Turner Hinrichs: Supply and demand balance.
John Romano: Yes. So look, TiO2 is a global market. So when we think about supply and demand, TiO2 flows pretty freely in a normal market. I would say, over the course of the last probably 8 months considering everything that’s going on in the geopolitical environment it’s been a little bit difficult — more difficult to ship material around and that’s why I made that reference, our ability to capture maybe the front end of this recovery has been a little bit better poised for us because of our global footprint and having our assets closer to our customers. But Europe, Latin America, Middle East, over the last 6 quarters was down more significantly. We’re seeing that rebound a bit more. China on the demand side obviously has been a big part of the growth over the course of the last 10 years with regards to capacity.
The exports kind of identify that. But as far as supply and demand goes globally, there’s puts and takes in those regions. But from a demand side, we’re starting to see inputs of growth with the exception, as I mentioned, China is still a bit muted. But we’re seeing growth everywhere as far as our demand goes. Those areas that were further impacted over the last 6 quarters, we’re seeing stronger recovery from a lower base at this stage. And then in North America, as I mentioned, we’re starting to see, in the second quarter and in the first quarter, but more predominantly in the second quarter, what we would normally see as a normal coating season. So demand in North America is starting to impact us as well.
Turner Hinrichs: Great. Great. Appreciate all the additional color. Just to confirm, it sounds like there’s been some improvement of local-for-local selling this year, perhaps due to higher freight trends. And if you don’t mind providing as well just an update of how global trade flows have been so far this quarter, that would also be of interest.
John Romano: Global trade, well, look, there’s been an impact on global trade flows, but — go ahead.
Turner Hinrichs: Yes. Any updates on what you’re seeing out of like Chinese exports since like high March figures or imports and exports in other regions just considering my additional sort of question on local-for-local selling?
John Romano: Yes. So clearly, there has been a big bump in March on exports out of China. And again, that’s exports. Those don’t actually align with the imports going into Europe. So it’s my opinion that some of that is probably prepositioned in bonded warehouses in anticipation for what might be happening on dumping. There has been an impact on company’s ability to move material and the time to move material from one country to another has been impacted, but based on what’s going on in the Red Sea and the Panama Canal. So again, our global footprint allows us to take advantage of that because we have inventory positioned because of the location of our assets allows us to respond quicker to ups and downs in demand. And not being impacted as much. I’m not saying it’s no impact to us because we do ship globally. But the impacts of the Red Sea and the Panama Canal probably have less impact to us than they do the balance of our competitors.
Operator: [Operator Instructions] And your next question will be from Roger Spitz at Bank of America.
Roger Spitz: It sounds like a number of the EBITDA and cash flow questions have a large component of where is your working capital from the excess cost and inventory from 2023? And just to be clear, am I correct in thinking that when you say 2024 is going to be working capital inflow and you’re also expecting higher volumes and prices, that that inflow is being driven by working down the high cost inventory, the high — excess costs from running 2023 production slower, so you have the unabsorbed fixed costs in that inventory. And then related to that, sort of how much is in there? So December ’23 in round numbers, inventory was 1,425, 2022 was 1,275, December ’21 was 1,050. And then in December ’19 and December ’20 was both 1,125. Should we think about the 1,125 to kind of be like the sort of the normalized level once you work through this excess cost in your inventory through? Or how should we think about that?
John Romano: Let me just make one comment. In 2021, you’ve got to think about where we were on inventory from a days perspective, so forget about the value, we had inventory that was much lower than where we’re comfortable doing it, and where we’re normally comfortably operating because that was when things peaked. We ran through 100,000 tons of zircon inventory over and above what we produced. We got our inventory at our locations on the TiO2 side, way below where we normally would be. So there’s 2 things, and I’ll let John answer this. One is kind of where — what does that mean with regards to a normalized inventory as far as volume and then normalized based on value.
John Srivisal: Yes. And so that’s exactly right. So obviously in 2021 we had sold pretty much everything we could produce at that point. So we were at low values of inventory. So I wouldn’t take 2021 as a normalized level. We did have to rebuild our inventory as well as our safety stock there. So starting from 2021, as I mentioned, we did see significant cost increase across the next couple of years, over $400 million. So you would expect to get a significant amount of that back, albeit in ’21 we actually did have some pretty favorable contracts. So again, I wouldn’t expect the full $400 million to come back. But you are right, Roger, in that Q1, we did see some of the benefit from lowering our inventory, the higher — selling the higher costs, replacing it with lower cost inventory.
But the other thing was, as we mentioned, we did have higher sales volume than we had expected. And so that did drive some of the — a good amount of the cash flow beat, if you will, put it that way, from an inventory perspective in Q1.
Roger Spitz: Got it. Of the 1,425 in inventory in 2023, which includes that excess inventory cost, is it the — an extra $100 million that will get out of cash flow as you run that through? Or looking at the historical numbers, it feels like there’s an extra $200 million of what I’m calling excess cash in your inventory. Which is the number we should focus on when we think about that?
