TROX

Trade and Competitive Environment

• China will remain a long-term competitor; the company views trade measures (including potential reinstatement of anti-dumping duties in India) as an opportunity to improve cost structures and compete fairly
• Net global capacity of over 1 million tons has been taken offline industry-wide despite resumption of some idled capacity in Europe, supporting current pricing momentum
• Most Chinese TiO2 producers are not currently able to fully pass through sharp sulfuric acid price increases, with 19-20 Chinese producers curtailing output to preserve cash amid weak domestic demand
• The company has closed its high-cost Balik and Fuzhou facilities as part of ongoing structural cost improvement efforts

Pricing and Inventory Dynamics

• After several years of declining pricing that led customers to run down inventory on expectations of further price drops, two consecutive quarters of pricing improvement have driven customer inventory rebuilding
• The company has drawn down finished goods inventory significantly over the past three quarters, and now sells all it produces with limited ability to accommodate additional orders
• The company is transitioning short-term sulfur-related surcharges into structural long-term price increases, which are more sticky for margins

Operational Updates

• Two extended unplanned outages in Q2 (SR kiln >50 days, Stallenborough outage extended to 29 days from 24 scheduled days) resulted in all idle costs being absorbed in Q2, creating a cost headwind that will reverse in Q3
• TiO2 facilities are currently running at unconstrained utilization rates; one additional line at the Yambu facility can be brought online later this year if demand requires it
• The West Mine for Zircon is being ramped up to rebuild depleted Zircon inventory to meet ongoing customer demand
• A definitive feasibility study for the rare earth project phase one is expected to be completed in Q3 2027; non-binding indications of ~$600 million in project financing have been secured from EFA and Ex-Im Bank, with additional funding sources still being evaluated

Market Share Strategy

• The company is actively pursuing long-term supply contracts with customers in markets impacted by anti-dumping measures (including India) to lock in stable market share, leveraging its reputation for reliable, predictable supply versus Chinese producers that move in and out of markets
• Anti-absorption investigations are being pursued in regions where anti-dumping duties are already in effect to address unfair pricing by producers that absorb duties to undercut market pricing

• Q3 EBITDA is expected to increase sequentially by ~$32 million, with pricing driving the majority of the improvement; seasonal volume declines for TiO2 and Zircon are expected, partially offset by cost benefits from the end of Q2 outages, ongoing sustainable cost reduction programs, and facility closures, with residual cost escalation from the Ukraine war acting as a partial headwind
• Fx is expected to remain a significant year-over-year headwind to earnings
• Inventory will continue to decline in the second half of 2026, though at a slower pace than the sharp draws seen in Q1 and Q2; no additional Zircon inventory build is expected, with limited seasonal TiO2 inventory build planned in Q4
• Free cash flow is expected to be significantly stronger in Q4 2026, driven by seasonal working capital improvements (higher accounts receivable collections) and the absence of the $50 million quarterly interest payments made in Q1 and Q2
• Annual capital expenditures for 2026 is guided at under $260 million, with capital expenditures expected to remain near this level for the next 5-8 years; approximately $150-$175 million of annual capex is for maintenance and safety, with the remainder allocated to discretionary and growth projects (excluding rare earth project capital beyond early-stage pre-development costs)

No explicit segment-level absolute financial results or revenue contribution percentages are provided in the available transcript. Management notes that Q2 volume declines for TiO2 and Zircon are primarily seasonal. Q2 gross profit was down year-over-year, impacted by unplanned outage costs absorbed entirely in the quarter and broad cost inflation, partially offset by two quarters of sequential price improvement. Zircon sales volumes in Q3 are expected to be moderately limited by low internal inventory following three quarters of high sales, with the West Mine being brought online to rebuild Zircon inventory later in the year. TiO2 volumes have grown sequentially quarter-over-quarter in the Indian market despite rising Chinese exports to the region.

• Ongoing cost escalation related to the Ukraine war, particularly for sulfur which is a key input, is a persistent operational and margin headwind
• Fx fluctuations create significant year-over-year earnings headwinds that must be offset by pricing and cost improvements
• Rising Chinese exports to key markets such as India and Europe, driven by weak domestic Chinese demand and Chinese producers' need for cash generation even at unprofitable prices, creates near-term pricing and market share pressure
• Potential pushback from the Indian Pain Association and uncertainty around the Indian Ministry of Finance's approval of the Trade Defense Agency's recommendation to reinstate anti-dumping duties creates uncertainty around the timing and magnitude of market share benefits in India
• The restart of idled high-cost capacity in Europe by competitors could add incremental supply to the market, creating potential pricing headwinds if demand does not improve as expected
• Zircon sales volumes in Q3 are expected to be moderately constrained by low internal inventory, with some shipments likely to slip to future quarters

Q: What share of Q2 price increases were from temporary surcharges versus structural price increases, and how is the transition progressing? / A: Currently, only a small portion of remaining price increases are tied to sulfur-related surcharges, with most already converted. In Q2, 60% to 70% of Q1's total price increase was permanent structural pricing, with the balance from surcharges. The company continues converting remaining surcharges to longer-term sticky pricing heading into Q3 alongside ongoing mid-single digit price increases.

Q: Could a weak upcoming demand season create pricing headwinds given new capacity ramps in Europe and persistent Chinese export supply? / A: The industry has still seen net capacity reduction of more than 1 million tons after all announced restarts. Current pricing improvement has occurred without any demand growth, so there is additional upside if demand recovers. Customers are rebuilding inventory after years of drawing down inventory on expectations of lower prices, and the company is already selling all it produces, leaving the market with little buffer for any demand upside. Management notes it cannot guarantee no pricing downside but is comfortable with the current trajectory.

Q: What are the main drivers of the expected sequential Q3 EBITDA improvement, and why is Zircon volume expected to be limited in Q3? / A: Pricing drives the large majority of the sequential Q3 EBITDA increase. Q2 had unplanned outage costs that will not repeat in Q3, and cost improvement programs and closed high-cost facilities add a slight net benefit, though ongoing war-related cost escalation remains a partial headwind. Zircon volume is limited because the company has drawn down its own Zircon inventory significantly over three quarters of high sales, so it has limited inventory available for shipment late in Q3, with some volume likely slipping to future quarters. Bringing the West Mine online will rebuild Zircon inventory later in the year.

Q: Why are Chinese exports to Europe and India up, and why is the company still gaining volume share in India despite this increase? / A: Chinese exports are up primarily because domestic Chinese demand is very weak, so producers need to export excess inventory to generate cash, even if sales are unprofitable. The recent sharp spike in sulfur prices has made Chinese chloride TiO2 exports more economically attractive than sulfate production. Much of the recent export increase is tied to front-loading shipments to India ahead of expected reinstatement of anti-dumping duties, which will not be applied retroactively. Even with rising Chinese exports, the company's Indian volumes have grown sequentially from Q1 to Q2, as customers are shifting to long-term contracts with the company for reliable supply ahead of the duty change.

Q: Why will Q4 free cash flow be much stronger than prior quarters, and what is the outlook for full-year 2026 inventory levels? / A: Q4 free cash flow is stronger primarily due to seasonal working capital improvements, specifically higher collections of accounts receivable. The company also made $50 million interest payments in both Q1 and Q2, with no large interest payments scheduled for Q4. Inventory will continue to decline in the second half of 2026, but at a much slower rate than the sharp draws in Q1 and Q2. Finished goods TiO2 inventory will continue to draw down in Q3, with only a small seasonal build in Q4, and no Zircon inventory build is expected.