Q4 2023 Tronox Holdings PLC Earnings Call
Participants
Jennifer Guenther; Chief Sustainability Officer and Head of IR; Tronox Holdings PLC
John Romano; Co-Chief Executive Officer, Director; Tronox Holdings PLC
Jean-Francois Turgeon; Co-Chief Executive Officer, Director; Tronox Holdings PLC
John McNulty; Analyst; BMO Capital Markets
David Begleiter; Analyst; Deutsche Bank Research
Duffy Fischer; Analyst; The Goldman Sachs Group, Inc.
Presentation
Operator
Good morning, ladies and gentlemen, and welcome to the Tronox Holdings Q4 2023 earnings call. At this time, all lines are in listen-only mode. Following the presentation, we will conduct a question and answer session. If at any time during this call you require media assistance, please press star zero for the operator. I will now turn the call over to Jennifer Gunther, Chief Sustainability Officer and Head of Investor Relations. Please go ahead.
Jennifer Guenther
Thank you, and welcome to our fourth quarter and full year 2023 Conference Call and Webcast. Turning to slide 2 on our call today are John Romano and Jean-François Turgeon, Co-Chief Executive Officers, and John Stinebaugh, Senior Vice President and Chief Financial Officer. We will be using slides as we move through today's call. You can access the presentation on our website at investor dot Tronox.com. Moving to slide 3, a friendly reminder that comments made on this call and the information provided in our presentation and on our website include certain statements that are forward-looking and subject to various risks and uncertainties, including but not limited to the specific factors summarized in our SEC filings. This information represents our best judgment based on what we know today. However, actual results may vary based on these risks and uncertainties. The company undertakes no obligation to update or revise any forward-looking statements during the conference call, we will refer to certain non-US GAAP financial terms that we use in the management of our business and believe are useful to investors in evaluating the Company's performance Reconciliations to their nearest U.S. GAAP terms are provided in our earnings release and in the appendix of the accompanying presentation. Additionally, please note that all financial comparisons made during the call are on a year-over-year basis unless otherwise noted.
It is now my pleasure to turn the call over to John Romano. John?
John Romano
Thanks, Jennifer, and good morning, everyone. We'll begin this morning on slide 5 with some key messages from the quarter, we delivered fourth quarter top line performance in line with expectations. Tio2 sales volumes declined approximately 4% in the quarter compared to the third quarter, volumes were slightly lower than expected due to more seasonality in North America than anticipated, and we also experienced some shipment delays as a result of congestion in the Red Sea that delayed some stock transfers to cover our Botlek outage in Europe, our TiO2 pricing was only down 1% compared to the third quarter, which was better than our previous guide, our zircon volumes increased 82% versus the third quarter, higher than expected and communicated on our last earnings call. However, we did experience some unfavorable product and regional mix, which negatively impacted our margin in the quarter. Zircon pricing was down 9% compared to the third quarter due to product mix and some regional pricing adjustments primarily in Asia Pacific revenue was also higher from other products due to additional sales of pig iron as well as opportunistic sales of ilmenite and a portion of our Rare Earths tailing deposit in South Africa, which is a key part of our funding strategy for our railroad business. Our adjusted EBITDA for the fourth quarter came in $11 million below our guided range. This was primarily driven by a delayed restart of our steam supplier at Botlek and higher costs from unanticipated downtime stemming from running at lower rates. While the bottleneck situation is now under control and our suppliers back up and running, we saw approximately $10 million more in costs than forecasted due to the lumber downtime. Importantly, our supplier outage did not address disrupt our ability to fulfill customer demand as we were able to reposition inventory from our other global assets to meet customer demand.
In Europe, we expect to recover at least $15 million in insurance proceeds in 2024 as a result of the downtime at public in the second half of 2023. This amount represents the costs incurred to continue to provide uninterrupted service to our customers while working around the supplier outage. The operating challenges we experienced in the last six months are not indicative of the standard we hold ourselves to at Tronox, and we're addressing these challenges head-on in 2024. In 2023, we ran at the lowest utilization rate rates on record in order to manage inventories and free cash flow in light of the lower market demand.
As we look into 2024, we're adjusting our operating rates to support the market recovery currently underway. This will set Tronox up to realize a step change in earnings power after we work through the remaining high-cost inventory on the balance sheet, our free cash flow for the quarter came in higher than expected at $51 million despite the lower than forecasted earnings owing to our cash management initiatives, we saw positive inflow of nearly $60 million from working capital quarter. I'll let John run through more of the year-end numbers up from the balance sheet, but we're very comfortable with where we are from a liquidity and debt position despite the lower market demand we took action at the right time in 2023 to bolster the balance sheet and ensure we had sufficient liquidity. I'm proud of our team at how our team has proactively prepared for a variety of scenarios. And Tronox is very well-positioned as we stand today, especially considering the key capital projects we plan for 2024, which we'll discuss a little bit later on the call.
