TiO2 producer Venator expects loss to widen in Q1

LONDON (ICIS)–Titanium dioxide (TiO2) and performance additives producer Venator expects adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) to decline further in the current quarter, following negative adjusted EBITDA of $57m and $8m in Q3 and Q4 2022, respectively.

For TiO2, sales volumes should increase in Q1, CEO Simon Turner said during  Venator’s Q4 results call on Tuesday.

However, the volume increase would be more than offset by the higher cost of goods sold and lower average selling prices, “resulting in a meaningfully lower EBITDA result in the first quarter”, compared with Q4, Turner said.

The cost of goods sold will increase from Q4, when Venator recorded a one-time benefit from the sale of energy hedges and furlough schemes in Germany, he added.

The company furloughed most workers at its 50,000 tonne/year TiO2 site in Duisburg, Germany, as it suspended production there in Q4, Turner pointed out.

The Duisburg site has been impacted by high inflationary costs resulting in “unsustainably low” TiO2 contribution margins, he said.

The plant primarily makes products going into the fibre and active material end markets. Following the coronavirus pandemic, demand for these products has fallen, he said.

Although Venator is in the process of restarting production of both TiO2 and functional additives, it does not believe that it is economically viable to continue TiO2 production at Duisburg in the long term and plans to permanently close TiO2 production there.

The closure would go ahead, “unless economic conditions meaningfully improve,” the CEO said during the call.

TIO2 DEMAND REMAINS WEAK
Venator has seen “some recovery” in TiO2 sales volumes so far in Q1, and it believes that destocking in Europe “has primarily run its course”, although underlying demand remains weak, Turner said.

In Asia-Pacific, Venator’s sales volumes should improve toward the end of Q1 as Chinese domestic demand improves after the Lunar New Year, he said.

PERFORMANCE ADDITIVES
As for Venator’s performance additives segment, this business was more “resilient” than TiO2 during Q4.

Nevertheless, its adjusted EBITDA fell by nearly 74% year on year as sales volumes fell by 22% amid softer demand from the construction and coating end markets.

In Q1, the EBITDA for performance additives is expected to be “significantly lower” than in Q4, primarily due to the suspension of production at a functional additives facility that is co-located at the Duisburg TiO2 site, Turner said.

After Q1, total EBITDA should start improving as demand recovers, picking up pace in the second and third quarters, primarily within the TiO2 segment, he said.

STRATEGIC REVIEW
In the meantime, Venator continues to work with advisors on a strategic review to improve its operations, strengthen is liquidity position and establish a sustainable capital structure, the CEO said.

“Cost reduction, operational optimisation and liquidity remain our near-term priorities,” he said.

Liquidity will improve on completion of the divestment of Venator’s iron oxide business, expected by the end of Q1, he said.

Venator, three months ended 31 December:

(in million $)	Q4 2022	Q4 2021	+/- %
Revenue	366	535	-31.6%
Costs of goods sold	411	491	-16.3%
Restructuring, impairment	121	8	1412.5%
Operating loss	-163	-17
Adjusted EBITDA	-57	40

Venator expects its 2022 audited financial statement to be issued with an unqualified audit opinion, “with explanatory language about our ability to continue as a going concern as a result of projected liquidity”, chief financial officer Kurt Ogden added.

The company did not take questions from analysts during the Q4 call.

Additional reporting by Heidi Finch, Graeme Paterson and Al Greenwood

Thumbnail shows white paint, which is made with TiO2. Image by Shutterstock.