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PPG, Henan Billions in TiO2 Pact

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PPG Industries (PPG - Free Report) has forged a global technology license deal with China-based Henan Billions Chemicals Co., Ltd., which will provide the latter the rights to use the company’s technology for making chloride-grade titanium dioxide (TiO2), a key raw material used in the paint and coatings industry. The terms of the deal were not divulged.

Henan Billions, which has annual sales of roughly $300 million, makes and distributes TiO2, zirconium and aluminum sulfate. It currently supplies sulfate-grade TiO2 to PPG Industries.

The agreement concludes the license of PPG Industries’ chloride-based technologies as announced by both the companies in June 2012. The deal is expected to boost the supply of chloride-grade TiO2 globally and offer a commercial opportunity for PPG Industries’ technologies. Earlier, the company manufactured TiO2 using the chloride process at its chemicals facility in West Virginia.

PPG Industries has a diversified business, both in terms of products offered and geographical presence. It has a leading position in several paints and coatings end markets. The company is seeing strength in the North American automotive OEM market and looks to grow its businesses strategically along with controlling costs.

PPG Industries is also taking steps to grow its business inorganically by making a number of acquisitions. Moreover, it is pursuing restructuring of its European operation, which is expected to fetch meaningful cost savings this year and beyond.

However, PPG Industries is expected to continue to face macroeconomic challenges going ahead. The company expects continued weakness in Europe, inconsistent performance in the overseas markets and softness across most of its end markets in the fourth quarter.

Moreover, raw material costs have been a matter of concern. While prices of key raw materials including TiO2 have stabilized of late, they are still higher on a year-over-year basis.

In addition, PPG Industries’ significant presence in the U.S. construction, European architectural and industrial coating markets exposes it to substantial headwinds. Construction markets in the U.S. are expected to remain sluggish in the near future.

PPG Industries, which competes with the DuPont Performance Coatings segment of EI DuPont de Nemours & Co. , retains a short-term Zacks #3 Rank (Hold). We currently have a long-term Neutral recommendation on the stock.

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