Venator Materials PLC Ordinary Shares

Good morning and welcome to the Venetian Second Quarter 2021 Earnings Call. All participants will be in listen-only mode. Should you need assistance, please signal a conference specialist by pressing the star key followed by zero. After today's presentation, there will be an opportunity to ask questions. To ask a question, you may press star then one on your telephone keypad. To withdraw your question, please press star then two. Please note this event is being recorded. I would like to turn the conference over to Kate Robertson. Please go ahead.

Thank you, Francesca, and good morning, everyone. I am Kate Robertson, Investor Relations for Venator Materials. Welcome to Venator's second quarter 2021 earnings call. Joining us on the call today are Simon Turner, President and CEO, and Kurt Ogden, Executive Vice President and CFO. This morning, we released our earnings for the second quarter 2021 by a press release and posted the release and accompanying slides to our website at www.venatorcorp.com. During this call, we may make statements about our projections or expectations for the future. All such statements are forward-looking and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our Form 10K for the year ended December 31st, 2020, our Form 10Q for the first quarter 2021, our Form 6K for the second quarter 2021, and our other filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. We will also refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA, adjusted net income, free cash flow, and net debt. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website at www.benatarco.com. It is now my pleasure to turn the call over to Simon.

Thanks, Kate, and good morning, everyone. Welcome to our second quarter 2021 earnings call. Beginning on slide three, the economic environment has improved significantly since this time last year, which was significantly impacted by the COVID-19 pandemic. We saw a strong demand environment across our business in the second quarter of 2021. Venator delivered 43 million of adjusted EBITDA in the second quarter compared to 49 million in the first quarter of 2021 and 37 million in the second quarter of 2020. Turning to slide four and our titanium dioxide segment. EBITDA from our titanium dioxide segment was 36 million in the second quarter of 2021 compared to 35 million in the prior year quarter and 40 million in the first quarter of 2021. TIO2 fundamentals are very encouraging. Underlying demand continues to be strong across all regions and sectors with limited supply of product in the marketplace and stabilization of Chinese exports. Rising raw material, energy, and shipping costs, along with positive industry fundamentals, have created a favorable environment for quarterly selling price increases. Recovery for our specialty TO2 products, mainly in automotive and textile sectors, is underway, albeit at a slower pace than our less differentiated products. We entered the second quarter with historically low inventory levels and sales volumes constrained by production. During the quarter, as part of a routine inspection, we became aware of the need to carry out some essential repairs on our Greetham UK manufacturing facility. This maintenance necessitated a partial closure of the facility for several weeks. The maintenance was completed mid-July, and the facility is now fully operational. However, lost production due to this outage impacted our sales in the second and first part of the third quarter. We also performed meaningful planned maintenance at our joint venture facility in Louisiana. Sales volumes declined 3% in the second quarter compared to the first quarter, and improved 13% year-on-year due to pandemic recovery. Second quarter total TIO2 average selling prices increased 4% sequentially in local currency. Average selling prices for our functional TIO2 products increased 5% sequentially with some adverse mix in our specialty product portfolio. We are pleased with the price capture thus far, and these price increases are enabling us to offset raw material inflation and better position the business for the second half of the year. Turning to the outlook for TO2, we expect to see robust demand for our functional TO2 products across all regions and sectors, and continued high demand for architectural coatings and plastics with increasing demand for industrial coating applications. We expect sales volume in the third quarter to be seasonally lower, which includes maintenance that extended into July. Energy and shipping costs are rising, and the feedstock market remains tight. Therefore, we expect to see some inflationary pressure on TO2 costs for the remainder of the year. We recently announced price increase in all regions for the third quarter to manage our margins as we onboard raw material, energy, and shipping costs inflation. Turning to slide five and performance additives. During the second quarter, we successfully completed the sale of the water treatment business to Feralco for approximately 6 million. All performance additives comparisons we make on this call exclude the water treatment business. Our performance additive segment continues to deliver strong results. In the second quarter, adjusted EBITDA totaled 18 million, which is a year-on-year improvement of 5 million, and a $2 million improvement compared to the same period in 2019. Strong demand continues for our functional additives products into automotive, electronics, and coatings applications. Color pigments demand was strong into coatings and construction end markets in all regions, and timber treatment demand has started to normalize following high DIY demand. We expect these favorable demand trends for functional additives and color pigments to continue in the near term with some seasonality. We expect a softer demand environment for our timber treatment products. Compared to the first quarter of 2021, sales volumes increased 9% and average selling prices increased 2%, which was partially offset by increased energy, raw materials, shipping, and logistics costs. In the near term, we expect to see these costs remaining high and expect to recover margin through increased selling prices. Turning to slide six and our cost programs. Our 2020 business improvement program is delivering benefits in line with our expectations. In the second quarter of 2021, we delivered incremental savings of $8 million from our 2020 Business Improvement Program and $7 million of temporary COVID savings from the second quarter of 2020 reversed, giving a net $1 million benefit in the quarter. In the third quarter, the reversal of one-time COVID-19 savings will be higher than the third quarter benefits from our 2020 Business Improvement Program. Estimated future cash restructuring costs remain within the range of 40 to 45 million. I will now pass the call over to Kurt for him to comment on our financials.

