Tronox (TROX) Q2 FY26 earnings call: guidance and Q&A

The Indian Trade Defense Agency has recommended reinstating duties on Chinese TiO2, with the proposed levels unchanged from the original duties imposed in May 2025. The recommendation now awaits approval from the Ministry of Finance, which has a 90-day window. While the impact is not expected to be immediate due to long lead times and potential inventory build-up by Chinese exporters, these measures are anticipated to re-establish a more level competitive environment and support structural changes in the Indian market over time^⏳. Tronox's volumes in India continued to grow from Q1 to Q2, despite increased Chinese exports, as customers prioritize reliable supply and long-term relationships.

Tronox is actively transitioning its pricing strategy from temporary surcharges to more sustainable base price improvements, reflecting current market conditions, higher input costs, and the value of reliable supply. In Q2, sequential pricing for both TiO2 and zircon improved by 5%, primarily driven by higher base pricing. Additional pricing actions were announced for Q3, with management noting that a significant portion of Q1's price increases (60-70%) were base pricing, with the balance from surcharges, which are now largely limited to sulfur-related costs in Brazil and Thann.

The company's cost improvement program remains on track to achieve the higher end of its $125 million to $175 million run rate target by the end of 2026. This program contributed to sales of lower-cost inventory in Q2 and helped offset headwinds. Significant planned outages, including a regulatory outage in Stallingborough and an extended SR kiln outage (over 50 days), were successfully completed in Q2, positioning the company for improved operating performance and higher operating rates in Q3. These outages resulted in a $10 million year-over-year production cost increase in Q2.

Tronox made strong progress on cash generation and working capital in Q2, delivering $60 million in positive free cash flow. Inventory was reduced by approximately $120 million from Q1 levels, reaching its lowest point since June 2024. Working capital was a source of $101 million, excluding restructuring payments. The company also enhanced its financial flexibility by replacing an expired short-term Emirates Revolver with a new $75 million long-term financing arrangement. These actions are part of a broader focus on strengthening liquidity and optimizing the capital structure.

Tronox is prudently advancing its rare earths strategy, with the definitive feasibility study for the cracking and leaching facility in Australia (to produce mixed rare earth carbonate, MREC) expected to conclude in Q3 2027. This facility is projected to have a capacity of 10,000 tons per year on a total rare earth oxide basis, with a startup anticipated in late 2029. Simultaneously, the company is evaluating the potential for a downstream rare earth refinery to produce separated rare earth oxides, with its Hamilton, Mississippi site being considered due to its advantages in low-cost power and reagents for solvent extraction.

The TiO2 market continues to experience structural shifts, with over 1 million tons of net capacity having come offline, despite some capacity returning in Europe. This has led to customers rebuilding inventories as pricing began to move up, and the industry is finding it challenging to meet demand on a short-term basis. Tronox is running its pigment plants unconstrained and is advancing plans to restart a furnace and bring production back online at its West Mine at Namakwa to support zircon inventory levels and meet customer demand, particularly as East OFS ramps to full production.