8/3/2019 Euro Pacific Canada Titanium Dioxide August2011[1]
1/13
Tony Hayes, Metals & Mining Analyst
Research Associate: Yang Liu
August 17, 201
www.europac.ca sPECIALtY / INDustRIAL MEtALs
TiTanium DioxiDea Shining FuTure aheaD
Titanium dioxide (TiO2) is an inorganic substance that
is derived primarily from heavy mineral sands contain-
ing Rutile or Ilmenite ores. TiO2
has one of the high-
est refractive indices (2.61 for Rutile crystals), making
it the primary pigment for producing white colour in
paints, plastics and paper.
8/3/2019 Euro Pacific Canada Titanium Dioxide August2011[1]
2/13
euro PaCiFiC aDVanTageThe Euro Pacific Advantage: Despite the growing relative size and importance of non-
North American capital markets, most domestic brokerage firms continue to offer clients
scant exposure to foreign securities. Worse yet, access is typically limited to trading
through ADR stocks or via over the counter with US based market makers
Informed by the hard money ideals so clearly and consistently articulated by Peter Schiff,
Euro Pacific Canada looks to prepare investors for a future in which North American finan-
cial leadership is likely to wane. As the developed world continues to be mired in debt, we
see promising opportunities in developing markets. We have a particular focus on value
based and commodity-focused investments and concentrate on those countries that show
greater respect for economic fundamentals such as savings, production, and monetary
discipline. It is precisely these differences in outlook that make Euro Pacific so unique.
As a full-service broker/dealer, we are constantly expanding our offerings to allow clients
access to global markets that adhere to their personal investment goals. In addition to
foreign stocks, we also offer foreign bonds, mutual funds, and precious metal investment
strategies. For accredited investors, we offer private placements.Unfortunately, foreign stocks still cause anxiety among many investors. Our Investment
Consultants can provide crucial assistance for those investors navigating international wa-
ters for the first time. Our combination of strategy, access, advice, and service is unique in
the industry. If you are concerned about the future of the North American economy, Euro
Pacific Canada may be the only domestic brokerage firm that speaks your language.
W off Svcs :
F Stcks & Bds
Cdty Bsd Stcks
Pcs mtls Stts
Bk acctsPvt Plcts
nw isss & iPos
F Ccs
mtl Fds
Lf, Dsblty & Ctcl
illss isc*
* Offered through Euro Pacific Wealth Preservation Inc.
Cll (888) 216-9779
vst www.pc.c
e Pcfc Cd s fll svc iiroC std
bk dqtd Tt, ot d spclz
f kts d scts. o vstt stty
fllws dvc ld t by e Pcfc Cptls Cf glbl
Sttst, Pt Scff, ttlly czd
cst d fcl lyst.
8/3/2019 Euro Pacific Canada Titanium Dioxide August2011[1]
3/13
A 2011 tianim Diide - A sinin Fre Aead
Titanium dioxide (TiO2 ) is an inorganic substance that is derived primarily
from heavy mineral sands containing Rutile or Ilmenite ores. TiO2
has one of
the highest refractive indices (2.61 for Rutile crystals), making it the primary
pigment for producing white colour in paints, plastics and paper.
SOURCE
Titanium dioxide is mined from Ilmenite and Rutile ores. Ilmenite is more widely
used because of its availability but Rutile is more desirable because it has a
higher concentration of TiO2.
In 2010, 6.3 million tonnes of titanium minerals were produced, of which Australia
accounted for 25%1. The global titanium dioxide pigment industry is worth $12
billion USD. The mineral is also found in South Africa and Canada, with the
three countries together accounting for 60% of global Ilmenite production2.
usAgE
Titanium dioxide pigment is known for its brilliant whiteness, opacity, non-
toxicity, inertness and UV protection. It is found in the Rutile or Anatase forms
which refers to the crystal structure within the pigments. End users prefer
Rutile crystals which are higher grade than Anatase and can be used in smaller
quantities while obtaining better results. In the pigment industry, 60% of the
paint bought is used for painting houses and 80% of house paint is used for
painting existing houses. Paint used for automotive, white goods and other
specialty applications need higher quality pigments and is increasingly being
imported by Chinese manufacturers3.