Thanks, Simon. Let's turn to slide seven in our adjusted EBITDA bridges. Second quarter total adjusted EBITDA increased 6 million compared to the prior year period. The increase was primarily attributable to an improvement in our average selling prices in both of our segments. The increase in total sales volumes was 13%, as we saw a demand recovery from the prior year period, which was impacted by the COVID-19 pandemic. Cost of goods sold increased due to higher energy, raw material, and shipping costs, and the unfavorable impact of maintenance downtime at certain of our TIO2 facilities. We estimate the EBITDA impact associated with TIO2 maintenance downtime in the second quarter was approximately 10 million from the combination of lower fixed cost absorption, lost sales, and increased maintenance costs. These costs were partially offset by benefits from our 2020 Business Improvement Program. Compared to the first quarter, total adjusted EBITDA decreased by 6 million. Unfortunately, the benefits from our TO2 selling price increase initiatives and business improvement programs were more than offset by the increased maintenance costs just mentioned and higher costs from the reversal of 2020 temporary COVID savings. Turning to slide eight and our cash flow considerations. Liquidity at the end of the quarter totaled $421 million, comprised of $182 million in cash and $239 available under our asset-based lending facility. As a reminder, we do not have any significant debt maturities until 2024. We delivered positive free cash flow in the second quarter of $4 million. We continue to exercise extreme discipline as it relates to our capital expenditures and other cash uses. Sale proceeds from the water treatment business are included within the pension and other line item. Guidance for our 2021 cash uses remains unchanged. We expect total capital expenditures to be in the range of $75 to $85 million. Approximately $75 million relates to maintenance plus additional modest cap access we invest in some discretionary projects that support future growth. Cash interest is expected to be approximately $60 million, and we expect working capital to be a modest use of cash in 2021, consistent with price inflation. We are currently engaged in a tri-annual valuation for our largest pension plan, which will determine the contributions for the remainder of the year. We are optimistic that the outcome of the valuation will reduce the contributions required in 2021 and beyond and expect to have discussions complete in September. With that, I'll turn the call back to Simon for some concluding remarks. Thanks, Kev.

