What if TiO2 pigment price cut by half?
So, this is the end of world. European, US, and Asian markets all collapse, the world economic situation is so bad people just want US bond and US dollar.... Deflation, and we have price cut…. Resource companies hit panic buttons andbelly up….
So, TiO2 pigment price gets cut by ½. So what will happen to TiO2 chemicalcompanies and resource companies?
As I analyzed before, most TiO2 chemical companiesrun at > 55% cost, so when TiO2 pigment is cut by ½, they will not be profitable. So, they willreduce or cease production. Some will file BK, particularly those high cost companies. A TiO2 chemical company BK if you check the history during 2008-2009economic crisis. So, this is really bad. High fliers like KRO will get hurtbadly as its margin will be almost completely eliminated. Their operation will atbest get even but most likely lose money in that situation. Production will becut, they will demand TiO2 resources company to reduce their feeder price. If TiO2 pigment price is cut by ½, the TiO2 feederprice will be cut at least by 1/2, probably even by ¾.
What will happen to those TiO2 resource companies then?Most of these resource companies will BK!!!! Many of them have grade < 6% such as 2%,and they sell at feeder price, their production cost will remain relativelysame, but their income reduced by ½ to ¾, thus they cannot afford to produce. Theirstock will be on sale.
What will happen to RGX? Their processing cost is18%, and it is the only resource company in the world that produces TiO2 pigment.We can see the current RGX market valuation is on CTL alone if we want to put aprice tag on the technology (La Blache and the M projects are FREE today, yesterday only the M project is free, remember most chemical companies have no resource at all but technology only, but the market cap are in terms of Billions).Anyway, if TiO2 pigment price is cut by 50%, RGX will be able to run at 5%to10% profit……. It will be few remaining companies in the world that canproduce TiO2 pigment profitably.
Is this likely to happen? No, not at all. The TiO2market is going to continue to go UP according to TiO2 Insight. But what willhappen if they are wrong? The TiO2 pigment price will cut at most 30% as itever reached 50% price cut, almost all chemical companies will cease production…. The invisible hand will push TiO2 price back up then. So, TiO2 pigment price will have at most 30%cut in the recession scenario. This will force chemical companies such as KRO into a very difficultsituation as their profit margin will be 90% gone, and those low-margin chemical companies will BK. Many of TiO2 resource companies will cease to produce too at 30% price cut at the feeder price. But, what will happen to RGX? They will be making profit at30% as their processing cost is 18% and they own the resource..... Think aboutit.