

Ref: 2306

Ref: 2309


END USE MARKETS

In this analysis of North American end usemarkets, TZMI looks at the current

situation in the coatings market. Preliminary data from the US Census

Bureau reveals that paint consumption in theUS increased by 7% year-on-year in 2003 toexceed 5.0 billion litres (see Figure 1). In aninteresting paradox however, according toUS Census figures, US apparent TiO2

pigment consumption actually fell by 4%during 2003 compared to 2002.

Paint consumption in every quarter in2003 was higher than the correspondingquarter in 2002. The growth in demandduring Q2 and Q3 was driven by thearchitectural paint sector which accountedfor 58% of total US paint consumption in2003. This sector recorded 15% year-on-year growthover 2002, coinciding with 2003 being the best year forhousing construction starts in the last 25 years. OEMproduct coatings shipments however, fell a further 7% in2003 compared to 2002. Special purpose coatingsvolumes returned to 2001 levels, after increasing 11% in2003 compared to 2002.

Architectural paint estimates for Q1 2004 of 721,000litres are 5% higher than for Q1 2003. Overall paintconsumption for the quarter, however, was over 1%lower than Q1 2003, due largely to the continueddecline in paint consumption by the OEM sector.Preliminary estimates show that consumption in theOEM sector has fallen to 339,000 tonnes in Q1 2004,compared to 392,000 tonnes in Q1 2003.

The stronger growth in some sectors of the US paintmarket in Q1 2004 is also matched by stronger first

quarter financial results for most of the major coatingmanufacturing companies (see Table 1). Correspondingto stronger economic conditions, total global coatingssales volumes have increased in almost all regions,although there is considerable variation in the differentcoatings segments. The major coatings manufacturersexpressed optimism that 2004 results will show animprovement on 2003. Companies with major facilitiesin Europe and other regions, like Akzo Nobel and BASF,reported that they were affected by unfavourableexchange rates. Higher freight costs were also cited byseveral companies as contributing to lower profitmargins. Comparing sales figures to the correspondingquarter in 2003, it must be taken into account that 2003results were in part affected by harsh weather conditionsin parts of the Northern Hemisphere.

NORTH AMERICA

Each issue, TZMI will provide a summary update of developments in the major end-use marketsfor North America, Europe and Asia.

Table 1: Net sales figures for major coatings manufacturers: Q1 2004

Net Sales Net Sales Y/Y Net Sales Net Sales Q/Q2002 2003 change Q1 03 Q1 04 change

BASF - Performance Products 8,014 7,633 -5% 1,907 1,929 1%

DuPont - Coatings & Color Technologies segment 5,026 5,503 9% 1,269 1,417 12%

Sherwin-Williams - consolidated results 5,185 5,408 4% 1,148 1,320 15%

Akzo Nobel - Coatings segment 5,521 5,233 -5% 1,197 1,231 3%

PPG Industries - Coatings segment 4,482 4,835 8% 1,124 1,274 13%

ICI - Paints segment 3,281 3,538 8% 770 921 20%

Valspar - consolidated results 2,127 2,247 6% 469 502 7%

0

500

1,000

1,500

2,000

2,500

3,000

3,500

1998 1999 2000 2001 2002 2003

million litres

2,000

2,500

3,000

3,500

4,000

4,500

5,000

5,500million litres

Architectural OEM (Industrial)Special purpose Total (rhs)

Figure 1: Trends in US paint shipments: 1998-2003

Source: Press releases, US Security filings -10Q and 10K reports, Annual Reports

Source: US Census Bureau Ref: 2309

14 TiO2 Review

FINANCIAL RESULTS

May 2004

E.I. DuPont de Nemours and Company is the world'slargest pigment producer with plants at five locations inthe United States, Mexico and Taiwan. It also hasmining operations in Florida, which supply feedstock forsome of its US pigment plants. In 2002, DuPontrestructured its reporting segments so that its WhitePigments and Minerals Division was renamed DuPontTitanium Technologies and its results are now reportedas part of its Coatings and Color Technologies segment.This segment also contains its highly profitable paintbusiness, including OEM automotive paints, vehiclerefinishing paints and other performance coatings whichaccount for approximately 50% of segment sales.Overall, TiO2 pigment accounts for approximately onethird of net sales for the segment, or approximatelyUS$1,815 million in 2003. Historically, the companyhas been regarded as the lowest cost TiO2 pigmentproducer. Its Coatings and Color Technology segmenthas shown consistently good returns (see Table 1).