We remain encouraged by the continued improvement in TIO2 industry fundamentals, despite our second quarter results being dampened by approximately 10 million of essential maintenance activity. Demand has been strong in most major applications, inventories remain low, Chinese exports into Europe have stabilized, and we are capturing solid selling price increases from our price increase initiatives. We continue to successfully navigate freight, ore, and other supply chain challenges. Looking to the third quarter, demand continues to be robust for our products, and our order book is healthy, though we expect to see some seasonality. Maintenance activities initiated in the second quarter extended into July, and we estimate this will negatively impact third quarter EBITDA by up to 5 million. We are focusing on increasing our production levels while implementing initiatives to maximize utilization rates of our current TO2 capacity. We expect to reach pre-pandemic production levels in the second half of the year. Our customers continue to experience the benefits of our customer-tailored approach, and our selling price initiatives will bring further price improvement across all regions. Our performance additives segment continues to perform well, particularly in coatings, plastics, and construction, and we see additional opportunities for long-term EBITDA improvements. Our 2020 business improvement program is making good progress, and we remain on track to deliver the full benefits by the end of 2022. As a reminder, we expect this program to further strengthen our cost structure and deliver $55 million of annual savings. Free cash flow continues to receive maximum focus and attention, and we are addressing further steps to reduce cash uses, including pension funding and the optimization of our exit from our TO2 site in Paris. In summary, our strategy remains on track. We are generating savings across the business from our 2020 improvement program, reducing our cash uses and optimizing our product portfolio. Although we expect to continue to see supply chain challenges for the remainder of the year, we feel confident in our ability to manage them. We are encouraged by the strong demand environment and expect this to continue into 2022 with limited opportunity to rebuild inventories as the cycle extends. With that, we'd like to thank you for your interest in Beneteau, and we'll now like to open the call for questions, operators.

We will now begin the question and answer session. To ask a question, you may press 10001 on the telephone keypad. To withdraw your question, please press 10002. The first question comes from Vincent Andrews with Morgan Stanley. Please go ahead.

Hi, this is Steve Haynes on for Vincent. I just wanted to ask a quick question on your volume expectations for 2022 and given that inventories in the channel might be a little bit tight. So how should we be thinking about volumes in 2022?

Yeah, I mean, look, I think we said in our prepared remarks, we expect to see this pattern of strong demand continue through 2021, the balance of 2021. Along the way, we expect it to be quite difficult to see inventories rebuilt. We don't see inventory in our customer channels to any degree. We know there are several supply chain challenges the industry faces. Certainly we face around freight, logistics, feedstocks and so forth. We also can tell you that our customers are extremely motivated around supply and getting their necessary allocation and quotient of products from us because they themselves have experienced many force majeure or interruption type events during this sort of strong recovery. So that is the back off into 2022. You know, we're not prepared to put a number on 2022 except to say we expect to see the cycle extend and continue. Clearly, it is our goal to increase our available capacity to supply that market. And as we sit here today, we would see our year-over-year 2022 over 2021 production capability extending by sort of mid-single digits. That should give you a sort of view of what we've seen as the way we're setting ourselves up for the rest of the year and beyond.

And just to clarify, that's up mid-single digits on a percentage basis? Yeah.

Okay. Thank you very much.

The next question is from Josh Spector with UBS. Please go ahead.

Hey, guys. Thanks for taking my question. Simon, I was wondering if you could square away one of the comments that you made about the second half. I mean, I think second quarter volumes, you know, still below 2019 levels by a good margin. You commented on sequential declines with normal seasonality, but then you made the comment of, you know, getting flat to pre-pandemic levels. How do you get there? with those different moving pieces.

Yeah, I mean, look, I think the way we said on our prior call, and we're saying again now, that we expect the second half to be, you know, when we're running the assets in the second half of this year, they will be at

the pre-pandemic 2019 level.

So that's the sort of rate in the second half compared to the sort of average rate we saw in 2019. So I think that's pretty clear as to how we get to that statement. Of course, you know, there's some sort of moving parts in these volumes. If you look at our numbers, you know, and adjust for the sort of lost sales and outage we had in the second quarter, which we called out, then we think our sort of sequential growth would be performer in line with some others. Of course, you have to bear in mind that the second quarter of 2020, we didn't see as large a dip in our sales volumes in the second quarter last year over the first quarter as some others. So we see a different recovery profile year on year as well. So, you know, I think that the, you know, suffice to say that we will have, we see the second half demand being strong. You should be able to figure out what our sort of production run rate from what we said at pre-COVID levels. And we've sort of tried to give a view on in the earlier question there about how we see 2022 and the cycle extending along that sort of trajectory.

Okay, thanks. And I guess. How much are you planning on raw material logistic costs to increase sequentially? I think you called out higher costs into the second half, and you made the comment that you expect to recover that with price. Do you have visibility on the timing on when you see that price-cost gap closing?