tItANIuM DIoxIDE ovERvIEw
Percentage composition of TiO2 45-65% 95%
Global Reserves 650 million tonnes 42 million tonnes
Global 2010 Production 580,000 tonnes
Reserve LocationsAustralia, China, India,South Africa, Canada
Australia, 18 million tonnes
RutileIlmenite
Figure 1: Titanium Dioxide usage through the Value Chain4
8/3/2019 Euro Pacific Canada Titanium Dioxide August2011[1]
4/13
A 2011 tianim Diide - A sinin Fre Aead
INDustRY PLAYERs
FEEDstoCk PRoDuCERs
The top five producers accounted for nearly 62% of Ilmenite and Rutile supplies
in 2010. Rio Tinto is one of the largest suppliers of TiO2
feedstock, followed by
Iluka, Exxaro, Kenmare and BHP Billiton.
PRoCEssoRs
There are two ways TiO2
can be processed: the sulphate process and chloride
process. The sulphate process is more established, while the chloride process
is newer and more cost efficient (however, is it also more tightly controlled).
Using the sulphate process is the only way to produce both Rutile crystals and
Anatase crystals (Often used in paper, ink and lower quality paint). The chloride
process generates only the higher quality Rutile crystals, which is preferred by
manufacturers.
Dupont pioneered the chloride process in the 1960s and has since incorporated
the technology into all of their operations. With this advantage, Dupont has
developed the most cost efficient plants in the world. However, the competition
is catching up, as all five of the largest TiO2
producers have since acquired the
ability to use the chloride process as well. North American plants were the most
profitable in 2010, followed by plants in Asia-Pacific and Europe5.
END usERs
End users are predominantly paint and coatings companies and include Akzo
Nobel, PPG Industries, Sherwin Williams, BASF, Kansai Paints and Valspar.
DupontLargest producer of TiO
2pigments in the world
Estimated capacity: 1.3 million tonnes
Cristal GlobalSecond largest producer of TiO
2pigments
Estimated capacity: 795,000 tonnes
HuntsmanUK based producer with higher costs of production due to concentrated
sulphate processing
Kronos
Focused on North American and European markets
Tronox
Filed for bankruptcy protection in 2009 due to low profit margins com-
bined with low demandEstimated capacity: 1.3 million tonnes
Accounted for 9% of TiO2
supply
DescriptionCompany
8/3/2019 Euro Pacific Canada Titanium Dioxide August2011[1]
5/13
A 2011 tianim Diide - A sinin Fre Aead
Analysts agree that the industry will experience a supply shortage in the
upcoming years resulting in increasing titanium dioxide prices in the short term.
What is less clear is the long term pricing of this mineral.
Global demand for TiO2pigment in 2010 was estimated to be 5.3 million tonnes6
and is expected to grow 3-4% annually until 2015. However, due to years of
underinvestment in the industry, production capacity is not expected to follow
suit. To start increasing the supply, large capital investments will have to be
made, and rising ore prices will be sure to follow. By 2016, it is predicted there
will be an overall shortfall of 1.7 mt TiO2
units and an Ilmenite deficit of 1.1 mt
TiO2 units. The tight TiO2 feedstock markets, especially for Ilmentie will drive upprices and encourage short term contracts7.
As much as 80% of the increase in demand will come from developing countries
as the TiO2
market is strongly correlated to GDP growth8. The recent growth
in demand is largely attributed to China, which with consistent GDP growth of
9-10%, compensates for declining or stable demand in developed countries.
The demand in China has risen over the past 10 years from 200,000 metric
tons annually to nearly 1 million metric tons annually, with no signs of slowing
down over the next 6 12 months. The UK consulting company Artikol has a
more conservative estimate for global TiO2
demand growth placing it at 2.7%
from 2010-2019. However, they also believe in faster growth for China at 5%a year, and see demand potential in India in the next 10 years as well9. The
rise in the worldwide middle class population is also expected to increase TiO2
consumption in the next 5 years10.
On the supply side, several international and regional companies have started to
enter the growing Chinese market. However, much of these planned additions
are based on the sulphate process, which causes production costs to be high.
While Chinese producers have stated their desire to move towards the chloride
based process, a lack of technology, scale, and access to high quality feedstock
diminishes their likelihood of success and limits their production capacities11.