Millennium Chemicals Inc has TiO2 pigmentoperations in the US, UK, Australia, France and Brazil. Itis the second largest producer in the world and ownsmore pigment plants than any other company in theindustry. It also has a mineral sands operation atMataraca, Brazil which produces captive ilmenite for itsBrazilian pigment plant. It uses a wide range offeedstocks at its other plants, and 26% of its total TiO2

pigment capacity is sulfate route. Millennium'soperating returns from its Titanium Dioxide and RelatedProducts business segment have generally been poorerthan some of its competitors, due partly to its difficultyin gaining economies of scale and added value from itsvaried and diverse plants (see Table 2). The company ishowever streamlining its business by rationalising itsproduct range, and also making capacity changes to itsplants. It is currently reducing capacity at its Le Havre,

Each issue TZMI will keep you updated on financial results for selected TiO2 pigmentcompanies, and important manufacturers in the paint and coatings, plastics, inks, pulp andpaper sectors. This month we provide an overview of recent financial results of some selectedTiO2 pigment companies.

Table1: DuPont - Coatings and Color TechnologiesResults and margins (US$ million)

Gross Operating OperatingSales Income* Margin

2001 Q1 1,205 235 19.5%Q2 1,292 205 15.9%Q3 1,206 201 16.7%Q4 1,214 190 15.6%

Full Year 4,917 831 16.9%

2002 Q1 1,137 154 13.5%Q2 1,312 232 17.7%Q3 1,276 248 19.4%Q4 1,301 192 14.8%

Full Year 5,026 826 16.4%

2003 Q1 1,269 141 11.1%Q2 1,419 214 15.1%Q3 1,378 178 12.9%Q4 1,437 198 13.8%

Full Year 5,503 731 13.3%

2004 Q1 1,417 189 13.3%* Pre-Tax Operating Income (PTOI)

Table 2: Millennium Chemicals Inc Titanium and Related Products

Results and margins (US$ million)

Net Operating OperatingSales Income Margin

2001 Q1 317 28 8.8%Q2 298 20 6.7%Q3 286 21 7.3%Q4 244 5 2.1%

Full year 1145 74 6.5%

2002 Q1 260 10 3.9%Q2 300 14 4.7%Q3 296 21 7.1%Q4 273 18 6.6%

Full year 1129 63 5.6%

2003 Q1 288 21 7.3%Q2 293 23 7.9%Q3 293 7 2.4%

Q4** 298 1 0.3%Full year 1172 52 4.4%

2004 Q1 333 12 3.60%* Operating income in Q1 2004 adjusted to remove theasset writedown associated with an asset impairment chargefor its Le Havre plant of US$103 million.

France plant (sulfate) and making improvements atAshtabula, Ohio (chloride) and Kemerton, WesternAustralia (chloride). The company has recently beenacquired by Lyondell Chemical Co (see News, page 3).

Huntsman International LLC reports on the financialresults of Huntsman Tioxide, the world's fourth largestTiO2 pigment producer by capacity as its PigmentsBusiness segment. Huntsman is the most geographicallydiverse of the pigment companies with eight pigmentplants located in seven countries. It the largest sulfateroute producer in the world with 73% of its globalcapacity of 603,000 tpa being sulfate. The company iscurrently rationalising some of its operations byreducing capacity at sulfate route plants at Grimsby, UKand Umbogintwini, South Africa (see News, page 3).Operating EBITDA income in Q1 2004 fell significantlyto US$7.7 million on sales revenues of US$55 million.Quarterly operating margins for the company showedsignificant improvement during 2003 compared to2002. Currency fluctuations have increased the net salesof the pigment segment, but have also increased localoperating costs which seriously affected its operatingincome in Q1 04 (see Table 3).