Yeah, look, I mean, again, you've got a number of moving parts, but if we focus on our sort of direct cost margins, You know, clearly we have had this EBITDA margin issue in the second quarter through the maintenance activities and FCA. But, you know, we outran the sort of raw material increases. We see further increases in the second half of this year. It's fair to say I think that, you know, those increases are clearer over the next quarter than they are over the full second half. So we're not prepared to sort of put a number on it, although clearly there will be a significant 2021 increase. raw material headwind, does vary by category. And what I think we are feeling confident that, as we've said through the year, that we'd expect to see price increases, you know, as we step through 2021. So, you know, as we see those raw materials unfold, however they play out in the last part of the year, we would expect to, you know, be looking to recover that in our margin.

Okay, thank you.

The next question is from David Begleiter with Deutsche Bank. Please go ahead.

Good morning. Thanks for taking the question. This is Katherine Griffin for David. So first, just wanted to get your thoughts, Simon, on feedstock or costs. I know you spoke a little bit about your expectations for offsetting raw material increases with price. I'm just curious if you could kind of speak to the dynamics related to recent supply disruptions with some kind of major ore suppliers and sort of how tight things are in terms of that feedstock availability and kind of how that could play out through the rest of the year.

Yeah, I'm happy to answer the question. We said a number of times that our range of ore feedstocks, and I'm going to start with with the feedstock piece rather than other raw materials. But on the ore feedstocks, we buy a wide range of products across our sulphate and chloride technology platform. That's an important point because we saw ilmenites rise at the back end of last year. We have seen some further pressures through this year as the Chinese block had really seen the earlier increases. I don't think there's anything really meaningful to add on the rutiles. I think it's very clear to people, observers, you know, what these supply points are in Africa and South Africa, which have got various challenges, some nearer term, some lasting a little bit longer. So I don't plan to trail through what each of them are. I think that's pretty well known by observers. Suffice to say that in the case of Richards Bay, which clearly is a very meaningful, you high-grade chloride feedstock supply points for the industry at least, we have a relatively small exposure to Richards Bay. And we have concluded that we will be able to navigate our way through the current and ongoing supply reductions out of that supply point in South Africa. So I'm not saying it's not an easy to manage the supply chain challenge, but by looking at what we buy into each of our facilities, looking at our network, we are able to withstand that disruption and manage our way through it. So that's a very important point. I don't think we're seeing anything from the high-grade feedstock producers vis-a-vis request for price that we didn't expect, and we continue to negotiate with them and in some cases we have outcomes in others we still have you know ongoing discussions and that and that will continue so I think in the feedstock block you know I would add that I think you know obviously there's be some very difficult and tragic in many way socio-economic factors that play down in South Africa you know a place where I lived for many years and my wife's from South Africa my son was born in South Africa so it's very disturbing to see what's been happening continuing to happen in parts of South Africa, particularly in those parts of Northern KZN where some of these facilities are located. So it has been challenging getting information and making an assessment of how this will play out, but our assessment is there will continue to be challenges in the coming months. We're planning for challenges in the coming months, but we will be able to get through it.

Great. Thanks. Thanks for that. And just secondly, if I could touch on it, I appreciate kind of the color on second half in terms of production getting back to pre pre time at pre excuse me, pre pandemic levels. But I'm curious if you could kind of talk to your expectations for pricing in for ti to pricing in in q4. And perhaps the ability to kind of if there's enough sort of positive market fundamentals and Seed stop or costs remain elevated, raw material costs remain elevated. Is there a chance that you could see more supportive pricing in Q4 maybe relative to prior years? I think just any kind of color on your expectations around that would be helpful.

