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Operator
www.eastman.com. We'll now turn this call over to Mr. Greg Riddle of Eastman Investor Relations. Please go ahead, sir.
Greg Riddle
Thank you, Jordan. Good morning, everyone, and thank you for joining us. On the call with me today are Mark Costa, Board Chair and CEO, Willie McLean, Executive Vice President and CFO, and Jake Leroux, Manager, Investor Relations. Yesterday, after market closed, we posted our third quarter 2023 financial results news release and SEC 8K filing, our slides, and the related prepared remarks in the investor section of our website, which is www.eastman.com. Before we begin, I'll cover two items. First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual events or results could differ materially. Certain factors related to our future expectations are or will be detailed in our third quarter 2023 financial results news release during this call, in the preceding slides and prepared remarks, and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for full year 2022 and the Form 10-Q to be filed for third quarter 2023. Second, earnings referenced in this presentation exclude certain non-core and unusual items, Reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items, are available in the third quarter 2023 financial results news release. As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A. Jordan, please let's start with our first question.
Operator
Thank you. As a reminder, that's star followed by one to register a question. If you change your mind, please press star followed by two, and please ensure you're unmuted when speaking. We'd ask all participants to limit themselves to one question with an additional follow-up. Our first question comes from David Begleiter of Deutsche Bank. David, the line is yours.
David Begleiter
Thank you. Good morning. Mark, thanks for the comments on 24 in the prepared comments. Keep a little more color on the potential, you think, for 24 earnings in this macro?
Mark
Great question. We're obviously spending a lot of time focusing on putting this year behind us and focusing how we recover and deliver a lot of earnings and growth next year. When you think about it and the way we built our forecast, or if you will, a scenario, was to intentionally be somewhat neutral on where markets recover or don't recover or what oil prices or energy prices are going to do. So we wanted sort of a neutral case to focus on First on, you know, what are the things that are more in control or math that deliver a better year next year than this year? And the biggest driver, of course, in the decline in earnings this year was volume and mix. And when you look at the extent of that across the portfolio, we're probably down about $450 million in volume and mix from a variable margin point of view, excluding capacity utilization. And then as we look at how that can recover next year, we sort of think of it in three buckets. The first is obviously a lack of destocking. There's a lot of conversation around that. And it was certainly a very significant element to our business. And, you know, we generally think destocking was probably about 40% of the decline in volume this year. But let's be conservative and we'll call that sort of one-third, you know, comes back next year from destocking. So $150 million there on variable margin. And that's just a lack of destocking. So that doesn't include restocking. It doesn't include any markets getting better. The second element is innovation. We are very excited about our innovation portfolio. It's been the center of our growth story as a company. And the biggest element, of course, will be the Kingsport methanolysis plant coming online, delivering an incremental $75 million in EBITDA to next year relative to this year. And that's all in with costs and revenue and margins considered. So that's, you know, pretty considerable. So you've got that on top of the lack of destocking. And then you've got innovation that's happening across our portfolio. It's not just Kingsport, you know, methanolysis. We've had great success with premium interlayers delivering a lot of value with the growth in the automotive market and extreme leverage of three and a half times the material demand. per car in EVs versus ICE cars. So that's a great business and will continue to deliver above market growth. We've got the Aventa products we've been telling you about where we've had great success, adoptions and straws and some brands going national as well as now making great progress in our polystyrene replacement for protein packaging and food packaging, etc. And you're going to see some real nice growth out of that business. The Nye textile business has been great this year and will continue Patrick Shields picking up more business and food cans and we're starting to move into the beverage side. So there's a lot of growth happening throughout the portfolio through innovation, even in a flat market. And we're going to see more benefit really next year when you're in a more stable market situation and people are focusing on new launches. The third element, of course, is the markets. You know, as you saw in our guidance, we're being pretty cautious about where the markets might go. I think there's lots of debate around markets could recover, markets could go down. I think it's fair to say none of us really know. But I think it's reasonable to expect that our stable markets will probably stabilize because the in-market demand there is sort of not as discretionary. So pharma, personal care, packaging for food, those kind of markets are all going to stabilize. Medical and probably have some modest growth when you look at those dynamics. Automotive is expected to grow. And we think that's a reasonable assumption. Building construction, we think, has flattened down a little bit. So when you put all this together, you've got some additional volume growth out of that on top of those numbers from destocking and Kingsport methanolysis. So considerable value there. The second part is asset utilization. So we've been extremely aggressive managing our assets and pulling the utilization rates down to free up cash. We saw great success and over $500 million of cash generated in the third quarter by the actions we took. Unfortunately, it comes with an accounting headwind. It's not a cash headwind, but you take a $75 million utilization headwind hit in the third quarter alone for that, or $75 million really on a full-year basis when you think about the tailwind for next year. So you get to add that back if volumes are flat. That comes back. Obviously, there's actions we're taking to keep our cost structure flat. So all that revenue growth we're talking about above in the volume side of things flows straight to the bottom line. So the incremental margins on the recovery are going to be quite strong. So all that creates a good situation. I'm saying that could be some specialty pricing starting to moderate in a few places. We still have a lot of raw material in inventory that is lower and still needs to flow through. We're about 50% FIFO. in our company. So you're going to see some benefits of that flowing through into next year that will sort of offset especially pricing. So we don't really see raw materials as a tailwind, but we also don't really see it as much of a headwind. So all those factors put together delivers quite a bit of improvement in earnings and earnings from our operating in the cash side as well. So we're pretty excited about focusing on all these actions that we can control in this uncertainty and delivering a success for our owners.