Kronos International Inc, operates the EuropeanTiO2 facilities of NL Industries Inc, it has been reportingseparate financial results to NL Industries since Q32002. TiO2 pigment is manufactured by the company atfive plants in Europe (two in Leverkusen, Germany; onein Nordenham, Germany; one in Langerbrugge,Belgium; and one in Fredrikstad, Norway). Thecompany also owns Titania A/S which mines and sellsilmenite from hard rock deposits at Tellnes. Thismaterial is used as a feedstock in its sulfate route plants

at Leverkusen, Nordenham and Fredrikstad. Kronos alsoowns a share in the titanium slag smelter operated byTinfos as Tyssedal in Norway. It is access to theseEuropean sources of feedstock which have undoubtedlyenabled the company to keep a tight control of costs andlifted its operating income margin above 10% for theperiod since Q1 2002 (see Table 4). The company hasan estimated 18% share of the European TiO2 market,with approximately 75% of its pigment products being

sold into the region.NL Industries Inc, reports on

consolidated results for KronosWorldwide Inc which contains theresults of all of the KronosInternational operations as well as a50% share in the Lake Charles,Louisiana Joint Venture withHuntsman Tioxide, and two TiO2

pigment plants in Varennes, Canada.Net production volumes of TiO2

pigment of Kronos Worldwide aretherefore approximately 35% higherthan those of Kronos International.Operating income margins for thecompany have been less than forKronos International (see Table 4).


FINANCIAL RESULTS

Table 3: Huntsman Tioxide - Pigments segment Results and margins (US$ million)

Net Operating OperatingSales Income* Margin

2001 Q1 228 50.4 22.1%Q2 230 40.3 17.5%Q3 221 28.5 12.9%Q4 193 22.2 11.5%

Full year 72 141.4 16.2%

2002 Q1 202 10.9 5.4%Q2 235 13.2 5.6%Q3 233 21.1 9.1%Q4 211 23.1 10.9%

Full year 881 68.3 7.8%

2003 Q1 246 28.9 11.7%Q2 256 30.9 12.1%Q3 251 27.6 11.0%Q4 258 17.1 6.6%

Full year 1011 104.5 10.3%

2004 Q1 255 7.7 3.0%*EBITDA income - earnings before interest,tax, depreciationand amortisation.

Table 4: Kronos Worldwide and Kronos International Results and margins (US$ million)

Kronos Worldwide Kronos InternationalNet Operating Operating Net Operating Operating

Sales Income Margin Sales Income Margin

2002 Q1 202.4 14.8 7.3% 139.6 14.3 10.2%Q2 226.9 24.7 10.9% 146.1 16.5 11.3%Q3 234.1 19.3 8.2% 154.3 16.7 10.8%Q4 211.8 7.4 3.5% 139.7 24.0 17.2%

Full year 875.2 66.2 7.6% 579.7 71.5 12.3%

2003 Q1 253.0 19.2 7.6% 178.2 28.8 16.2%Q2 266.6 13.9 5.2% 182.9 27.7 15.1%Q3 242.9 32.9 13.5% 173.4 29.3 16.9%Q4 245.7 24.9 10.1% 181.4 28.6 15.8%

Full year 1008.2 90.9 9.0% 715.9 114.4 16.0%

2004 Q1 263.3 19.4 7.4% 192.2 25.9 13.5%

16 TiO2 Review

NEXT ISSUE

May 2004

Our next issue of TiO2 Review will be released in the last week in July, the followingbi-monthly issues will then be released in the last week in September, November,January and March.

