Goldman Predicts End of Boom in Chemical Used in Paint and Twinkies

(Bloomberg) -- Venator Materials Plc led producers of titanium dioxide down after analysts at Goldman Sachs Group Inc. predicted profit from making the white pigment will soon drop.

Earnings from the pigment known by its chemical formula, TiO2, are unsustainably high and due for a cyclical decline, Goldman analysts led by Robert Koort said Monday in a note. TiO2 prices have gained more than 40 percent over the past two years, Koort said.

“TiO2 producers are over-earning today,” he wrote. “Multiple factors signal a deterioration of producer pricing power and imply to us that the industry is nearing peak profitability.”

Profit is threatened by higher costs for titanium ore, rising Chinese export capacity for the pigment and increasing product inventories, he said. Goldman reduced earnings estimates for Venator and Chemours Co., the world’s largest TiO2 producer, and cut 12-month share price targets to $16 and $52, respectively.

‘One-Two Punch’

“Pigment prices are beginning to moderate today creating the potential for a one-two punch to earnings from lower prices and higher” raw materials, Koort said.

Venator dropped as much as 9 percent to $15.25, the biggest intraday decline since Feb. 23. Chemours fell as much as 4.5 percent, matching the decline at Tronox Ltd.

Weakening TiO2 fundamentals stand to benefit coatings makers such as Sherwin-Williams Co., the largest buyer of the pigment, starting next year, Koort said.

Titanium dioxide is mostly used in paints as a hiding agent. Other applications include plastics, paper and food ingredients such as the filling in Twinkies snack cakes.

Goldman’s warning came as Venator announced Monday that it secured exclusive rights to negotiate the purchase of a Tronox titanium dioxide plant in Ashtabula, Ohio, for $1.1 billion, if U.S. antitrust regulators require Tronox to sell the asset. Tronox is trying to buy the titanium dioxide unit of National Titanium Co., known as Cristal. The Ashtabula acquisition would be attractive for Venator, according to James Sheehan, an analyst at Suntrust Robinson Humphrey Inc.

--With assistance from Aoyon Ashraf.

To contact the reporter on this story: Jack Kaskey in Houston at jkaskey@bloomberg.net

To contact the editors responsible for this story: Brendan Case at bcase4@bloomberg.net, Susan Warren

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