The pigmentation agent, titanium dioxide (TiO2), accounts for 10 to 25 per cent of a paint manufacturers' costs. It constitutes 90 per cent of all pigments used by the industry. Today, it contributes 100 per cent to their problems. Over the past year, domestic shortages and rising international prices have kept paint manufacturers worried, even as they struggle against a slack market. Four companies make TiO2 in India -- Kerala Minerals and Metals Limited (KMML), Travancore Titanium Products Limited, Cochin Chemicals and Kilburn Chemicals. Together they supply roughly 37 per cent of the industry's annual demand of 40,000 tonnes.
The chances of expanding domestic capacity are also remote. Of the four TiO2 makers, Cochin Chemicals and Kilburn Chemicals are small-scale players with a minimal contribution to domestic supply. Also, the high capital cost of setting up a TiO2 plant at Rs 400 crore to Rs 450 crore for a plant of 15,000 tonne a year acts as an entry barrier.
Paint companies, therefore, have to largely depend on imports of TiO2. The overall TiO2 imports is between 20,000 tonne to 22,000 tonne per annum.
Again, titanium dioxide required by the industry is of two grades: rutile and anatase. While rutile is required chiefly for industrial and premium enamels, anatase is used for low-quality distempers.
In India, KMML is the sole manufacturer of rutile-grade TiO2 with technology from Kerrr-McGee Pigments of the US. And where the original installed capacity is 25,000, production has been 15,000 tonne. Now, paint companies will have to depend totally on imports for this grade of TiO2 because KMML has suspended operations due to an acute shortage of power.
To add to the industry's woes, the international prices of TiO2 have been rising steeply as demand for the product has gone up from other consumer industries like plastics, paper, printing ink and fibre. From $1,550 a tonne in March 1997, the price increased to $1,650 in April and $1,750 in July. And industry sources say many companies have booked TiO2 at $1,850 in advance for the period of October to December this year.
Ashit Kothari, vice-president, InvesTrust Research, says, "If companies do not pass down this rise in input costs, it is going to affect their margins considerably."
Again, the anomalies in the duty structure of TiO2 has kept the industry worried. Whereas import duties on dyes, pigments, paints and varnishes were brought down from 42 per cent to 30 per cent, the duty on TiO2 has not been altered from 40 per cent to keep state-owned domestic manufacturers happy.
Anatase grade of TiO2 is manaufactured by Travancore Titanium Products but is way below its installed capacity, thereby forcing paint companies to import even with high import duties. The price of the anatase grade is between $1,050 per tonne to $1,100 per tonne and is likely to remain stable over the coming few months.
While the cost of TiO2 has kept the industry on its toes, the prices of other inputs like penta, phthalic and butanol have shown a declining trend as prices are coming down by about five per cent.
Overall, this is expected to help this low-tech industry since raw materials account for more than half the manufacturing costs. The major raw materials can be classified into vegetable origin, petroleum origin and mineral origin, used in the ratio of 40:40:20. Resins, various oils and glycerine falls under vegetable origins, pthalic anhydride, penta solvents and organic pigments
form petroleum origin products, and mineral origin would include extenders, barytes, clay and iron oxide.
TiO2 apart, companies are more or less self sufficient in other raw materials. Asian Paints has its own pthalic anhydride manufacturing facility, which accounts for about 12 per cent of the company's sales. Goodlass Nerolac set up a phthalocyanine pigment manufacturing facility as early as 1950 and today it manufactures an entire range of pigments which accounts for 5.67 per cent of the total sales.
The September 1 increase in petroleum product prices, however, is likely to see input costs rise sharply. A slack market will constrict the chances to pass on the price rise to consumers.