The July issue will be focusing on the region of Asia-Pacific, with specific trade data, profiles and commentaryrelating to this important region. China will feature predominantly due to its ever increasing importance. The

Asia-Pacific region represents a growing market for paints and coatings, plastics, inks and pulp and paper and TZMIhas been watching developments in these markets in the region closely. The special Industry Insight feature will be"Pigment Price Dynamics" provided by Rob Louw, Senior Vice President - Commercial for Huntsman Tioxide.Recent TiO2 pigment prices have been masked by currency movements, but Mr Louw will help unveil what is reallyhappening in the market place.

TZMI’s InsideChina is a monthly newsletter introducedin late 2003, dedicated to the titanium minerals andzircon industry in China. The role of China in theseindustries is often underestimated in the western world,mainly due to the lack of readily available detailed dataand information. InsideChina bridges this gap bringing abrief review of economic trends and reviews of thesesectors, as well as news, developments and statistics. Thenewsletter is only available electronically in PDF format.A sample copy is available on our website:www.tzmi.com

Price: US$495 (12 issues)TZMI’s InsideChina 1

Trade statistics

Note: 1 Customs data provides official statistics based on a single customs code for Titanium Ores and Concentrates and Zirconium Ores andConcentrates. The breakdown by individual product group is estimated by TZMI based on monthly price information from individualcountries/ports.

2 Y-O-Y % change compares the YTD total in the current year to the corresponding period in the previous year.

Chinese trade statistics: Titanium minerals, zircon and TiO2 pigment

Latest month YTD total Y-O-Y2 Total 2002Oct 2003 Jan-Oct 2003 (% change)

Volume Av. price Volume Av. price Volume Av. price Volume Av. price(tonnes) (US$/t CIF) (tonnes) (US$/t CIF) (tonnes) (US$/t CIF)

ImportsTitanium minerals1

Ilmenite 16,621 47 154,284 55 306.3% -9.5% 37,974 61Rutile 117 525 1,569 583 14.1% 3.7% 1,375 562

Zircon & Zrproducts1

Zircon sand 8,419 388 156,949 403 14.6% 0.9% 136,906 399Zircon concentrates 3,764 164 54,653 157 31.1% 7.7% 41,692 146Other Zr products 181 1,445 4,847 624 38.0% -27.1% 3,512 856

Total 12,364 335 216,449 346 18.9% -1.2% 182,110 350

TiO2 pigmentTitanium oxides 1,673 2,054 16,689 2,154 18.9% -4.0% 14,031 2,244TiO2 pigment 21,235 1,722 189,896 1,727 19.1% 4.0% 159,436 1,661(>80% TiO2)

Pigments based on 599 2,511 7,066 2,436 6.5% 10.7% 6,632 2,201titanium dioxide

Total 23,507 1,765 213,651 1,784 18.6% 3.4% 180,099 1,726

Latest month YTD total Y-O-Y Total 2002Aug 2003 Jan-Aug 2003 (% change)

Volume Av. price Volume Av. price Volume Av. price Volume Av. price(tonnes) (US$/t FOB) (tonnes) (US$/t FOB) (tonnes) (US$/t FOB)

ExportsTiO2 pigment

Titanium oxides 1,524 816 16,790 795 20.9% 6.4% 13,893 747TiO2 pigment 6,430 995 64,704 998 13.6% -0.1% 56,949 999(>80% TiO2)

Pigments based on 42 2,395 121 2,583 245.7% 2.0% 35 2,533titanium dioxide

Total 7,996 969 81,615 959 15.2% 0.9% 70,877 950

Mineral Sands Report is a monthly 16-page reportdedicated to the titanium minerals, TiO2 pigment andzircon industries. Each month, Mineral Sands Reportcontains industry news, data, analysis and pricing onthese industries, providing subscribers with an up to date,unrivalled source of industry information. A samplecopy of Mineral Sand Report can be requested by mail oremail or accessed on our website: www.tzmi.com

Price: US$1,200 (12 issues)

Other TZMI publications www.tzmi.com

Published by:TZ Minerals International Pty Ltd3 Ventnor AvenueWest Perth, WA 6005, AustraliaPostal Address:PO Box 48, West Perth,WA, 6872, Australia

Telephone: 61 8 9321 5888Facsimile: 61 8 9321 5919Email: [email protected]



TZMI’S InsideChinaMonitoring Titanium and Zircon Industries

Inside this issue..