According to ICIS Chemical Business, a minimum of 100,000 t/year of additional
pigment will be needed even if the demand only grows by 2% a year. DuPont
currently has plans to expand capacity by 350,000 t/year, which will add 9%
to global TiO2
capacity. Producers in the Asia-Pacific region have also been
working on capacity expansions but at a much smaller scale12. Outside of
China, there are no TiO2
pigment plants expected to be built before 2013-2014,
and TZ Minerals International (TZMI), expects prices to rise on tight supplies.
Manufacturing costs are already expected to increase by 30% from 2010-2015.
INDustRY tRENDs
Figure 2: Globalisation of TiO2
Demand
Figure 3: Correlation between TiO2
demand & real GDP
Figure 4: Titanium feedstock supply/demand outlook
8/3/2019 Euro Pacific Canada Titanium Dioxide August2011[1]
6/13
A 2011 tianim Diide - A sinin Fre Aead
PRICINg FoRECAst AND ExPLANAtIoN
In 2009, a lack of pricing discipline combined with a decrease in global demand
and competition from Asia resulted in very low industry margins and Tronox (5th
largest TiO2
processor) to file for bankruptcy protection.
Since 2009, pricing discipline has returned with an expected 20% price increase in
raw materials representing a 5% cost inflation for end users. The price increases
should improve industry profitability, especially the profit margins of producers
and processors, though Credit Suisse does not see this trend continuing beyond
2012. In 2010, the average industry profitability expanded by more than $140 US/t
relative to 2009, and the revenue to cash cost ratio also increased by 6% for the top
5 producers13 (Tronox has continued production through bankruptcy, and after a 2
year restructuring program, emerged from bankruptcy protection in February, 2011)
. Increasing ore prices, which represent a significant cost to processors, discourages
the development of new processing capacities. As a result, companies with both
mining and processing capabilities will have an advantage in the marketplace.
Titanium dioxide prices differ depending on the concentration of TiO2
found in
the product. While Rutile has a high concentration of TiO2, because of its limited
occurrence, Ilmenite is often used instead. There are several grades of Ilmenite
based on its TiO2
content:
Chloride grade (>58% TiO2
content) used as Chloride process feedstock
Sulphate grade (
8/3/2019 Euro Pacific Canada Titanium Dioxide August2011[1]
7/13
A 2011 tianim Diide - A sinin Fre Aead
RutILE
Rutile demand is mostly affected by the titanium sponge markets and welding
rod manufacturers. Although they comprise only 8% of the TiO2
market, this
equates to around 30% of the Rutile market. Credit Suisse does not see its
demand increasing but prices in the medium term should increase due to plant
closures after the global financial crisis that put the bargaining power in the
producers hands. Eventually, expansions by several large TiO2
feedstock
producers in the Synthetic Rutile market combined with stagnant demand will
drive prices down starting 2013.
According to TZMI, bulk Rutile in H1 2011 is priced at $700/750
US/t, an increase from $550 US/t in 2010
Prices will peak in 2012 with Credit Suisse estimated it to reach$925 US/t and decline starting 2013
The long term expected price is $850 US/t
ILMENItE
The Ilmenite market is more opaque and difficult to forecast than the Rutile market.
While short term prices are expected to rise, new mineral sand deposits that should
be operational in 2013 will drive prices down closer to the long term forecast.
The long term expected price sits at $160 US/t
March estimates by TZMI placed current new contracts at $130-
150 US/t with spot sales at $160 US/t and could reach $200 US/t
in the near future
Existing contracts are priced at $100 US/t
Figure 5: Zircon, Rutile and Ilmenite, quarterly price 1987-2014F in real (2011) terms
8/3/2019 Euro Pacific Canada Titanium Dioxide August2011[1]
8/13
A 2011 tianim Diide - A sinin Fre Aead
sLAgs AND sYNthEtIC RutILE
Prices for these markets are not specifically forecasted but prices are increasing
because sulphate slag supply is very tight due to the general trend of large
processors moving towards producing higher profitability choride products.
Chloride slag contracts are currently priced in the mid $400 US/t range while spot
prices reach low to mid $500 US/ton FOB.
TZMI reports new Synthetic Rutile contracts varying from $600
US/t-$700 US/t, twice the existing contract prices
Chloride slag contracts are currently priced in the mid $400 US/t
range while spot prices reach low to mid $500 US/ton FOB
tItANIuM DIoxIDEAccording to Ti Insight LLC and Credit Suisse, TiO
2prices have generally declined
on a real basis over the past 20 years despite the strong 11% increase in 2010.