Turning to slide 6, I'll now review a few updates on some of the key sustainability initiatives. We are nearing the conversion of 40% of our power in South Africa to power from the significant solar project we helped develop in partnership with the Solar Group. This project is one of South Africa's largest solar installations. We expect to receive power in the coming months, which will significantly reduce our carbon emissions globally and marked the first significant step on our journey to net zero in 2050.
Renewable power and energy efficiency projects are key to achieving our 2030 greenhouse gas emissions reductions target of 50%. So we're excited to Mark such a significant milestone. We have another renewable project in development in South Africa that we hope to provide more details on soon also underway our various initiatives to achieve our stated targets towards reducing our waste to extract external landfills. This includes exploring alternative uses for waste in a number of opportunities, including cement road base bricks and water treatment chemicals. We are also continuing to evaluate opportunities to extract valuable minerals and metals from waste, including rare earths, Skandia and vanadium. We're excited about the progress we've made and look forward to continuing to updating you on our journey.
I'll now turn the call over to Jean to review some of our financials for the quarter in more detail. Jean?
Jean-Francois Turgeon
Thank you, John. Turning to slide 7, revenue of $686 million increased 6% compared to the prior year, primarily from TiO2 and other product sales. This represented an increase of 4% relative to the prior quarter due to higher zircon and other product sales income from operations was $8 million. In the quarter, we reported a net loss of $56 million. Our effective tax rate in the quarter was 75%, despite generating a loss before income taxes. We paid $24 million in taxes in the quarter as the majority of our taxes are paid in South Africa, where we had higher earnings than expected owing to higher zircon sales and the sale of a portion of our rare earth tailing deposit in the majority of our other jurisdictions. We either realize a net loss or have NOL positions. As a result, our adjusted diluted earnings per share was a loss of $0.38. As previously discussed, our adjusted EBITDA in the quarter was $94 million and our adjusted EBITDA margin was 13.7% and free cash flow generated in the quarter was $51 million.
Now let's move to Slide 8 for a review of our commercial performance. Tio2 revenues increased 9% versus the year-ago quarter, driven by a 16% increase in sales volume, a 6% decrease in average selling prices and unfavorable product mix impact of 2%, we saw a favorable impact from FX of 1%. Cercon volumes decreased 26% compared to the year-ago quarter. And zircon pricing was lower by 11% and revenue from other products was $110 million, an increase of 38% compared to the prior year, driven by higher sales of pecan dominate and rare earth tailings that John previously mentioned.
Turning to slide 9 nine. I will now review our operating performance for the quarter. Our adjusted EBITDA of $94 million represents a 17% decline year on year, driven by lower average selling prices and higher operating costs due to lower production rates. This was partially offset by improved sales volume and product mix, favorable exchange rate tailwinds and lower freight costs. Sequentially, adjusted EBITDA decreased 19%, driven by higher operating costs due to lower production rates and lower product pricing. This was partially offset by improvement in sales volume and product mix, exchange rate tailwinds and lower freight costs. As we've mentioned previously, we brought down our operating rates in order to manage inventory and cash, which had an unfavorable impact on our costs in the fourth quarter and across the year quarter over quarter, production cost increases of $40 million included $16 million of higher costs associated with lower absorption and higher input costs, $12 million of lower cost or market and idle facility charges due to lower production rates and $9 million of higher mining costs.
Turning to slide 10, I'll now review our financial position. We ended the quarter with total debt of $2.8 billion and net debt of $2.6 billion. Our net leverage at the end of December was 4.9 times on a trailing 12 month basis. While we ended the year with higher debt than the prior year. The incremental term loan of $350 million raised in the third quarter reinforced the strength of our balance sheet and bolstered available liquidity ahead of anticipated critical vertical integration related capital expenditures. Our nearest term is significant. Maturity remains 2028, and we have no financial covenants on our term loans or bonds. Our weighted average interest rate in Q4 was 6.17%. We maintain interest rate swaps such that approximately 73% of our interest rates are fixed through 2024, approximately 64% are fixed from 2024 through 2028, aligning with the maturity of our term loan. As a result, we do not expect to see our average interest rate increased significantly in the year. Total available liquidity as of December 31 was $761 million, putting $273 million in cash and cash equivalents, an improvement from our Q3 levels and owing to positive cash generated in the quarter.
Capital expenditures totaled $59 million in the quarter, approximately 65% of this was for maintenance and safety, and 35% was for strategic growth projects. Dd&a expense was $69 million for the quarter. We returned $20 million to shareholders in the form of dividends and dividends in the quarter.
