John Spector: Okay. Appreciate that. And I wanted to ask on the cost side. So I mean, John, you mentioned earlier, I think, pretty clearly on the sequential improvements that you guys expect. But I guess if I look back a year ago, the operating cost impact, it was minus $100 million plus, and it was negative the year before. So just trying to take a little bit longer term can you recover any of that as we look over the next couple of years? Is that higher operating rates? Or is that related with some of the CapEx projects around the mine? Just helping frame how that layers in over the next couple of years would be helpful.
John Srivisal: Yes. And I think obviously the higher production rates, we will see, and as we mentioned, you should see that by the end of Q2. Additionally, I think the biggest increase that we’ve had over the past couple of years is general raw materials have been up from 2020 to 2022 we were up over $400 million if you look at constant volumes in constant currency. So we haven’t seen quite the lowering of cost there about 4% in 2023. We expect high single digits in 2024. So we do expect that those — even at those levels, it’s unsustainable costs. So we do expect to see that, but likely not in 2024.
Operator: Next question will be from Frank Mitsch at Fermium Research.
Frank Mitsch: Congrats on the beat and raise. I want to drill down a little bit more into the fixed cost absorption production level issues. You indicated that this was a negative of over $100 million in 2023. So, as we think about 2024 and given the start that you’re off to, is it fair to assume that absent those costs, all else equal EBITDA should be up over $100 million in 2024?
John Srivisal: Yes, that’s a fair statement.
John Romano: Suitable math.
Frank Mitsch: Okay. Fantastic. I much appreciate it because obviously the Street is not there. But I suspect, as I said, given the beat and raise, the Street will get there. And then on the pricing side, you indicated that you anticipate a slight uptick here in 2Q versus 1Q. Can you comment at all with respect to the geographic expectations on that?
John Romano: Yes, Frank. So in some of the areas where we saw the biggest decline in volumes, so over the last 6 quarters, Europe, Middle East, Africa, Latin America, Asia Pacific, that’s where we’re starting to see the market recover the strongest, and that’s where we’re starting to see some, I’d say, progress on pricing. There’s a lot of announcements out there on pricing. And I think it’s probably worth spending a little bit of time talking about. It takes a little bit of time for price. So any time the market rebounds, and that’s what we saw in the first quarter, you wouldn’t normally see that kind of a pickup in the first quarter. So again, what we saw was indicative of the startings that we’re recovering. It takes a little bit of time for pricing to actually roll through.
So when people make announcements, takes time for those announcements to get implemented. Typically, capacity utilization needs to get to a certain point before and inventories need to get to a certain place before pricing actually starts to move through. So we’re making progress. Again, Latin America, Asia Pacific, Europe, Middle East and Africa. And as we move into the second half of the year, we’ll start to make progress in other regions. But those are the areas where we’re starting to get some progress. And like I said, it typically takes a little bit of time to get that pricing traction once the volume comes along. It doesn’t happen overnight. And we got a lot of questions about why our price was down in the first quarter. That wasn’t down.
1% was in line with what we thought, and that’s largely just mix. So we have a good feel for where we are on the second quarter because we’ve already negotiated those increases. That’s why we made that reference to a slight increase. But as we get into the second half and we kind of evaluate how the market is continuing to evolve, we’ll continue to make those progress on pricing.
Operator: Next question will be from Mike Leithead at Barclays.
Mike Leithead: I just have one question maybe for John or CFO John, on inventory. Dollar inventory decreased maybe 1% sequentially and your sales volumes improved something like 20% sequentially. And you mentioned you recently burned through a lot of the high-cost inventory. So I would have thought inventories would have declined more. So can you help explain that?
John Srivisal: Yes. I mean that’s a great question there. Obviously we did see inventory lower, which normal seasonality in this quarter would be a build of it. So you have to take that in account versus looking from overall ending balance to ending balance. But you also have to take a look at — we are a vertically integrated supplier. So it’s not just pigment inventory, it’s not just zircon inventory, which obviously were very robust. It’s also the mining side of it as well. Secondly, you did mention some of the costs have come down, but we still carry pretty significant cost on our books relating to the $400 million increase over the past couple of years. So I think that’s what’s driving the change. But ultimately, we do expect that we will recover a good portion of that $400 million build over time.
Frankly, it’s when input costs do go down, we will see that. Additionally, once more robust commercial in the second half of the year, just like we saw in 2021, we will see that inventory turn into cash. If you look at ’21 as a reference, we did generate $468 million of free cash flow. So the earnings potential, cash flow potential is there in the business.
John Romano: And specifically on the inventory that we said we drew down, that was on TiO2. I mean, we’re ramping up Atlas now. So I think John’s point is it’s — we don’t only have TiO2 inventory, we’ve got pig iron inventory, we’ve got ilmenite inventory, we’ve got slag inventory, natural rutile, so it’s a whole mixture of things. And I think the key is, as to John’s point, as our costs go down, the cost of that inventory goes down. So it’s not — there’s a days element of inventory and then there’s also a value of that inventory, and we expect that to continue to go down throughout the rest of the year.
John Srivisal: And the other thing to note is, obviously we do have a contract with Jazan. So we are buying feedstock and that is building our inventory of feedstock.
Operator: Next question will be from Hassan Ahmed at Alembic Global.
