Frank Mitsch: Hey, good morning. And let me echo my congratulations to you, JF, been a pleasure working with you, and of course, looking forward to working with you, John, in your new role. I’d like to come back to price. You indicated that the pricing weakness that you saw year-over-year and sequentially was mainly in Asia and Latin America. I was wondering if you could give a little more color on the pricing in North America and Europe and what your expectations are for the balance of the year in TiO2.
John Romano: Yes. Thanks, Frank. So we don’t typically give a lot of detail and color on regional pricing, but what you said is accurate, right. We saw a lot of more movement on pricing activity in Asia Pacific and the Middle East. And even in Europe, there’s been, what I would say, a fair amount of competitive activity in certain areas where people are still struggling to try to pick up volume. And we haven’t been responding to those, what I would call, spot requests for price reduction on offers that we don’t think are reasonable. So pricing is still, I’d say, moving in different regions. North America, it’s not as if we haven’t seen any price erosion. There has been some, but it’s been more stable than most regions.
And in Asia Pacific, I would say, we’ve seen most of the down cycle movement on pricing. And not to say that it’s going to start moving up, but in this particular environment, in China specifically, we have seen what we believe to be the bottom on pricing. And we have a facility there that we’re now operating at a higher rate, because we’re seeing stronger demand. And you’ve heard about price increases coming out in China, and we have had some implementation of those price increases in China. So, again, it’s hard for us to actually pinpoint exactly when we’ll see the complete bottom on price erosion and when that start to – when that inflection point is on the upside. But we feel pretty confident about what we said on the call, and that is – this stability that we’ve seen, considering the volume environment that we’re in, we would expect that to continue moving into 2024.
Frank Mitsch: Okay. Got you. That’s very helpful. And then I’d like to come back to zircon, obviously, volumes in July were very much the story, and I believe you indicated on the last call, you anticipated your zircon volumes to be down 15,000 to 20,000 KT or 15,000 to 20,000 tons. And was wondering, where did that actually come in? And can you revisit the air pocket that you saw in demand in July? How anomalous is that? How concerned are you about hitting another one of these air pockets as we progress through this year into next year?
John Romano: Yes. So, Frank, I would say that was anomalous, and we don’t expect that to recur. You had a significant downturn in China that basically nothing was rebounding there. There’s a significant amount of Ti – or in zircon that’s consumed there. And there was an inflection point where customers started to think that they could actually get price reductions, so they just stopped buying. And that was July. And we said that we would expect to see that pick back up in August and September. The 10,000 to 15,000 tons that we projected to be down, we were down a bit more than that. But what we’ve seen as we move into the fourth quarter into October and in November, as I mentioned, the volumes are up significantly from that low in 3Q or the third quarter, and we were expecting volumes to be up more than 50% from that third quarter number.
Frank Mitsch: Okay, great. Thank you, John.
Operator: Thank you. Our next question comes from the line of Mike Leithead at Barclays. Please go ahead. Your line is open.
Mike Leithead: Great. Thank you. Good morning. Just one for me. I wanted to go back to the cash and inventory discussion, I appreciate everything you’ve said about focus on managing working capital. But just when I look at the numbers, Tronox’s dollar amount of inventory has gone up for eight consecutive quarters now, whereas most all chemical companies are generating cash this year from working capital. So why is that not the case for Tronox? Or maybe why are you not pulling back production rates even more to generate faster cash?
John Srivisal: Yes. Thanks for that question. I think it’s two-fold. Obviously, while we have reduced our pigment production down, which is driving a significant generator of cash, our mining as well, we’ve slowed as well. But as I mentioned earlier, zircon is building. So it was about $25 million a quarter. As I mentioned earlier, it’s about $50 million increase for the second half of the year. I think part of what you’re seeing as well is our input costs continue to remain very high. So it’s significantly elevated from about two years ago. I think we’ve quoted historically, it’s over $400 million increase from 2020 to 2022. So that’s part of the reason why we aren’t seeing. While reduction in total volume is down, pricing still remains pretty elevated.
John Romano: Not dissimilar to our price, some people have said it’s a bit stickier than it was before. It’s been similar on the raw materials, but we’re starting to gain some traction on that. So we’re starting to see those raw material prices move down. We would expect as we go through the fourth quarter and the first quarter next year, we’ll continue to see benefits from that.
John Srivisal: And as JF mentioned as well, the feedstock is a big component of the increase. So we do slowdown our production plants, but we are vertically integrated. So we are running our mines and building that feedstock inventory.
Mike Leithead: Great. Thank you.
Operator: Thank you. Our next question comes from the line of Hassan Ahmed of Alembic Global. Please go ahead. Your line is open.
Hassan Ahmed: Good morning, John and JF. JF, first of all, best of luck. Wishing you all the best for your retirement. My question, first question is around your margins, EBITDA margins. I mean obviously, the margin squeeze has been pretty extreme 17.5% in Q3 of 2023, down from 21.2% in Q2 and 27.6% same period last year. So my question really is, I mean I’d imagine part of the margin squeeze is the fixed cost absorption side of things, lower zircon pricing and the like. But you guys always talk about the virtue of integration. You guys are obviously the most integrated guys out there. I’m just trying to get a better sense of what the cost curves are looking like right now, right? I mean, if you guys have seen this sort of a margin squeeze and are reporting 17.5% EBITDA margins, I’d like to think a large chunk of your global competitors are maybe even below breakeven levels, right?
I mean, how should we be thinking about that as it pertains to call it pricing on a go forward basis?
John Romano: Its great – thanks for the question. It’s John, and it’s a great question. 17.5% EBITDA margins for us is, we’ve been talking about being in the 20%s for a long period of time. Part of ours was in fact due to zircon coming down significantly more than we thought it would. But there’s no question, I mean, there’s companies that are in the restructuring process right now. We’ve stated last three calls that we believe that most of the Chinese producers are not making any money. So you’ve started that inflection point on pricing moving in the other direction and you’ve got exports coming out of China in the 1.5 to 1.6 million tons on a trailing 12-month basis and customers can only absorb so much of that even with that price difference.
So I think that there’s absolutely a point in time where pricing needs to go in the other direction or the profitability of the industry is going to get to the point where people start closing down assets. And again, I think that’s where we are at this particular stage. There’s not a lot of room fixed when we talk about the high grade feedstock, pricing hasn’t moved much on that. Ilmenite pricing has remained north of $400 a ton. So with input costs like that, there’s got to be an inflection point at some point in time.