I will now turn the call back over to John Romano for some comments on the year ahead and our outlook on things.
John Romano
John, we expect 2024 to see a reversal of several of the trends from past the last 18 months on the market, we've already begun to see a pickup in demand for TiO2. That is more positive than we would see normally at this time of year. January is January sales were strong and we're seeing continued strengthening in the market for February and March order books. We expect TiO2 pricing to reverse its downward trend and improve as we move through 2024. Zircon volumes are also continuing to improve from the trough levels realized in July of 2023. The magnitude of the recovery will be somewhat dependent on China as it makes up 50% of the total zircon market. However, even without that significant shift in China, we're seeing demand recover on the operational side. As I mentioned previously, we incurred significant costs in 2023 from running our assets at low utilization rates due to soft market demand we incurred between 25 and $35 million in fixed cost absorption headwinds in each quarter of last year. In 2024 we're already beginning to increase and increase our operating rates in line with demand, which will have a positive impact on our mark manufacturing costs. We still have high cost inventory to move through the business, which we anticipate will carry partially into the second quarter. But by the second half of the year, we should see margins revert to our more normalized levels we continue to deploy technology at our sites to reduce cost and improve efficiencies, which will also improve our cost position as we ramp up, we are investing in key capital projects to sustain our vertical vertical integration as well. From a growth perspective, our R&D efforts remain focused on product and process innovation to enhance profitability. Additionally, we're continuing to explore opportunities in the rare earth space as we are already present in the heavy mineral sands we mine in South Africa and Australia. We are continuing to explore opportunities to increase value as these are after these highly sought-after minerals. We are also continuing to drive our sustainability initiatives, which not only are critical to preserving our privilege to operate, but also support. Tronox is value proposition, and we'll continue to challenge ourselves to be a leader in this regard.
Moving to slide 12, I'd like to spend some time reviewing two of our key capital projects for 2020. For this year, we'll be investing $130 million in two key mining projects in South Africa to replace our existing mines, which are rich, reaching the end of their life. Investment in these projects were delayed in 2023 to preserve cash. Given the lower market demand, these investments will maintain our more than 300 a ton advantage relative to market pricing for feedstock, each project is expected to generate IRRs in excess of 30%. These are critical project to maintain. Tronox is vertically integrated strategy that will continue to enhance our position as a leading TiO2 producer in the industry and the industry's leading financial performance.
Turning to slide 13, I'll review our outlook for the quarter and the year ahead in more detail on the first quarter for 24, we expect TiO2 volumes to increase 12% to 16% and zircon volumes to increase 15% to 30% both compared to the fourth quarter. We expect both TiO2 and zircon pricing to remain relatively flat in the quarter, while we expect the headwind from non-repeating sales and other products this will be offset by some improvement on fixed costs due to our higher operating rates. As a result, we're expecting Q1 2020 for adjusted EBITDA to be 100 to $120 million and adjusted EBITDA margins to be in the mid 10s. While While we're not providing full year EBITDA guidance, we did want to provide a view on our expectations for our 24 cash uses. Our capital expenditures are expected to be approximately $395 million for the year. Our net cash taxes are expected to be less than $10 million as the significant capital expenditures in South Africa are deductible. Our net cash interest expense is expected to be $145 million and we're expecting working capital to be a tailwind. And the magnitude of that tailwind will depend on the significant how significant the market recovery this year.
Our strategy remains remains largely unchanged. We're prioritizing investments in the business that are critical to furthering our strategy and driving value from our vertically integrated portfolio. Even at this investment level, we expect to generate positive free cash flow for the year, we will see we will also be focused on bolstering our liquidity. And as the market recovers, we'll look to resume debt paydown. We will continue to evaluate strategic high-growth opportunities as they arise. Currently, we're focusing on the rare space, and we will keep the market updated on any key developments that will conclude our prepared remarks.
And we'll now move to Q&A portion of the call. So I'll hand the call back over to the operator to facilitate operator.
Question and Answer Session
Operator
Ladies and gentlemen, we will now begin the question-and-answer session. (Operator Instructions) One moment please, for your first question.
John McNulty with BMO Capital Markets.
John McNulty
Yes, good morning. Thanks for. Thanks for taking my question, Tom. So I guess the first one would just be you've got a relatively positive outlook on the volume front for TiO2 as we look to the first quarter, is there any geographic deviation in terms of in terms of where you're seeing kind of that outsized or above-normal demand? Or is it is it relatively broad? How should we think about that?
