US Tronox slows TiO2 production as prices lag ore costs

29 June 2012 18:56  [Source: ICIS news]

HOUSTON (ICIS)--Tronox has slowed production at its pigment plants as modest price increases for titanium dioxide (TiO2) are not enough to offset higher ore feedstock costs, the US-based producer said in an update on Friday.

Tronox CEO Tom Casey said that second-quarter ore costs are about $600/tonne (€480/tonne) above the first-quarter level.

“These added costs are not expected to be fully offset by the modestly higher average selling prices and essentially level sales volumes that the company is experiencing,” Casey said.

“Although we expect to realise modestly higher average selling prices sequentially in second quarter, we have seen prices in Europe, the Asia Pacific and to a lower degree other regions soften as a result of the demand in those regions lessening and supply not declining commensurately,” Casey said. 

“We believe the largest contributing factors to the relative softness in demand stem from customer reactions to the continued macroeconomic slowdown in, and risks arising from, China and the eurozone markets,” he added.

“In light of these sales trends and in order to control inventory levels, we have slowed production at our pigment plants resulting in less fixed-cost absorption,” he said.

As a result, Tronox estimates that its second-quarter adjusted earnings before interest, tax, depreciation and amortisation (EBIDTA) will be about 20% below the $151m it  reported in the first quarter.

However, for the full year 2012 Tronox expects its pigment business to achieve average year-on-year selling price increase of about 15%, Casey said.

Casey added that outside of the Chinese market, which accounted for about 8% of Tronox’s sales over the last five years, the company has not seen any substantial lost sales to Chinese suppliers.  

Also on Friday, the company announced a share repurchase programme.

While Tronox does not have a specific timetable or price targets for the programme, it expects to repurchase up to $150m worth of shares in the shorter term, followed by additional purchases following a new debt financing, it said.

“We believe our stock is undervalued at the present trading levels and therefore the best use of corporate resources is to invest in ourselves at these prices by repurchasing our shares," Casey said.

Tronox's share price was down $4.70, or 3.77%, to $119.91 at 12:42 on the New York Stock Exchange (NYSE). 

The company returned to the stock exchange only last week after emerging from bankruptcy protection, but it immediately saw a sharp drop in its share price.

Additional reporting by Al Greenwood

($1 = €0.80)

By: Stefan Baumgarten
+1 713 525 2653

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