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Dow Targets High Pigment Prices With Resins

Today, a story I wrote on the on fortunes of the TiO2 market appears in the current edition of C&EN. TiO2 is the white pigment that gives paint its hiding power. If you ever labored applying coat after coat of white paint on a wall in vain trying to cover up a red finish that refuses to die with dignity, then the manufacturer of the paint you have chosen probably skimped on the TiO2. (It isn’t your fault. Actually, it is, you bought cheap paint.) I can’t think of a single commodity that is more important to the paint industry than TiO2.

And the paint industry has recently been paying dearly for TiO2. Since the 1990s, the TiO2 industry has been plagued by too much manufacturing capacity. That changed when the Great Recession forced the sector to shut down excess output. With the recovery, the TiO2 industry is now seeing the greatest profitability in about 20 years.

For the paint makers that consume the white pigment, runaway TiO2 prices have been painful. These companies are trying to mix in as little of it in their formulations as they can get away with. PPG has one of the more militant stances on this issue in the paint sector. The company wants to reduce TiO2 consumption by 10% by the end of next year. The company has gotten off to a good start, eliminating 2% by the end of the last quarter.

There is a potential market here for chemical companies that I couldn’t really get into in the article in print. Last year, Dow Chemical launched its Evoque pre-composite polymer, meant to address the problem of TiO2 crowding in latex paints. TiO2 crowding is what it sounds like it is, but there is even more to it than that.

David Fasano, a research scientist at Dow, explains that at very high loadings of TiO2 used in white and architectural latex paint—about 20%–TiO2 begins to interfere with its own ability to scatter light. This is because the TiO2 particle has a sphere of influence, called a scattering zone, that is twice the diameter of the TiO2 particle itself. As the particles come closer together, these zones overlap, diminishing the effectiveness of each other. (To understand this, I imagine an overhead projection of two dots on a screen. As the projector goes out of focus, halos form around the dots and expand until they overlap.)

Evoque, an acrylic latex film-forming resin, binds to the TiO2 particles and holds them apart so they don’t get close enough to interfere with each other. Evoque can reduce the paint loading in white and pastel architectural paints by as much as 20%.

Along with Evoque, Dow has been promoting another resin that has been in its stable for about 30 years: Ropaque. It isn’t meant to extend the use of TiO2, it is styrene-based resin that acts like a pigment itself. When Ropague forms a film, it captures little pockets of air that scatter light. This is the same effect that makes polystyrene foam, clouds, or bubble baths appear white.

Dow is quick to point out that it isn’t trying to exploit the high TiO2 prices. Evoque has been under development for a more than 5 years, before the TiO2 prices took off. However, Ashok Kalyana, architectural marketing director for Dow Coating Materials, admits that the product was launched at a fortuitous time. “This wasn’t invented just to take advantage of the situation,” he says. “But certainly the tightness in the TiO2 market has helped us accelerate our plans of introduction.”

PPG Looks To Secure Titanium Dioxide

At an analyst meeting this week in New York City, PPG Industries chief technology officer Charles F. Kahle II announced that his company was looking to partner with a TiO2 producer.

Here’s the context: supplies of TiO2 white pigments and the ores that are used to produce them are exceedingly tight. This has prompted Tronox to merge with the South African mineral sands producer Exxaro and is the reason Saudi Arabia’s Cristal is planning to construct an ilmenite processing plant in Saudi Arabia. Cristal has also been increasing its interest in its mining affiliate in Australia.

And let’s not forget that paint maker AkzoNobel aims to build a white pigment plant in China by 2014. In addition, DuPont is planning to expand capacity by 350,000 metric tons per year, including a new plant in Altamira, Mexico.

Kahle says PPG, one of the world’s largest paint companies, has its own TiO2 technology. The company is willing to form joint ventures, license technology, collaborate technologically, and provide technical assistance with TiO2 producers. He pointed out that the company previously made TiO2 in Natrium, W.Va.

I had never heard of such a plant. So I consulted the C&EN archives. Turns out PPG did have a plant…which closed in 1971 (C&EN, June 28, 1971). To illustrate how long ago that was, let me point out that the number one single when the C&EN article come out was It’s Too Late/I Feel The Earth Move by Carole King.

The plant had opened only two and a half years before. There was overcapacity in the industry and PPG’s source of raw materials, a rutile mining affiliate in Sierra Leone, was in receivership. “PPG says technically the plant was a success, that it was well satisfied with its process, and that it was and still is proud of the plant,” the article said. Apparently, the company is still proud.

There was a rash of plant closures in 1971, the article noted. “It’s beginning to look as if 1971 will be remembered as a year the chemical industry bit the bullet,” it said. (I do like our use of the indefinite article to hedge against the possibility that there could be future years of bullet biting.) Good year for Carole King, though.

