Davy Research |
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Kenmare
(KMR ID)
Pigment producer forecasts Q2 EBITDA to be down 20% sequentially due to higher feedstock costs; slows production in uncertain market
02 July 2012
Caren Crowley
| Closing Price: | 40p | Rating: | Outperform | 30/06/09 |
FACTS: Tronox has provided an update on its Q2 performance. Tronox is a pigment producer with c.10% of the global market. It recently completed a transaction to acquire the mineral sands assets of Exxaro.
ANALYSIS: Tronox expects its Q2 adjusted EBITDA to be some 20% lower than the corresponding number of $151m in Q1 2012. The primary factor behind the decrease is the rising cost of titanium dioxide feedstocks in Q2. Tronox's Q2 pigment sales volumes were flat in the quarter while its realised pigment price was modestly higher than in Q1 2012.
To control inventory levels and in response to uncertain demand, Tronox has slowed production at its pigment plants. It expects its 2012 selling price to be on average 15% above 2011 levels and has announced a share re-purchase programme that could involve purchases of up to $150m in the shorter term.
DAVY VIEW: The higher cost of titanium dioxide feedstocks in Q2 is of little surprise and was well signalled by feedstock and pigment producers alike at the end of 2011. The uncertain demand outlook is also not a surprise given the weak macroeconomic backdrop. We understand that where pigment producers are taking capacity out of the market, it is at their higher-cost facilities. Lower-cost pigment manufacturing facilities predominantly use ilmenite as a feedstock and ilmenite is Kenmare's key product.