Yeah, to address the pricing point, we said after the first quarter, it's always an unwelcome discussion for our customers talking about price, of course. We saw a higher price capture in the second quarter than the first quarter. We believe we're on course for a very good price capture in all of our major markets and regions in the third quarter as well. We're using a whole range of tailored approaches with customers which recognize their specific circumstances. We see they themselves as managing inflationary pressures from a range of suppliers and passing that through to their own customers. So that's the sort of backdrop that we've seen in the first half, and we are very encouraged by what we were on course for in the third quarter as well. You know, as you're aware, the fourth quarter historically has not always been a quarter which sees the most price increases because it's the sort of seasonal low and the stock bill generally. You know, I have to say on this occasion, we're always seeing an inflation, always seeing on tightness of supply in the third quarter. You know, I think the prospects of further price increases in the fourth quarter are very good.

Great. Thanks so much.

The next question is from Matthew Dale with Bank of America. Please go ahead.

Good morning. You know, based on benchmark moves in your exposures, it seems like I would have guessed TIO2 price for your regions would have been up over like 10% year over year. I mean, I understand no one ever captures the full magnitude of market moves, but 3% growth in price year over year kind of seems a little pedestrian on a, you know, capture basis. So I'm just kind of wondering what's driving the differential here.

Yeah, I mean, look, if you, you know, the functional, our functional products have grew at a 5% price increase sequentially, you know, and of course we'd had price increases in two QE, in one Q before that we expect to, you know, have further price increases the remaining quarters. This industry, as you may be aware, did go through a phase where there were some very large price increases passed through in a short space of time. Law of unintended consequences and all that back in 2011-12 meant that there had been some demand destruction, substitutory effects, and a general sort of reconciliation with our customers and unhappiness about how we managed our contracts between ourselves. I think that's a fair to say. I certainly speak for our own company in that regard. And, you know, subsequent to that, you know, we decided and chose consciously to embark upon, you know, a far more disparate range of contracts with our customers that recognize, amongst other things, you know, their need to manage their pass-through, but recognize, importantly, from our perspective, that when we made these products, they were going to end up at the customers and not just seen as a fungible stockpile. So there's been quite a shift. I hear what you're saying, that it may appear in one quarter as a relatively low amount. But if you look at what's been happening in successive price increases, and if you look at the way that this has helped provide some stabilization investment planning into our business, then we think that, you know, the pros outweigh the sort of cons if you go for sort of like a short-term sprint.

So conceivably, you know, this is not maybe what we're thinking, but, you know, if Chinese prices or Chinese product moves into Europe more appreciably and the contract prices move lower, you wouldn't see the give-up trend. to the extent that the market would as well. You would keep a more muted reaction and down tapes. Is that correct?

Yeah, I mean, it's an interesting example you've picked up on here because, you know, if you think about how the year-on-year price increases will look, N21 over N20, we don't have that number in yet, right? But, you know, it's going to be a pretty significant year-over-year dollars-per-ton increase, you know, through the year of a TO2. And, you know, if you look at what's going on in China with the onboarding of some of these inflationary costs, you know, you can see why, you know, add that plus the freight logistics issue into Europe and, you know, for a Chinese producer to, you know, make the same as they were making, they are having to, you know, they would need a price several hundred, many hundreds of dollars a tonne. above prior, even higher than has been achieved thus far. So that's why we're not seeing that wholesale export and arrival of Chinese products into Europe. And the ones that do arrive, Chinese producers are agitating for pretty high prices to justify the sort of net backs against other supply points. So that's another reason that we want to make sure we adopt this sort of thoughtful approach to our pricing.

Okay, and I guess just one more quick one. I think you had mentioned that volumes would be down seasonally in 3Q. If I heard that correct, and that's the case, why is that? I mean, if the inventory in the channel is pretty light, wouldn't your end market customers be using that as a time to rebuild, or are you rebuilding your own inventories during then? Or did I just totally miss that? I'll leave it there.

Yeah, I mean, I don't see us rebuilding our own inventories in 3Q. Let's be very clear about that. We are going to be you know, pedal to the metal, and we are going to be running flat out, fully sold during that period. And we are obviously going to optimize and maximize, you know, our production capability. So that's very clear. Historically, the third quarter... has shown a seasonal decline over the second quarter. Now, you know, there is a range in that course. And some years, you know, we've seen it as being relatively small, two to three percent. In other years, we've seen it, you know, as high as double digit. You know, this year, our assessment, allowing for the factors that you describe of supply chain and the like, we think it will be towards the lower end of the decline, the seasonal decline. But nevertheless, there will be a decline.

