Goldman Sachs: Elevated China TiO2 Exports Weigh on Prices; Maintaining Sell Rating on KRO

Overview

This report analyzes the impact of recent China titanium dioxide (TiO2) export data on Western producers (such as KRO, CC, TROX) and updates financial forecasts for Kronos Worldwide (KRO). The report notes that despite sulfur supply issues, China's net TiO2 exports remained robust in April, up 14% YTD, with significant increases in exports to India and the EU. Combined with weak end-market demand for coatings, the firm believes the TiO2 market will soften in H2, and price increases may fall short of expectations. While KRO benefited from cost absorption in H1 due to production cuts last year, prompting a significant upward revision to its 2026 earnings forecast, the firm maintains a "Sell" rating on KRO given the deteriorating long-term supply-demand dynamics, raising the target price from $5 to $7.

Core views

Resilience in China's TiO2 exports exceeds expectations, weighing on the global price outlook. April data on China's net TiO2 exports shows that despite sulfur feedstock issues, export volumes did not decline significantly; instead, YTD net exports increased by 88kt (+14%). Notably, exports to India surged amid the suspension of anti-dumping duties (ADD), reaching 32kt in April alone (+28% YTD); exports to the EU also grew by 32%. This indicates that Chinese products remain highly competitive in international markets, and the additional supply will subject Western producers to intensified price competition in H2. Weak end-market demand exacerbates market concerns. Sales in the coatings industry, a major downstream sector for TiO2, have underperformed relative to early-year expectations. Under the dual pressure of high export supply and weak demand, the firm expects the TiO2 market to soften by late summer, with insufficient momentum for price increases. KRO's near-term performance improvement stems from lag effects but faces long-term pressure. The firm significantly raised its 2026 EBITDA forecast for KRO (+86% for Q2, +66% for FY), primarily driven by KRO's low operating rate strategy implemented in late 2025, which allowed for better absorption of fixed costs in the current period, supported by structural cost reductions and improved ore costs. However, this improvement is temporary; as market conditions deteriorate in H2, KRO's production rates may catch up with sales volumes, squeezing profit margins.

Analysis framework

The firm employs a "Supply-Demand Balance + Key Indicator Tracking" analytical framework. First, it uses China's net export volume as a core indicator to assess the market health of Western TiO2 producers, tracking changes in China's exports to key competing markets (India, EU) via high-frequency monthly data. Second, it evaluates the overall supply-demand gap by combining demand data from downstream end-markets (coatings, real estate). Finally, at the company level, it revises short-term financial forecasts by analyzing the impact of operating rate adjustments on fixed cost absorption (operating leverage logic) and raw material cost movements, and derives a target price using valuation multiples (EV/EBITDA).

Methodology notes

• Industry/Sector Analysis FrameworkSupply-demand framework

  Assessing the global TiO2 market supply-demand balance by tracking net export volumes from the primary exporting country (China) and demand changes in key importing regions (India, EU).

  In cyclical industries, marginal changes on the supply side (e.g., surging China exports) often determine short-term price trends more than the demand side. The firm anticipates pricing pressure on Western producers by monitoring China export data as a leading indicator.

• Company Fundamentals & Financial FrameworkOperating/Financial Leverage Analysis

  Analyzing how KRO optimizes fixed cost absorption by lowering operating rates, thereby improving margins in the short term.

  For manufacturing with high fixed costs, proactively reducing output when sales decline can lower the fixed cost allocated per unit, resulting in a short-term margin improvement on financial statements, though this is typically unsustainable.

• Valuation MethodologyEV/EBITDA valuation

  Valuing KRO using Enterprise Value-to-EBITDA multiples and rolling the valuation base year forward from 2026 to 2027.

  EV/EBITDA eliminates the impact of capital structure and depreciation policies, making it more suitable for valuing asset-heavy chemical companies with high depreciation. Rolling the valuation year forward smooths out the impact of short-term volatility on valuation.

Asset mapping & comparison

Structured mapping from thesis to named assets (strengths, weaknesses, peers, risks).

• Kronos Worldwide Inc. (KRO)

  Negatively impacted target. Although cost structure was improved in the short term via production cuts, it faces dual long-term pressures from China export shocks and weak demand.

  Strengths

  Structural cost reductions are yielding results; ore costs have improved; low free float (~20%) may attract specific capital flows.

  Weaknesses

  Highly reliant on externally sourced titanium ore, sensitive to upstream prices; high fixed costs result in significant profit elasticity when demand declines.

  Comparison

  More vulnerable to upstream raw material volatility compared to peers with higher vertical integration.

  Risks

  Unexpectedly strong demand tightening supply-demand dynamics; sharp decline in upstream titanium ore prices; changes in ownership structure improving liquidity.

Key data

• April China TiO2 Net Export Increase88kt (YTD)+14% YoY, demonstrating export resilience
• China Exports to India Increase (YTD)32kt+28% YoY, impacted by ADD suspension
• China Exports to EU Increase (YTD)19kt+32% YoY
• KRO 2Q26 EBITDA Forecast AdjustmentRaised from $19mn to $36mn+86% adjustment
• KRO FY2026 EBITDA Forecast AdjustmentRaised from $82mn to $136mn+66% adjustment
• KRO Target Price$7Based on 9.0x 2027 EV/EBITDA; previously $5

Impact & implications

For KRO, although H1 performance exceeded expectations due to cost controls and a low base effect, the market environment in H2 will be more challenging. Persistently high China exports imply a global oversupply, which will limit KRO's pricing power. Investors should be wary of downside risks to KRO's stock price once short-term earnings tailwinds fade, potentially triggered by lowered H2 earnings guidance or weakening market sentiment. The broader Western TiO2 industry (e.g., CC, TROX) similarly faces competitive pressure from low-priced Chinese products, potentially pressuring overall industry margins.

Risks

• Unexpected strength in TiO2 industry demand leading to tighter supply-demand dynamics and higher-than-expected price increases.
• Sharp decline in upstream titanium ore costs, benefiting KRO but negatively impacting integrated competitors.
• Potential changes in KRO's ownership structure, increasing stock liquidity and investor attention.
• Uncertainty regarding the timeline for reinstating India's anti-dumping duties; immediate market impact if implemented.

What to watch

• Trends in China's monthly net TiO2 export data.
• Progress on judicial rulings regarding India's anti-dumping duties (ADD) and the likelihood of reinstatement.
• Recovery in global coatings industry sales volumes.
• Alignment of KRO's production rates with sales volumes in H2.