John Romano
Yeah. Thanks for the question. On silicon in the first quarter, it's relatively broad. We're seeing it across all the six sectors. We mentioned that we didn't we saw a little bit more seasonality in the fourth quarter in the North American market, and we're starting to see the North American market pick up a bit more so that increase in Q1 sales normally, Q1 and Q4 would typically be pretty similar. So we really do believe that based on what we're seeing in the field from our customers we're confidently. We're confident that the destocking has largely run its course, and we're seeing customers restocking and moving into more normal buying patterns. I think additionally, historically, our business has kind of led in and out of economic transitions. And we really do believe we're on the front end of a recovery. And this is having a, I'd say, more positive impact on our outlook for the entire year.
John McNulty
Got it. Okay. Fair enough. And then maybe just speaking to the fixed cost absorption issue. You highlighted in one of the slides $25 million to $35 million per quarter hit. So I mean, we're talking like $100 million, $150 million for the year, which is pretty chunky, I guess, is there a way to think about what volume levels you need or where we what we need to see in 2024 to completely erase that? Or I guess is there kind of a rule of thumb that we should be thinking about as that as that kind of fixed cost absorption headwind dies down?
John Romano
Yes. It's a great question. I'll start and Jean, maybe you can add on to it. So you know, historically some wind for wind, the clock back four quarters. We were, I think, 18 months in a row, but consistently above 20% EBITDA margins and we quoted something just below 14%. So in a running at the rates that we've been running at, which again, we made the point that it's lower than what we've ever historically run. We believe that where we're ramping up right now and we're not at full capacity. We're ramping up the assets that as we move through the first quarter, we'll start to get to volumes. And I'd say capacity utilization, which should get us back to, I would say, mid to normal run rates on EBITDA margin. But we also have to think about the inventory that we have got to work through. So I made the reference on the call that we've got inventory on the balance sheet. We're going to have to work through that. It's probably going to work its way probably halfway through the second quarter. But when we get in the second half of the year, you should start to think about those normal low to mid 20 kind of run rates on EBITDA margin. And that's without a lot of movement on price.
Jean-Francois Turgeon
And John, I would add to that, that on the mining side of our business, remember last year, we mentioned that the drop was so significant that we had to slow down our mine and our mine and smelter, our high fixed cost operations, we're back to running those assets at full capacity in '24.
John McNulty
Got it. Okay. No, that's very helpful. Thanks very much for the color.
Operator
David Begleiter, Deutsche Bank.
David Begleiter
Thank you. Good morning. John. You mentioned the prospects for higher pricing in TiO2 this year. We think it will manifest first in what region by what end markets and yes
John Romano
So we typically don't give a lot of regional view on that, but I would expect it largely what I mentioned in the first quarter's pricing was going to be relatively flat, both on zircon and on TiO2. And we did largely see rollovers moving into the first quarter of 2024. I would suspect that as we start to migrate out of the first quarter, we'll start to look at pricing opportunities across all regions. But there's a lot of activity. We've got a lot of questions about the antidumping, everything that we're talking about right now. It has nothing to do with anti-dumping the anti-dumping if it actually happens and it gets inputted and provisional duties come in. That could be something additive to this. But what we're talking about right now is just generally what we're seeing in the market. We would see that these are all the signs and indicators that would indicate pricing would start to move up. That's not in the first quarter, but we're hopeful we'll start to see some sort of movement as we move into Q2.
David Begleiter
And John, on the anti-dumping, are you seeing any change in buyer behavior yet because of these of this investigation? And how what's the timeline from a risk perspective for the for the EC to act?
John Romano
Yeah. So maybe on the timeline, the formal investigation come from the commission, what we what happened was the coalition. This was a coalition that was formed back in November of '23 when the dumping suit was filed, we would expect the formal investigation to conclude in the second quarter and under the process that the final recommendation won't happen until the fourth quarter. However, there could be a possibility that provisional duties could get put in place sometime as early as the second quarter, but that's yet to be seen as far as are we seeing any real significant buying change?
I'd say we're seeing a little bit, but nothing significant. There's some, I'd say, export activity that's going on, that's in line with what we would have expected as a dumping suit was filed in the EU.
David Begleiter
Thank you.
Operator
Josh Spector UBS.
Hey, guys, this is James Hennen on for Josh. Thanks for taking my question on. Just if we go back to kind of the comments you gave on the projects, the mining projects you're doing in on South Africa. Can you just give a little color as to the rationale behind moving forward with them now as opposed to once we've gotten back to kind of a more steady state. I mean, it seems like with the with the mining rates having come down last year, there would be additional capacity to kind of lift rates elsewhere in the system and maybe not require that CapEx at this stage.
John Romano
And look, so last year, we delayed those projects on both these, but both projects in South Africa one was a little bit further along than the other one. So we have to run our business on a long term and the mining projects actually do require a longer view than quarterly minimum earnings. So we feel that it was an appropriate delay.