And Matt, just to underscore that point, I think what you're seeing here is that we have drawn down our finished goods inventory levels so low that we are limited, our sales volumes are limited by what we're able to produce. And so We will sell whatever we can produce in the third quarter, but we don't have excess inventory that we can put into the market right now. And that's what leads to that seasonal impact. In the third quarter, certainly the market demand is there.

Thank you.

The next question is from Hassan Ahmed with Olympic Global. Please go ahead.

Morning, Simon and Kurt. Morning, Hassan. Morning. You know, question around cost curves. You know, obviously, you guys highlighted some of the inflationary moves we've seen on the ore side of it, you know, and if my understanding is correct, I mean, we obviously saw low-grade ore rising fairly rapidly, you know, over the last couple of months. And it seems now with some of the supply constraints out there that high-grade ore is playing catch-up. But alongside this, I guess, one of the other dynamics that's in play is, you know, for the TiO2 industry overall, that we are seeing inflationary moves in the price of chlorine. So my question to you is that as you sort of sit there and think through some of these inflationary moves, be it low-grade or high-grade or now the availability of chlorine is a bit of an issue. How are you thinking about the relative positioning of sulfate-based TiO2 versus chloride-based TiO2 on the cost curves in the near to medium term? Will one be majorly advantaged cost-wise over the other?

Yeah, I think the way to think about that, Hasan, is to divide the answer out into two parts. The first part is as it relates to the Chinese block. There's no doubt in my mind over the past 24 months, probably plus, the Chinese capacity relative to the non-Chinese capacity has suffered more disadvantage in inflation than their Western counterparts. Now, I'm not, you know, there's a very general comment, not, you know, going to put a number on that, but, you know, we are seeing, I suspect, you know, shifts of, you know, hundreds of dollars a ton, multiple hundreds of dollars a ton in some cases. And, you know, while, you know, the Chinese capacity has had the benefit of lower indirect costs. Certainly on the raw materials, energy, and freight, it's really probably at the far end of the curve as a block. And that's an important point. I think, of course, within the Chinese block, there'll be some higher and some lower. But we should stress this greatly that if you're a Chinese producer, you've seen the highest rises and earliest rises in ilmenides. You've seen world-scale energy prices. If you're producing chloride, you're largely bringing in ever-increasing high-grade chloride feedstocks. And you're seeing all other sorts of inflationary pressures, plus all the freight, this vacation logistics. So, you know, it really has been a big loading onto the direct cost structure. So I think that part of the block has gone backwards. As it relates to the western part of the block, of course, it depends who you are and where you are. But there will be some movements in plants. and swapping in different places in the curve, no question. It remains to be seen from our perspective just what the chlorine inflation really finally looks like, I have to tell you. I don't think we would claim to have the full assessment of that yet. It's something we're turning our attention to. We said the past six months ago that we expected to get a resumption of the patterns in all feedstocks, whereby high-grade feedstocks, you know, chloride materials started to come back against low-grade sulfate and overtake them. We're starting to see that dynamic play out. So, there will be some swapping, but frankly, Hasan, I'm not sure, you know, we're talking about multiple hundreds of dollars a ton unless the chlorine thing really turns into something pretty large, you know. And in that time, of course, there's been some acid increases. So, you know, some of the sulfate process has seen some of that. So, I think I see a swapping between the Western plants on their own unique set of circumstances. But the one very clear comment to me, and we're seeing this in the price capture dynamic and volumes and exports and the like, is how the Chinese have sort of gone backwards in the curve as a block.

Understood. Very helpful. And as a follow-up question around volumes... You know, historically, we had heard about the Chinese getting fairly aggressive in terms of gaining market share in Europe. And then, you know, through sort of certain constraints that they themselves were having, you know, delivery, the reliability of sort of supply became a bit of an issue. And it seemed that particularly in Europe, the Chinese were losing share, right? Now, as I sit there and hear... the volume guidance from the Western majors, there seems to be a disparity between, you know, the Q3 guidance, sequential guidance, that the majors are giving versus one of the largest players in the industry, right? So my question to you is, you know, what are you guys seeing in terms of trade flows and market share shifts? Is that meaningful and will that continue?

