Océinde predicts “dramatic spike” in personal care production costs should EU hit China with TiO2 tariffs

12 Sep 2024 --- Looming tariffs on Chinese titanium dioxide (TiO2) imports are causing concern for some European personal care companies who fear anti-dumping duties will increase their production costs and lead to higher prices for consumers.

Nicolas Dujardin, COO of investment management company Océinde, tells Personal Care Insights the European Union’s (EU) measures could also destabilize supply chains and especially impact smaller companies in Europe.

He says TiO2 is a significant component in many cosmetic products and that new tariffs on Chinese imports could make European products more expensive. Dujardin also warns of job losses, stifled innovation and heightened carbon emissions, which could undermine the EU’s sustainability goals.  

The EU implemented provisional anti-dumping duties on China TiO2 imports last June to protect the European market from unjust trade practices. The EU believes China is selling products at unfairly low prices.

How will the new anti-dumping duties on Chinese TiO2 imports affect production costs for European personal care companies?
Dujardin: The anti-dumping duties, potentially as high as 39.7%, will cause a dramatic spike in production costs for European companies. TiO2, a crucial component in cosmetic products as an opacifier and white pigment, represents up to 30% of manufacturing costs. Currently, Chinese TiO2 is about 10% cheaper than its European counterpart. With these tariffs, the cost per kilogram could surge from €2.50 to €3.50 (US$2.8 to US$3.9), slashing profit margins and threatening the profitability of many businesses. This sharp increase would likely result in a 12% price hike for consumers on their purchases.

Dujardin says Europe is already grappling with a TiO2 production shortfall, so the tariffs can lead to supply chain disruptions.Slapping heavy tariffs on TiO2 is a recipe for sacrificing our SMEs and choking European innovation. A more measured, gradual approach could safeguard competitiveness without crippling the industry.

What will be the expected impacts of cost increases on SMEs in the European personal care industry?
Dujardin: SMEs will bear the brunt of these measures. With already razor-thin margins, such a significant cost increase is unsustainable. Facing this sharp rise, some SMEs will be forced to hike their selling prices drastically, risking a loss of competitiveness. Others may be driven to layoffs, closures or even relocating production outside the EU, further deepening the social and industrial crisis across the continent. Let’s not forget we are just emerging from a period of high inflation, and the prices of manufactured goods have yet to stabilize.

How could supply chain disruptions caused by these duties impact the availability of TiO2 for European manufacturers?
Dujardin: Europe is already grappling with a TiO2 production shortfall of approximately 250,000 tonnes annually. This reliance on Chinese imports leaves European manufacturers exposed to supply chain vulnerabilities. The new tariffs could trigger severe shortages as importers struggle to secure enough supply at competitive prices. Consequently, companies may be forced to turn to alternative sources, which are typically more expensive and less reliable, intensifying supply chain disruptions and fueling further market instability.

How could rising production costs and potential job losses influence innovation in the European personal care sector?
Dujardin: The escalation in production costs and potential job losses would deal a significant blow to innovation. SMEs, in particular, would be forced to divert resources away from research and development to prioritize short-term survival. This stifling of innovation will slow down the development of new formulas and sustainable solutions, thereby undermining both competitiveness and the industry’s ability to meet increasing sustainability demands. In the face of looming economic and environmental challenges, the answer isn’t an immediate crackdown on imports but a balanced strategy that fosters both local production and sustainability.

How might the anti-dumping measures conflict with the EU’s environmental goals, and what may be some solutions?
Dujardin: These anti-dumping measures are at odds with the EU’s Green Deal objectives. If companies are compelled to import finished products containing TiO2 instead of raw materials, transportation-related CO2 emissions will rise sharply. Furthermore, relocating production to countries with less stringent environmental regulations would significantly increase the industry’s overall carbon footprint. These outcomes directly contradict the EU’s goal of reducing emissions and fostering a local, sustainable and environmentally conscious industry.

Dujardin suggests that solutions may include the gradual implementation of import taxes, support for local production, diversification of supply chains and investment in innovation.While the anti-dumping measures are designed to protect European TiO2 producers, they risk causing significant harm to the broader personal care and cosmetics industry, particularly SMEs. The sharp rise in costs, supply chain disruptions and stifling of innovation threaten to destabilize the sector. However, there are potential solutions to mitigate these risks:

Gradual implementation of import taxes: Instead of an immediate 39.7% tariff, a phased approach over several years would allow companies time to adjust, secure alternative suppliers, and avoid sudden financial shocks. Additionally, removing retroactivity would prevent undue financial strain on goods already in transit.

Support for local production: Offering financial incentives such as subsidies, tax breaks, or low-interest loans to boost local TiO2 production would decrease dependency on imports, strengthen supply chains, and align with the EU’s Green Deal goals by reducing carbon emissions from transportation.

Diversification of supply chains: Encouraging European companies to source TiO2 from regions other than China would help stabilize supply chains and reduce vulnerability to future trade disruptions.

Investment in innovation: Increased EU funding for research and development of alternative materials and more sustainable TiO2 production methods would enhance the competitiveness of European companies and support environmental goals through greener technologies.

By implementing these balanced strategies, the EU can safeguard its TiO2 industry while minimizing broader economic and environmental risks, ensuring a more sustainable future for both producers and consumers.

By Venya Patel