What we did last year. We spent some time bolstering our liquidity last year for that specific purpose to make sure that we had the ability to invest in these assets because at the end of the day, as I mentioned on the call, these are actually replacing mines that are coming to the end of their life. So if we want to maintain our zircon volumes and the ilmenite to feed our smelters, these are long-term projects. And we've got a five-year plan for our TiO2 business, but more like a 20-year plan to manage our mining. So we feel that what we're doing at this particular stage is not only appropriate. It's needed to make sure we can maintain our long-term business.
Okay, thanks. And then just on timing with those, can you give some commentary on when you anticipate those to start producing and whether or not there will be any drag on OpEx or absorption as those do start up?
Jean-Francois Turgeon
So as both my ears are in both of those mines that they'll be at a basically a transition from the end of the mind of the previous one to a transition to the new one. So there shouldn't be a lot of lag or lead time moving in. It's all timing as we move out of one body of ore will be moving into another one. So there shouldn't be a lot of transition. Obviously, as we're bringing up some of the mining equipment, there could be a little bit of transition.
We don't we don't expect that to be a drag and I think as we as we start new mines, obviously, there's the whole resource there and we do optimize to bring out of the higher value ore earlier on. So we would expect and when those mines come online, see some positive benefit.
Okay, great. Thanks.
Operator
Duffy Fischer, Goldman Sachs.
Duffy Fischer
Yes, good morning, guys. If you could your CapEx assumption for this year's $395 million, your operating cash flow last year was $184 million sort of be free cash flow positive this year. That means you need to grow your operating cash flow a little over $200 million this year. Can you just walk through how you see those buckets coming through? How much of that would be an improvement in EBITDA, how much of that would be things like improvement in working capital or anything else on the cash flow statement kind of before the operating activities that would get us at $200 million plus?
Jean-Francois Turgeon
Yes, Duffy, thanks for that question. And we aren't guiding for the full year. So from an earnings perspective, we are optimistic, but obviously expect an improvement year over year. And ultimately, our free cash flow, the scope and size of that positiveness we expect will depend on market dynamics there. But from a working capital perspective, that's the earnings and working capital are the biggest drivers. Obviously, we guided on interest negative 100, $45 million, taxes less than $10 million. And as you mentioned CapEx of $395 million. So we do expect both free cash flow and working capital to be positive. And from a working capital perspective, we do see obviously sales are going up. The AR. is going to be a hurt, but that obviously is a good working capital use there. And we do see inventory. We are building some inventory in that play with inventory and AR will all depend on top line sales growth. We do expect payables as well to be a source of cash as we are actively managing that throughout the year. So and that's kind of where we are on free cash flow.
John Romano
And just generically from the operating side, again, we talked a couple of times about running at I think we've been throwing numbers up 70% capacity utilization for over a year. And as we started to ramp up those assets early as early as December of last year and into the first quarter. Obviously a little tedious as you start to move up from those lower rates. So it wasn't super smooth to get to where we are today, but now those assets are running. So when you think about that 25 to $35 million a quarter that we've talked about as a negative due to fixed cost absorption, we'll start to see similar results and some of these unplanned outages that we have will be added onto that. So they'll be a significant portion of that. So when we think about the growth, it's obviously prices and opportunity, but running our assets at grades that are at a more normalized level, which are in line with what we've historically seen on EBITDA margins, as I mentioned before, it's going to be a big driver in our profitability.
Okay, thank you. And then there have been several reports out of South Africa with two of their larger unions in the mining industry kind of fighting and there's just been some kidnapping and stuff like that. Do you have both of those unions at your operation or are you kind of a single union in and against, are you seeing any issues with your operations or any the other TiO2 operations in South Africa?
See, I mean, I can tell you we only have one union in our case and we're looking to be in an area where there is no revalidate fee and no issue between the union book and we have always stated that our approach in South Africa is to work with our community. All worker are not remote worker.
They are a local, all their member of the community where our mine and smelter are located, and that makes a huge difference with the dynamic often.
And all those issues that we heard about South Africa are related to worker our Life Care remote and also in our store, and we don't have that issue at our mine group.
Thank you, guys.
Operator
Your next question comes from Jeff Costco with JPMorgan. Please go ahead.
Thanks very much.
John Romano
And I think your TiO2 volume for the past two years is down about 15% each year. How do you think the industry shrank over 2022 and 23. How did you do compared to the overall industry?
Yes.