Notes On Tronox/Exxaro

This week saw a good old fashioned back-integration deal in the chemical industry. I wrote a C&EN Latest News on the merger of Tronox with Exxaro’s Mineral Sands unit that includes the essential details. Not every factoid can make it into limited space, thus here are a few more observations:

  • Tronox’s back-integration isn’t unique. DuPont runs mining operations near Jacksonville Florida. Cristal, which is largely the former Millennium Inorganic Chemicals, has mineral sands operations in Brazil and Australia. The Brazilian mine came with Millennium’s purchase of Bayer’s TiO2 plant in Bahia, Brazil. Here’s an article I wrote about the mine back in 1998 for the then Chemical Market Reporter. Turns out, Millennium kept the mine after all. Cristal’s Australian mine is a relatively new development. In 2008, Cristal took over full control of Bemax, an Australian mining firm. It previously had a 34.5% interest.
  • The financial details are a little hairy, which I why I left them out of the C&EN story. I won’t get into them much here either. The old Tronox and the Exxaro assets will be pooled into a new holding company, which will be split 61.5%/38.5% between existing Tronox shareholders and Exxaro Resources. (There are different classes of existing Tronox shares, which is only important to Tronox shareholders.) The new company will be “domiciled in Australia”, which means technically headquartered in Australia, but will trade on a major exchange, probably the New York Stock Exchange. Exxaro is retaining a 26% stake in the South African mining operations to fulfill local regulatory operations. When those requirements eventually expire, Exxaro will have an option to swap that stake for another 3.2% of Tronox.
  • Recent share prices imply a value of $3.4 billion for the new Tronox.
  • In 2009, Huntsman Corp. tried, and didn’t succeed, to buy most of Tronox’s assets out of bankruptcy for $415 million. Incidentally, Huntsman’s last major acquisition was Ciba’s textile effects business back in 2006. Five years without a major Huntsman acquisition feels like an eternity.
  • The premise of Tronox’s acquisition is to facilitate the expansion of its TiO2 pigment business by securing a supply of ore. The company is now considering a new pigment plant in South Africa. It should be noted that Tronox’s existing joint venture with Exxaro, Tiwest, is integrated into mineral sands in Western Australia. The partnership completed a capacity expansion late last year. The 40,000-metric-ton-per-year increase brought capacity there up to 150,000 metric tons.

Crisis Over For Dow

Fitch Ratings has raised its outlook on Dow Chemical’s ‘BBB’ credit rating from negative to stable.

The change is as incremental as it gets. It merely suggests that the company is no longer in imminent danger of a credit downgrade.

But for Dow Chemical, it is a little like the Bulletin of Atomic Scientists shaving a minute off the Doomsday Clock. The company, beaming from the news, forwarded the Fitch press release to me. “Our credit rating remains a solid investment grade,” the company remarked in an e-mail. There is only one wrung lower for an investment grade rating, so the distinction is a bit like the one between Schaefer and Schlitz.

Fitch downgraded Dow’s credit rating from ‘BBB+’ to ‘BBB’ back in March, 2009, the same week that Dow hashed out a deal to salvage its acquisition of Rohm and Haas. And the downgrade came three months after the Kuwaiti government scuttled the sale of half of Dow’s commodity chemicals business to Petrochemical Industries Co. of Kuwait to form the K-Dow joint venture. Without the $7.5 billion from the JV formation, the Rohm and Haas purchase put about $10 billion in debt on Dow’s books with few apparent prospects–at the height of the financial crisis–to get financing.

In a report issued yesterday, Fitch analyst Sean Sexton said that since last April, Dow has done a good job in handling its debt crisis. It generated $3.4 billion selling Morton Salt, a stake in a Dutch refinery, its share of a Malaysian petrochemical JV, and calcium chloride.

I doubt that any of these divestitures were all that painful for Dow. And the company did avoid selling Dow AgroSciences—as CEO Andrew Liveris intimated he might during the crisis. And, Dow didn’t have to sell the K-Dow assets for a song at the bottom of the business cycle.

Otherwise, Dow did what a lot of companies did—it raised more debt and issued equity. But Dow did it on a grander scale: $8.75 billion in new debt and $3.25 billion in equity.

Fitch is looking forward to Dow raking in another $1.63 billion from the sale of its Styron styrenics and polycarbonate business to Bain Capital. (Word around the campfire is that Bain is paying a very full price for those assets.)

The Fitch report came with a couple of warnings, though. “Fitch notes that the leverage is still high for the rating,” Sexton wrote. And, despite cutting its dividend last year, Dow still has relatively weak cash flows.