DuPont’s performance chemicals division deals in Titanium Dioxide (TiO2), fluorochemicals and other performance chemicals. TiO2 alone makes up for significant part of this segment, representing around 47% of segment’s revenues in 2011. The segment’s performance was a drag on the company’s 2012 fourth quarter results reported on January 22, as sales dropped by 15% led by price declines in the TiO2 market. Here we take a look at trends that suggest year 2013 could be a turning point for the company’s TiO2 business.
Titanium dioxide is the most widely used white pigment because of its brightness and very high refractive index. It is also effectively employed as a pigment to provide whiteness and opacity to products such as paints, coatings, plastics, papers, inks, foods, medicines (i.e. pills and tablets), as well as most toothpastes. In paint, it is often referred to offhandedly as “the perfect white”, “the whitest white”, or other similar terms.
TiO2 And Emerging Markets
- Dupont Q4 Earnings: Company Positive On Dow Merger & Cost Saving Plan, But Weak Agro Sales And Currency Headwinds Continue To Hurt Operations
- Dupont Q3 Earnings: Weak Agro Products Sales and Currency Headwinds Hurt Operations, And Will Continue To Do So In Near Term
- DuPont 2Q: Soft Agricultural Markets and Currency Headwinds Weigh On Earnings
- DuPont: Soft Agricultural Products Market and Currency Headwinds To Weigh On 2Q Earnings
- DuPont Close To Another Transformational Milestone With Chemours Spin Off
- DuPont’s Earnings Decline On Lower Corn-Seed Sales, Stronger U.S. Dollar
There is a significant long term TiO2 consumption growth opportunity in emerging markets, especially China. Its based on the fact that TiO2 usage per capita in China is around 0.5kg/capita, which is significantly lower that seen in most of the developed countries. In the U.S. and some European countries, consumption rates are around (3-5 kg/capita). The industry’s history suggest that the market for TiO2 is tightly correlated to GDP growth. Hence, growth markets for the pigment manufacturers are going to be emerging markets that have a relatively higher GDP growth potential.
China To Drive Industry Fundamentals
China, the world’s fastest growing and second largest economy, has been a key market for TiO2 in the recent years and will continue to drive the industry’s fundamentals in the coming years as well. The decline in demand for TiO2 in 2012, which led to lower prices was primarily due to a slowdown in the Chinese economic growth, specifically in infrastructure segment investments. The Chinese economy grew its slowest since 1999 at around 7.8% in 2012, helped by a better than expected Q4 GDP growth of 7.9%. 
Industry Expected To Remain Flat In 2013
Last year was a slow one with a relatively low economic environment that saw a lot of inventory destocking by the producers. As investments in the infrastructure sector in China pick up, backed by the Chinese government’s push to revive growth in the sector, we expect the demand for TiO2 to see a rebound. 
The Chinese Academy of Sciences forecasts China’s economy to grow at around 8.4% in 2013, led primarily by growth in income levels.  The Chinese government has set a goal of doubling its per capita income from current levels by 2020. Growth in income levels that is key for growth in consumption levels is becoming increasingly important for China’s GDP growth, as weak European markets have limited potential for exports powered growth. This is expected to be a positive trend for the TiO2 industry in the long run.
Moreover, we also expect TiO2 demand picking up on the back of a better U.S. housing market. Consumer confidence in the U.S. has remained fairly resilient in recovering from its recession lows buoyed by improving labor and housing market news, and despite fiscal uncertainties. 
Overall for 2013, we anticipate a gradual recovery, as the year progresses and the China’s economy starts stabilizing, and the U.S. housing market comes around. We expect the TiO2 market to bottom in the first half of the year, as underlying demand improves and inventory levels decline. However, for the full year, sales figures for DuPont are expected to remain flat to negative due to pricing pressures.
- China’s GDP growth eases to 7.8% in 2012, January 18th, 2013, ChinaDaily [↩]
- China Set to Exit Slowdown by Boosting Infrastructure, January 17th, 2013, Bloomberg [↩]
- China 2013 GDP growth forecast at 8.4%, January 28th 2013, CNTV [↩]
- January 2013 U.S. Economic and Housing Market Outlook, January 15th 2013, FreddieMac [↩]