Thanks, Jeff. But you're right. Yes, if you look at our over the last two years, I think our volumes were down roughly 27%, so 15% of years pretty much accurate. And China obviously grew. I know you take an interest in paying a lot of attention to the exports coming out of China. China has taken a significant growth specifically in Asia Pacific. India has become a significant importer of Chinese material. A lot of Asia Pacific so not just in China. So I do think that over time, I that we've probably lost a little bit of share to the Chinese, and we've done that based on where we feel like it just was not competitive. And that being said, I think others probably were hurt a bit more than the Chinese were our I think our chloride capacity has provided us an opportunity to avoid some of that. That being said, we feel like we can compete directly with the Chinese and there's lots going on. We've already talked about with some of the efforts that are trying to manage that in the European market. But Tom, I would suspect that the market is still growing. China took a disproportional share of that growth over the last couple of years and thank you for that. Can you can you just give us sort of a status report on project Neutron? That is how much more is still to be spent? And what have the savings been? And what can this what could the savings be? Where does all of that?
Yes. Yes.
So for 2024, we've still got about 20 million to spend on. So we're going through some additional launches of S4 Hana up in Asia Pacific, so early as July of this year. So we're still working through that process. And I don't know, Johnny Maybe talk a little bit more some of the upsides as far as what we're seeing an opportunity. But there are we think about automated process control toys, which has shown us is operational information system. All those things are being utilized to extract more out of our assets. I think early on that was there was a fair amount of additional value that was coming from volume, which we haven't seen yet. So we would start to see that I'd say probably more towards the end of this year and early into next big chunk?
Yes, no doubt, John, that's exactly right. I mean, we still do believe in the benefits that we're going to see from Neutron, we grow quoted at historically 150 to $200 per tonne and a big portion of that, how we did capture already from procurement savings, although that was masked a little bit by the two significant escalation we've had over the past couple of years. But from a volume perspective, we said those aren't whole, but frankly, we think that some of those benefits will accelerate as we are bringing up our assets. So we do expect to still be within that range, obviously, where we only have deployed, as John mentioned, in Asia Pacific. So we will need to from a systems perspective, but we have deployed from some of the other operating on enhancements on multiple sites.
So do you expect to see those benefits from a volume perspective.
Operator
And if this is Jennifer, just if I can add, we are seeing benefits at a site level from the deployment of some of the technologies like automated process control arm. So for example, we're seeing reduced coke consumption in our chlorinated. When you look at a like-for-like comparison on the volumes produced, it's just a bit masked because of the low run rates that were operating at on. But for example, this did have a positive effect on our GHG emissions, reduced our intensity because we're more efficient for the tonnes we're producing. So we are capturing benefits, not all of them necessarily on the P & L. We're seeing them on the sustainability side of the business. But as we ramp our assets back up, we would expect to consume lower raw materials like Coke in our coordinators of four per ton of TiO2, and this should translate to benefits on the P&L.
John Romano
So the spending is essentially done or this 20 million more and more to go as something relatively small. But as you ramp up and we should see the benefits that they are general?
That's correct, yes, yes, that's correct.
And it just to Jennifer's point, I mean, the whole idea about that one, our automated process control on our coordinators, we have 24 across the system. And last year, I think we finalized the implementation of all of that across the entire system. So again, as we start to ramp up the assets, we'll start to get a lot more of that value as Jennifer noted.
Yes.
Maybe if I can sneak in one more question. Can you can you talk about what's going on with chlorine prices and what you what you expect for the year. And so what I can say is that our chlorine prices have continued to move in a positive direction from the downside. So that chlorine is very different depending upon the region. So in Saudi Arabia, we make our own chlorine in Australia. We have a lot of purpose built plants but in North America, we buy merchant chlorine. And we've seen what I would say is a significant reduction in Q4 and in Q1 on chlorine prices, which is going to have a positive impact as well.
Okay.
Thank you, sir.
Operator
Your next question comes from Mike Leithead with Barclays. Please go ahead.
Great.
Thank you.
John Romano
Good morning. I guess on first question, what are you expecting from a zircon pricing outlook?
So I think I mentioned in previous or in my prepared comments for the fourth quarter, on the first quarter, we saw rollover on pricing. So there was actually a slight bump up in price from Q1 to Q2 from Q4 to Q1, but that's all mix. So in the first quarter, we're seeing flat pricing and I look at a lot of it's going to depend on how the market continues to evolve. July of 2023 was a very low point, but that was the bottom. And we see we've seen the market continue to improve. Our Q1 or Q4. Sales were up by 82%. We forecasted in the prepared comments 15% to 30% additional increase in the first quarter. That big swing has a lot to do with the weather, but big bulk shipments actually going to go this quarter or not. And all of that growth is on the back of not much growth in the ceramic industry in China, which is about 50% of the market. So we're seeing the market recover. We believe that destocking has run its course. Customers are buying again, and we're starting to see an uplift even in China.