Yeah, I mean, look, obviously, we only speak for ourselves and, you know, not willing to sort of engage in specific other competitors and the like, Hassan. But, you know, from our standpoint, it's very clear we're not happy in the second quarter to have to forego sales in what is the seasonal peak period. You know, we did the right thing. We do it again with the maintenance decisions we had to take. But the reality is, you know, the market was tight and some benefited more from that than others. I mean, I think that's clear in some of the patterns in the second quarter. But as we look forward, you know, we don't see the Chinese block demand in China being, you know, having gone the trail gone cold. Of course, we've seen some sort of normalization of demand, but there's still pretty decent demand out there. So we expect that to, you know, suck up a whole bunch of Chinese product. We've seen a sort of like a situation to confirm what you said, Chinese exports into Europe. First off, there was this issue around reliability, availability and cost. And now with subsequent inflations, you know, Chinese producers wishing to sell, they're really going to have to demand pretty high prices, you know, on their shipping, very expensive into Europe to be able to justify the net back. So I think that's going to continue to impact the trade. China will remain pretty strong. They will continue to export mainly into the Asian region. We won't see a big incursion into Europe. It may even drop back a little bit. But look, it's not going to disappear. It's not going to half. You know, we're talking about some reduction maybe. But we think that's highly manageable.

Very helpful, Simon. Thanks so much.

No problem, Asif.

Again, if you have a question, please press the one. The next question is from PJ . Please go ahead.

Hi, Simon. It's Eric Petrione for PJ. Hi, Eric. What kind of EBITDA uplift do you expect over the coming years with the recovery in specialty TI2 volumes to pre-pandemic levels?

Yeah, so look, I think if you take a look at the specialty part of our business, we said that the recovery is on a slower track. You know, we are seeing recovery, but we're not back to the pre-pandemic levels. And I don't think we're going to be back to pre-pandemic levels this year now by the look of things. So, you know, the earliest juncture I think we could expect to see that is during 2022, you know. I think we've said in the past that it's a very meaningful, significant and important part of our business, but it certainly isn't the largest part of our business. And when we're getting these types of price uplifts in the functional part of the business with the volumes, you can see pretty much that it's going to be that that drives the earnings uplifts. And then, so you really, the question is, you know, about the cycle rather than specialty. And, you know, we can see, continue to believe that we're in the earlier part of the cycle and we're going to see further development of that in next year. We're going to strengthen our earnings profile, you know, through into 2022 at the same time that we are working on our cash users. So that's how we're seeing our mental model, Eric. Is that helpful?

Okay. And secondly, TIO2 margins, you know, declined 100 basis points sequentially. How should we think about that in second half given, you know, seasonality that you talked about, you know, the resumption of production at Greetham, higher raw material costs? Could you just break that out in terms of, you know, do you see flat pretty stable or, you know, down slightly or how should we look at that?

Well, I'd expect to see 3Q higher than the first quarter based on the fact that, you know, we're going to have you know, further price increases and we're going to have, you know, we're not going to have the FTA effect, which sort of temporarily took us down in the second quarter. So the way I would think about it is third quarter being, you know, opened up against the first quarter. And then, you know, fourth quarter, obviously, well, that's a little bit further out. But as I said earlier in my remarks and answers, you know, we still feel strongly that there's likely to be price increases in the fourth quarter too. So, you know, hopefully that can help you there.

Great, thank you.

Pleasure.

This concludes our question and answer session. I would like to turn the conference back over to Simon Turner for any closing remarks.

Well, thank you, everyone, for joining the call. Thank you for your continued interest in Venator, and we look forward to speaking to as many of you as we can throughout the quarter at the upcoming conferences. So any questions or clarifications, please feel free to reach out to Kate in the first instance with any points that you want clarification on. Thank you very much.

The conference is now concluding. Thank you for attending today's presentation. You may now disconnect.