Tight TiO2
supply and demand conditions, however, mean that this trend should
reverse for the period of 2010-2015 if not longer, giving producers the pricing
advantage. The margins gained for top end titanium products should outpace
those at the bottom.
Ti Insight LLP had also stated that average world prices for high quality TiO2
pigment was $2400 US/t but prices could double to $4800 US/t by 2015. Currently,
strong demand combined with low inventory levels have resulted in a series of
significant price increases from producers with buyers having no option but to
accept. Further increases may come for Q3 2011 starting September or October.
In Asia, prices are also expected to increase because of power rationing in some
provinces that will cause producers to cut back operations 14. In Europe multiple
Figure 6: Global Average TiO2
Prices
8/3/2019 Euro Pacific Canada Titanium Dioxide August2011[1]
9/13
A 2011 tianim Diide - A sinin Fre Aead
plant closures during the recession combined with aged facilities that mostly
rely on the sulphate process have caused prices to soar. With no new prospects
for increased capacity soon, Europe is increasingly importing from Asia. Some
companies, such as Dow Chemical, are now trying to develop new technologies to
decrease the amount of TiO2
needed in paints to combat rising prices15.
TiO2
producers have already announced pricing increases of $200
US/t in Q4 2010 with another increase of $300 US/t in Q1 2011 and
a further $350 US/t increase in Q2 2011
In North America, titanium dioxide prices have already reached as
high as $3080 US/t as of Q2 2011
In Europe, analysts estimate prices to climb to $4200 US/t by the
end of 2011
1Singh, Digvijay. National Industrialization Co. Rep. no. 2060.SE. Credit Suisse, 17 May 2011. Web.
2Delivering Value Through Expansion of the World Class Moma Mine. Rep. Kenmare Resources, Apr. 2011. Web.
.
3Zircon and Titanium. The Sands Are Shifting. Rep. Mineral Deposits Limited, Mar. 2011. Web.
4Delivering, loc. cit.
5Singh, loc. Cit.
6Global Titanium Dioxide Industry Recovery Firmly Under Way. PRWeb. 25 Mar. 2011. Web.
.7Delivering, loc, cit.
8Argex Receives Titanium Dioxide Pricing Forecasts. Argex Mining Inc. 26 Jan. 2011. Web. .
9Titanium Dioxide Prices and Pricing Information. ICIS Chemical Business. Feb. 2011. Web.
.
10Zircon, loc. cit.
11Singh, loc. cit.
12Terry, Larry, and Joseph Chang. Global TiO
2market in wave of activity. ICIS Chemical Business [Weekly] 30 May
2011. General OneFile. Web.
13Singh, loc. cit.
14Terry, loc. cit.
15Dow Breakthrough Enables Better Paint with Less TiO2- MarketWatch. MarketWatch. 24 Mar. 2011. Web.
.
8/3/2019 Euro Pacific Canada Titanium Dioxide August2011[1]
10/13
A 2011 tianim Diide - A sinin Fre Aead
NOTES:
8/3/2019 Euro Pacific Canada Titanium Dioxide August2011[1]
11/13
CoMPANY sPECIFIC DIsCLosuREs
Is this an issuer related or industry related publication?
Does the Analyst or any member of the Analysts household have a financial interest in the securities of the subject issuer?If Yes: 1) Is it a long or short position? NA; and, 2) What type of security is it? NA
Does the Analyst or household member serve as a Director or Officer or Advisory Board Member of the issuer?
Does Euro Pacific Canada Inc. or the Analyst have any actual material conflicts of interest with the issuer?
Does Euro Pacific Canada Inc. and/or one or more entities affiliated with Euro Pacific Canada Inc. beneficially own commonshares (or any other class of common equity securities) of this issuer which constitutes more than 1% of the presently issuedand outstanding shares of the issuer?
During the last 12 months, has Euro Pacific Canada Inc. provided financial advice to and/or, either on its own or as a syndicatemember, participated in a public offering, or private placement of securities of this issuer?
During the last 12 months, has Euro Pacific Canada Inc. received compensation for having provided investment banking orrelated services to this Issuer?