In the non ceramic applications, we started to see restocking occurs. We believe destocking has run its course there as well. So all of that would indicate that as we move through the year, we should start to see positive movements in zircon pricing but it's a little bit too early to provide a clear forecast on that.
Great.
Operator
Thank you.
John Romano
And then again, I apologize if I missed it, but what's the latest update on Amazon, are you still expecting to get the full repayment in-kind? And was the technical service agreement and those again are doable?
Yes.
So look, we're still working with Amazon. The debt is due in January of 25 when we continue to get slag in lieu of and that flag is actually going towards the payment of the debt from. And there's not much change in our agreement with them at this particular stage. So still continuing to work with them. And the slag that we're getting is largely going down to pay down debt Okay.
Operator
Thank you.
Your next question comes from Hassan Ahmed with Alembic Global. Please go ahead.
John Romano
Good morning, John and Jeff. One quick quick question around the cost curve. The global cost curves as you see them right now. I mean, look, as I sort of sit there and think about the EBITDA margins that you guys just reported in Q4, you know, call it 13 and change percent, obviously down from Q4 of 22 levels of north of 17%, 17% plus in Q three. I mean, I'd like to thank you guys being as integrated as you are obviously, and you talk about this as well, enjoy sort of a margin premium relative to your competitors globally. So I'd like to think that you know, there's a large chunk of the industry that is at breakeven to maybe even negative EBITDA margins.
Right? And then I sort of sit there and think about the guidance that you've given for 2024 of mid 10s EBITDA margins, I mean, does that get if the industry moves in that direction? I mean, are you sort of guiding to the industry beginning to make sort of positive EBITDA margins? I mean, I'm just trying to get a sense of where the industry is or the sort of breakeven to negative margin sustainable for the industry? And maybe potentially, are you being conservative in giving the margin guidance that you guys have given?
So I look at the guidance that we gave for mid 10s was for Q1. And I think we got a question a bit earlier about where we see the business moving from a lot of that margin. Let let's just say price doesn't move what we've said, we expect it to. But if price didn't move, our margin is going to improve as our capacity increases. And by midyear, we would expect that our our EBITDA margins will be back in the 20s. We ran 18 months, 18 quarters in the mid to high 20s. So just put pricing aside, running our assets because of our vertical integration is actually going to do just exactly what you said. It's going to get us to norm normalized EBITDA margins on our competitors. I'm not going to speak to them, but they're publicly. Their information is publicly available. I wouldn't disagree with the comments you made. I do believe that the Chinese are in that similar boat with not making significant EBITDA margin anywhere and we believe the majority of them are losing money. So we believe our margins are going to improve and 24 is going to be a much better year and ultimately where we are as an industry is not a sustainable place to be negative EBITDA margins don't. And you can't do that for very long because people don't have balance sheets to support that.
Fair enough. And as a follow up, if I could revisit the whole and sort of European Commission anti-dumping side of things, I mean, is it fair to assume whatever direction the final ruling takes. I mean, is it fair to assume that it's almost like 200 to 250,000 tons of sort of material that is up for grabs and that could potentially entirely go towards the western producers. If you look at I guess up for grabs is a it's a way to look at it, but if I'm a Chinese producer, I mean the other option would be for them to raise their price on a once a duty is in place. I think that that is going to drive some different behavior for sure and dumb. It's early days. Like I said, the formal investigation won't end until the first quarter or into the first quarter and then it'll typically be the end of the year before the process is complete, provisional duties could come sooner than that. So we're just kind of a again, this was something that was led by a coalition of suppliers. So we don't feel like we have exact data on what happening, but we do have a pretty good feel on a pretty good idea of where we are in the process and it's just a bit early to determine what that duty is and if it's going to get implemented, but if it were to, yes, I would definitely think that there's going to be some volume shift and some pricing opportunity.
Perfect. Thank you so much.
Operator
Your next question comes from Vincent Andrews with Morgan Stanley. Please go ahead.
Vince, and is your binders.
Your next question comes from Roger debts with Bank of America. Please go ahead.
John Romano
Thank you, and good morning. Two questions. The first one is for 2024.
In addition to EBITDA CapEx, what have you that you've identified what I refer to as other free cash flow items, you identified a potential $50 million insurance recovery are there any other so-called other cash flow items for 2024 that we should think about whether restructuring or other other items in here?
Operating cash flow?
No, Roger, we don't have anything forecasted or expected at this point other than the insurance recovery that you mentioned.
Got it. And then second is, I know it's early days, but just wanted to fill stuff in my model for 2020, how should we think about CapEx with relation to 2020 for same level or different? And perhaps the cash tax rate in 2024, you talked about South African mining operations. Does that repeat in 2025 or is it more back to a normal cash tax rate?
Yes.
