Leading paint producer PPG Industries will not be reducing its inventories of the white pigment titanium dioxide (TiO2) any further during Q4 2012 and into 2013, CEO Charles Bunch indicated to analysts.
The US-based global paint and speciality materials supplier announced solid results for Q3 2012 that showed a ninth consecutive quarterly earnings record and a 14% rise in adjusted earnings per share to $2.24.
PPG has previously stressed the difficulty caused by higher TiO2 prices and has implemented measures to reduce its dependency on the raw material.
Now, the burden has eased somewhat Bunch outlined: “In TiO2, we've seen a moderation of the increases; in fact, some modest decreases here this year,” he said.
The last quarter of the year is traditionally a weaker pricing environment for pigments as end-markets slow but PPG is still negotiating it Q4 TiO2 prices.
One analyst indicated that they have seen a $0.13/lb drop in TiO2 pigment prices.
Overall, TiO2 costs are still up year-on-year, he added, but relative to the increases seen throughout 2011 pricing has remained stable through the year.
“Overall inflationary trends for raw materials, I'd say, have been very moderate here this year,” said Bunch.
As trends have normalised, so have PPG’s inventories: ““We have what I would call normal inventory levels for TiO2, so we're not trying to further destock from this level,” said Bunch.
Many of the problems in the TiO2 industry have stemmed from a destocking approach being taken by end-users after its initial pricing boom in 2011.
PPG’s assurance that its destocking is coming to an end confirms the assurances given recently by both DuPont and Tronox, major producers of TiO2, which believe that this end signals a demand, and profitability, resurgence for the white pigment.
TiO2 substitution initiative
PPG has implemented plans for a reduction in its use of TiO2 in paints by 4-6% and will reach this target for the year, it said
“Through the first three quarters of this year, we were tracking at a little over 3%,” said Bunch.
“We feel that for the full year, we will be into certainly the 4% to 6% range (...) on the low end of that range or a little over 4%, but certainly within our target,” he added.
This calculation will only include substitution for TiO2, not substituting sulphate-route product for chloride-route product.
Despite pricing weakness, the company will continue to focus on these initiatives, which included a backwards integration programme that saw it working closely with Argex Mining, a supplier of the TiO2 feedstock ilmenite.
“We're not backing off any of those initiatives because we've had a few months of stable to slightly lower pricing,” said Bunch.
“[The initiatives] will help to position ourselves and hopefully the entire industry to be in a better supply-demand balance going forward,” he concluded.