Has the Analyst had an onsite visit with the Issuer within the last 12 months?
Has the Analyst been compensated for travel expenses incurred as a result of an onsite visit with the Issuer within the last 12 months?
Has the Analyst received any compensation from the subject company in the past 12 months?
Is Euro Pacific Canada Inc. a market maker in the issuers securities at the date of this report?
u.k. DIsCLosuREs
This research report was prepared by Euro Pacific Canada Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund
EURO PACIFIC CANADA INC. IS NOT SUBJECT TO U.K. RULES WITH REGARD TO THE PREPARATION OF RESEARCH REPORTS AND THE INDEPENDENCE OF ANALYSTS.
The contents hereof are intended solely for the use of, and may only be issued or passed onto persons described in part VI of the Financial Services and Markets Act 2000 (Financial Promo-tion) Order 2001. This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein.
u.s. DIsCLosuREs
This research report was prepared by Euro Pacific Canada Inc., a member of the Investment Industry Regulatory Organization of Canada and the Canadian Investor Protection Fund.
This report does not constitute an offer to sell or the solicitation of an offer to buy any of the securities discussed herein.
Euro Pacific Canada Inc. is not registered as a broker-dealer in the United States. The firm that prepared this report may not be subject to U.S. rules regarding the preparation of research
reports and the independence of research analysts.
Issuer Industry
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
Yes No
ANALYst CERtIFICAtIoN
Cmpany: N/A ticer: N/A
I, Tony Hayes, hereby certify that the views expressed in this report accurately reflect my personal views about the subject securities or issuers. I also certify that I have not, am not, and will
not receive, directly or indirectly, compensation in exchange for expressing the specific recommendations or views in this report.
Note: This is our initiating coverage report on Neo Material Technologies.
stoCk RAtINg CAtEgoRIEs
stRoNg BuY: The security represents extremely compelling value and is expected to appreciate significantly from the current price over the next 12-18 month time horizon.
BuY: The security represents attractive value and is expected to appreciate significantly from the current price over the next 12-18 month time horizon.
hoLD: The security represents fair value and no material appreciation is expected over the next 12-18 month time horizon.
sELL: The security represents poor value and is expected to depreciate over the next 12-18 month time horizon.
Our ratings may be followed by () which denotes that the investment is speculative and has a higher degree of risk associated with it.
RAtINgs DIstRIButIoN
Euro Pacific Canadas initial rating distribution is as follows (rating distribution is updated monthly):
EuRo PACIFIC CANADA INC. REsEARCh DIsCLosuREs
8/3/2019 Euro Pacific Canada Titanium Dioxide August2011[1]
12/13
trn
121 Richmond Street, Suite 200
Toronto, ON, M5H 2K1
416-649-4273
888-216-9779
Mnreal
1501 Mc Gill College Avenue
Suite 1450
Montral, Qubec H3A 3M8
vancer
One Bentall Centre
505 Burrard Street, Box 76
Vancouver BC V7X 1M4
www.europac.ca
INstItutIoNAL sALEs & tRADINg
David Foley, Managing Director, Institutional Sales & Trading 416-933-3350
Christine Young, Institutional Sales 416-479-8690
Liza Oulton, Institutional Sales Trader 416-933-3351
Taylor Christie, Institutional Trader [email protected]
INvEstMENt BANkINg
David Cusson, CEO [email protected]
Rob Furse, President [email protected]
Russell Starr, Head of Equities 416-649-4272
Christina McCarthy, Mining Specialist 416-649-4273 x405
Tom Seniuk, Associate 416-649-4273 x301
REsEARCh
Tony Hayes, CFA Metals & Mining Analyst [email protected]
Nick Agostino, CFA, MBA, P.Eng. 416-933-3352
DEsIgN & LAYout
Ted Thompson [email protected]
8/3/2019 Euro Pacific Canada Titanium Dioxide August2011[1]
13/13
TiTanium DioxiDea Shining FuTure aheaD
Titanium dioxide (TiO2) is an inorganic substance that
is derived primarily from heavy mineral sands contain-
ing Rutile or Ilmenite ores. TiO2
has one of the high-
est refractive indices (2.61 for Rutile crystals), making
it the primary pigment for producing white colour in
paints, plastics and paper.
Top Related