TiO2 pigmentTitanium feedstocksZircon and Zr productsTrade Statistics

Chinese TiO2 pigment capacityexpansions continue

All of this additional capacity usessulfate route technology and almost90% is for production of rutile gradepigments.

Some 78,000 tonnes of capacityexpansions are currently in progressand should be completed by end2004. A further 195,000 tonnes ofnew and expanded capacity isplanned or under consideration forimplementation before end 2006.These projects, totalling 273,000 tpa,are summarised by producer in Table2 on page 3.

Again, most of the plannedexpansions are based on sulfate route

technology. PanJin TiO2 isimplementing the only confirmedchloride route pigment capacityexpansion, although severalproducers are known to be pursuingaccess to chloride technology.

The move towards increased TiO2

pigment capacity in China is beingdriven by strong domestic demandgrowth and continued buoyantgrowth is forecast. Chinese producersare increasingly focusing onimproving product quality to matchinternational standards, and in manyinstances, this can only be achievedby introducing new production lines.

In contrast to the rest of the world, Chinese pigment producers areactively installing new capacity or expanding existing facilities. In2003, a total of 72,000 tonnes of capacity was commissioned asshown in Table 1.

continued page 3

Table 1: Recently commissioned new or expanded capacity: 2003

Company Additional Capacity (tpa) Pigment gradeZibo Cobalt Chemical 20,000 rutileSichuan Lomon Corporation 20,000 rutileZhenjiang TiO2 Co 18,000 rutileHunan Yongli Chemical 5,000 rutileHutong Co 4,000 anataseTongling Annada TiO2 Co 5,000 anataseTotal 72,000

Mineral Sands Mineral Sands Report

Data and Analysis on the Global Titanium Mineral, TiO2 Pigment and Zircon Industries


Inside this month

1 News

3 Industry InsightThe challenge of

supply deficits forthe zircon industry

6 In DetailCopperas

9 Product ProfilePig Iron

10 Trade DataWorld slag production

and mineral productionfor South Africa, Canada

and Norway

14 Pricing pages

16 Quarterly UpdateZircon

Published by TZ MineralsInternational Pty Ltd

Copyright reserved

Developments in new minsands projects for 2004

During 2004, there will be a lot of interest taken in several proposed newmineral sands projects, with final production and funding approval

decisions likely to be made during the year.

Iluka Resources Ltd’s (Iluka) Douglas Project in the Murray Basin isscheduled for a final investment decision early in Q2 2004, following thecompletion of a detailed feasibility study. If the feasibility study is successful,the company has indicated that it expects to commence construction in themiddle of Q2 2004. Iluka recently received a planning permit to construct a20km pipeline from the Rocklands Water Reservoir to the proposed minesite, which was the last government planning permit required for the project.

Tiomin Resources has received all of the major environmentalapprovals required for its Kwale titanium project, and is currently waiting forthe results of an updated feasibility study and related pilot plant test dueearly in 2004. A production decision and the start of the detailed design andconstruction phase are expected in 2004.

Kenmare Resources has announced that it is at an advanced stage inits negotiations with a main contractor for the full development contract forit's Moma Project in Mozambique, which the company expects to be ableto sign early in the first quarter of 2004. The process of securing projectfinancing is also proceeding and it is intended that lender institutions willseek remaining approvals shortly after the finalisation of the fixed pricedevelopment contract. The former Beenup mineral separation plant that waspurchased from BHP in August 2000, has been dismantled and is awaitingshipment from the Australian port of Bunbury.

