For a chemical giant such as Akzo Nobel (AKZOY), whose existence is based on creating profit margins despite the rising price of raw materials, the key is in keeping cost down. And the best way to do that is to cut out the middleman: Akzo Nobel recently announced it was entering into a partnership with China’s Guangxi CAVA Titanium Industry Co. to produce supply titanium dioxide, one of the key ingredients in paints and coatings — two of the Dutch company’s three main businesses.
What it means is that the company’s supply of TiO2 for its Asian manufacturing is now secured. The deal includes the joint construction of a 100,000 metric-ton TiO2 plant in Qinzhou set to go online in 2014.
That’s in addition to its 27 other manufacturing locations it already has in China, a market with a growing national demand for paints and coatings. Expect demand in the region to grow, too, so even more of the base ingredient will be needed in the future.
According to the UK’s Merchant Research & Consulting, under-investment during the last several years in TiO2 has led to scarcity that will mean escalating prices in 2012 and 2013. It expects that, over the next several years, titanium dioxide producers and feedstock suppliers will escalate margins and thus control pricing.
China’s CAVA has been producing titanium ore for more than 20 years. According to China Daily, AKZOY plans to double its Chinese sales to $3 billion by 2015 while looking for more M&A opportunities.
The partnership is just one in a long line of strategic moves AKZOY has been making in recent years as it works to secure its raw materials. In the first quarter reporting in late April, a key focus was on raw material price inflation and how the company would mitigate price fluctuations in order to compensate.
Despite these price risks, group revenue for the quarter was $5.3 billion, up 16 percent on the year.
© 2017 Newsmax Finance. All rights reserved.