Ann: Keysbrook Project Financing Due Diligence co, page-16

re: Ann: Keysbrook Project Financing Due Dili... Tronox 21/2/13 Q4 2012 Earnings Call

Mineral sands

Although we continue to remain cautious about the financial performance in the first half, we believe that sales volumes are increasing. We are aware of the announcements by others in the pigment production business, and of course we don’t necessarily follow the price announcements of anyone else. We do our own analysis. We’re in the market with our own customers, and we
make our own decisions. But we are clearly aware of those announcements, and we view them as an encouraging sign about the prospects for the market. We continue to believe the market will strengthen from a financial point of view in the second half.

Again, we believe that sales volumes will increase in the first half. We believe that there will be a lag between when that reflects itself in financial performance as inventories are worked down and plant utilization rates work themselves back up. And therefore that while sales volumes will increase in the first half, the financial performance impacts of those sales volumes may not be felt for a lag, which will be a quarter or two. So we remain optimistic about the performance in the second half from a financial point of view.

While pigment market conditions were soft in the fourth quarter and as I said earlier, we expect financial performance improvements to lag sales volume increases as inventories are worked down, we see a number of reasons supporting our view that supply-and-demand conditions in the second half will become more favorable. Let me just summarize some of them.

We believe that the paint, coatings, and plastics customers that we serve have largely completed their destocking programs. We are encouraged by the pace of U.S. construction starts and permits as well as auto sales data. The first quarter is normally a seasonally low quarter, and that is compounded in the Asia-Pacific region by the Chinese New Year, which is ending. The fourth
quarter was also a seasonally low quarter, and so we think that our sequential sales improvement is indicative of a more positive future going forward.
The effect of rising feedstock prices on our competitors’ pricing policies, we think timing of the working down of the level of finished goods pigment inventory held by TiO2 producers will contribute to a recovery, stronger recovery as that inventory is worked down.

As a result, we expect tighter supply/demand conditions to be reflected going forward, as we’ve said, into the second half of 2013. And over the medium to long term, we continue to believe the industry’s supply/demand fundamentals will support an extended period of strength for the Mineral
Sands and Pigment value chain, despite the current soft period.