A bankable feasibility study for Mineral Commodities Ltd’s TorminZircon Project is currently scheduled for completion in mid-2004. Theproject involves the proposed production of up to 16,000 tpa of zircon froma deposit on the west coast of South Africa.

The development of the Pooncarie project of BeMax Resources NL islikely to be influenced by the merger of the mineral sands assets of BeMaX,Nissho Iwai Corporation (owner of Cable Sands/RZM) and Sons of Gwalia(joint venture partner with RZM in Murray Basin Titanium) announced latein 2003. A final decision on project funding is expected in early 2004.

Southern Titanium NL is currently awaiting the receipt of all requisiteoperating and finance approvals. The company is also still to make adecision regarding the project's principal contractors.

TiO2 pigment plant feedstocks - Value in useA study of relative economic value

Price: US$4,950 published June 2004

TZMI's pigment technology and market team encompasses over 50 years combined industryexperience. For this new TZMI study, detailed technical models have been developedrepresenting a large range of TiO2 pigment plants worldwide, covering all the major plantconfiguration types. Based on this model, the study analyses six generic plants to provide anunderstanding of feedstock value drivers in the TiO2 pigment industry.

The study highlights the relative economic value of typical pigment plant feedstocks andprovides an understanding of feedstock purchasing decision drivers. The study highlights the differences betweenfeedstocks and their value to different pigment process routes and covers the inter-relationships between feedstocksand other major variable cost inputs, identified by process route and plant configuration. www.tzmi.com

TTiOiO22 pigment plant feedstockspigment plant feedstocksVValue in usealue in use

AA study of relative economic valuestudy of relative economic value

IntroductionMethodologyDefinition of relative economic valueThe TiO2 supply chainTiO2 pigment manufacturing industry

• history • market overview • processesPigment plant feedstock selection drivers

• feedstock considerations• pigment technology considerations• waste option considerations • logistics considerations

REV modelling and analysis of results• hypothetical pigment plant selection • feedstock selection • chloride route technology

- modelling results and analysis- sensitivity analysis

• sulfate route technology- modelling results and analysis- sensitivity analysis

TZMI’s pigment technology and market team encompassesover 50 years combined industry experience. Detailedtechnical models have been developed representing a totalof 40 pigment plants worldwide, covering all the major plantconfiguration types. Based on this model, the study analysessix generic plants to provide an understanding of feedstockvalue drivers in the TiO2 pigment industry.

Diagrams and technical summaries are provided to describethe important stage features of both sulfate and chlorideplants to enable an understanding of the relationshipsdetermining cash costs of pigment production. This alsofacilitates an overall understanding of the technicalconstraints on feedstock selection.

The importance of geographical location is discussed. Keyprocess input costs, transport, and environmentalconsiderations are highlighted in realistic examples ofmodern pigment plants, to provide the reader with anunderstanding of the relative economic value of eachfeedstock option available to a specific type of TiO2 pigmentplant.

Why this study is important to your business.. This study highlights the relative economic value of typical pigment plantfeedstocks.

The study provides increased understanding of feedstock purchasingdecision drivers for pigment producers.

The study highlights the differences between feedstocks and their valuedrivers to different pigment process routes. Inter-relationships betweenfeedstocks and other major variable cost inputs are identified by processroute and plant configuration.

The study provides insight to critical factors including technologicaldiversity, geographical location, capacity utilisation and market locationaffecting the relative value of feedstocks.

In response to many client requests over recent years, TZMI is expanding its popular publication and consulting servicesto the global TiO2 industry.

TTiOiO22 pigment plant feedstocks pigment plant feedstocks VValue in usealue in use

is due for release in June 2004

Order your copybefore 31 May 2004and receive a 10%discount. Please

see order formoverleaf.

Published by:TZ Minerals International Pty Ltd, 3 Ventnor Avenue, West Perth, WA 6005, AustraliaPostal Address: PO Box 48, West Perth, WA, 6872, AustraliaTelephone: 61 8 9321 5888 Facsimile: 61 8 9321 5919Email: [email protected]


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