So look, we don't have a complete forecast for 2025 capital yet, but they'll probably be slightly lower than what we have. We still got some other mining mining projects going on and John you can comment on the tax, but to the extent we're still spending money in South Africa, that would be deductible.
So it's a little early to come up with what our tax position is going to be angry at that, John, and we will be spending if this is not a one year on investment in South Africa, it's a multiyear. So we would those expenses that we would spend on capital in South Africa would be deductible in 25.
Operator
Thank you very much.
Your next question comes from John McNulty with BMO Capital Markets. Please go ahead.
Yes, hi, guys.
John Romano
Sorry, just one one follow-up. So when I look at your inventory, your arm and the hit that it's had on working capital over the last couple of years, it's about 400 million in the last two years. If you returned to kind of more normal operating rates at the middle of this year, I guess how long realistically will it take to reverse that, that inventory drag where you see a source of funds from inventory? Can you clean all that up in whatever two to three years is it is it, hey, look, this could take a very long time because I'm just not sure with the mining side, how to think about how this all could work through and how quickly you could recapture some of that lost inventory?
Yes, John, it's good point. As we mentioned, we have a long supply chain. So while in the past 18 months or so. We did slow down our pigment sites and brought down that inventory. We were running our mines relatively flat out, so build some feedstock inventory. If you take a look at 2024, we actually do see that reversing inventory. We do expect, and that's a bigger swing historically on what was driving the negative working capital change. And as you know, as we've guided, we do expect working capital to be positive and a lot of that is owing to come to inventory cashing out on that.
Well, you can guess can you get the full 400 million back? Or is there some reason why why that won't be the case? And I don't mean 24, I just missed there or are we at kind of a new level for one reason or another? Or should you be able to reverse that $400 million inventory headwind from the last two years?
Yes, we'd we would expect that we would recover that over time nine, 24 very much, but it all definitely recover.
Got it. Thanks very much for the call.
Thank you.
Operator
Your next question comes from Vincent Andrews with Morgan Stanley. Please go.
John Romano
I thank you.
This is Turner Hendrix on for Vincent. In your slide, you mentioned that that February and March order books are tracking above strong January sales. Do you mind touching on what end markets or channels are driving the strength in and movements in inventory levels that you're seeing?
Yes. Look.
So those up, it's basically across the entire market. So every region we're seeing additional volumes on. I mentioned that we're seeing again, North America didn't drop as much as it I think the other regions, and that's I'd say a little bit slower to picking back up. We referenced in the fourth quarter, we saw a little bit more seasonality, but we're also seeing North America pick up a little bit stronger in the first quarter. So I'd say it's across the board, and it's not specific to any particular end segments. So it's coatings, plastics, paper and specialty.
Okay, great. Makes sense. Do you mind providing some additional color on what you're seeing for import and export trends?
And if you have any details as it relates to freight costs if they're affecting those trends or the underlying macro across the regions, that would also be great.
Any specific regions you're referring to on imports and exports or just generically generally, it would be interesting to hear about Chinese exports or European imports broadly on both given Chinese export trends and the anti-dumping probe. That would also be of interest?
Yes.
So on China, over the last couple of months, we don't have actually January numbers yet. But I'd say November December, we've continued to see an uptick, which was not I'd say surprising, considering there was a an anti-dumping suit filed. So we've seen some additional exports coming out of China and Europe is obviously a big market for bringing in material from China. We've seen as far as some of the activity going on in Europe and other areas, as I referenced, some issues with imports and exports due to the congestion in the Red Sea. So for producers that are in Europe, I think they're actually getting a little benefit, a little bit of benefit from that depending upon where they're located and where they're shipping, but I wouldn't say there's significant and change in activity.
Now on the freight, we are seeing some positive moves on freight. What's happening in the Red Sea is I'd say a bit more of a short-term anomaly. We're seeing some spot rates that are higher than what we put in our forecast. But historically, we've had over the course of the last 24 months, freight rates have gone up significantly, and we're starting to see those abate. And that's, I'd say, a tailwind for us as we think about our 24 forecast, although right now, some of those rates have been, I'd say, negatively impacted due to some of the activity that's happening in the Middle East.
Great.
Thank you so much for the color.
Operator
I will now turn the call over to John Romano to close CYO.
John Romano
Thank you, operator. Look, we're very confident in where we are with our company. Moving into 2024 and our vertical integration strategy we believe will continue to provide our competitive advantage. We remain optimistic in the short the long term for Tronox, the value creation from a lot of the projects that we're doing, including sustainable mining and upgrading solutions.
So I'd like to thank you all for your interest in Tronox and your support and have a great day.
Operator
Ladies and gentlemen, this concludes your conference call for today. We thank you for participating and ask that Please disconnect your lines.
