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Kronos Worldwide's CEO Discusses Q2 2012 Results - Earnings Call Transcript

We reduced our production volumes during the second quarter to approximately 86% of practical capacity utilization in order to align our production and inventory levels with current and anticipated near-term demand levels for our TiO2 products. We currently expect to operate our facilities at approximately 90% to 95% for all of 2012.

While aggregate global demand for TiO2 products have decreased in line with the recent deterioration of global economic conditions, markets in North America and certain export markets continued to show relative strength. We expect demand for TiO2 products will increase as economic conditions improve in the various regions of the world, with chronic shortage conditions returning upon aggregate global economic activity equivalent to approximately the 2011 levels. In the near term, we expect to see intermittent periods of availability and shortage of TiO2 products.

Prior to the recent slowdown in TiO2 demand, the shortage of ore feedstock existed, which in turn was an additional constraint for any significant new TiO2 production capacity. With the extraordinarily large increases in the price of ore feedstocks during 2011 and 2012, we believe most ore producers have profitability levels that financially justify development and expansion of additional ore supply, several of which are currently underway and expected to become available beginning late this year.

With the continuing constraints, high capital cost, and extended time associated with adding significant new TiO2 production capacity, especially for the premium grades of TiO2 products produced through the chloride process, we believe increased and sustained TiO2 profit margins will be necessary to financially justify major expansions of TiO2 capacity.

Given the long lead time involved with such expansions, we expect the shortage of TiO2 products that we’ll develop as economic conditions improve and demand levels increase will continue for a prolonged period.

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