David Begleiter
Very, very helpful. And just lastly, in the areas where you are still seeing the stocking, like crop protection, when do you think it will end or how long do you think it will persist? Thank you.
Mark
On the ag market, which is more than crop protection, but a number of different products, obviously the destocking didn't start until the second quarter of this year. Very different timing stories like consumer durables or building construction started aggressively in the fourth quarter of last year, but ag didn't start until the second quarter. So the destocking started, it got more aggressive from the second to the third quarter. You know, and it continues into the fourth quarter. We do think it'll be played out by the end of the fourth quarter from what our customers are telling us as they start looking to the next planting season. But normally you'd have a build-in inventory starting in the fourth quarter and through the first quarter for the planting season. This year, you know, we're going to see destocking through the fourth quarter and then a wrap-up of building inventory in the first quarter of next year. So that's part of that headwind relative to what is, quote, normal for a fourth quarter is that delta between building versus, you know, pretty aggressive destocking.
David Begleiter
Thank you very much.
Operator
Our next question comes from Frank Mitch of Thermium Research. Frank, please go ahead.
Frank Mitch of Thermium Research
Good morning, and I did appreciate the video on methanolysis, so thanks for giving us the link there. Mark, you know, Advanced Materials has had a difficult 23 on the backs of a difficult 22 where you're now expecting 23 to come in below 400 million of EBIT. I took a look back the last time that happened that you were below 400 million of you was back in 2014. So, you know, I know it's been a difficult couple of years. What sort of confidence might you have that that business can get to $500 million or better in 2024?
Mark
Yeah, so, Frank, we feel very good about doing what you just said and getting this business to come back, you know, considerably from where it is now. You know, the bridge I just laid out at the corporate level is very true at the AM level and all of those elements. So if you think about this year, just as context before we get to next year, the extremity of the demand decline was more than anything we've ever seen before. So we've seen difficult demand environments in 09 in 2020, but those were over in three quarters in 09 and two quarters in 2020. We're now in our fifth quarter of low demand, and some applications continue destocking. So this is something we've never really seen before. But it is all demand-related, and it's a lot of destocking where people got out of control in building inventory during the supply chain crisis. And some of the markets that we're in have very long supply chains. When you think about consumer durable, if we're making the polymers here, having to ship it all the way to China, go through multiple steps to get an appliance or a TV or something made, and then shipping it back to the U.S. and Europe, you've got six to ten steps. It's a long supply chain to deplete. when there's such a significant step down in demand that's as bad as 2009 when you think about consumer durables or housing for that matter. The good news is we can see some markets bottoming out and recovering really well. Durables was down 40% in the fourth quarter of last year. It was even worse in the first quarter. It came back 30% in the second quarter relative to the first, another 15% back in the third quarter. Now it's going to be a little softer in the fourth quarter because of normal seasonality of activity and what customers do. But you can see that the bottom of that market was the first quarter. And it's certainly in better shape as the destocking has definitely played out, we think, at the end of the third quarter. You have some other markets where the destocking is also still pretty extensive, like medical and packaging. It didn't start like ag until the second quarter of this year, and it's finishing out through this quarter as we can see it. So there's different timing and different levels of drop across the segment when it comes to specialty plastics, but we are pretty confident that the destocking part will be over by the end of this year. And when you think about that $450 million of variable margin down for volume and mix, about half of that is in the AM segment. So you can start seeing how that on the destocking part comes back. That's just on the destocking part. Then you've got the $75 million of EBITDA coming from the methanolysis to add back to next year on top of this year. Remember, only 50 of that's going to show up in AM and the other 25 in other. And then you've got a lot of these stable markets that are going to have some amount of very modest growth in the sort of packaging, medical. All we're going through this year isn't a decline in demand in medicals. Surgeries are Steady enough, it's just a lot of destocking, but it's very high value and painful where you get past it. So we feel good about that. About $40 million of the $75 million of the asset utilization headwind from inventory management comes back as a tailwind. $35 million of FX is a headwind this year. I don't know where currency will go next year, so that could be up or down, but it's a significant headwind this year when you think about looking at the total decline. So you've got the destocking coming off, you've got the markets, you have the utilization tailwind, Kingsport, you've got innovation, you've got the auto market, which we expect to continue to grow, and a lot of the innovation that's happening in there. There's a lot of innovation throughout the portfolio in AM that will create foreign growth once the market stabilizes and customers are confident doing new launches. So we feel great, and the incremental margins will be impressive because we're going to keep the cost structure flat.
Frank Mitch of Thermium Research
Very helpful. If I could follow up on the asset utilization, just a clarification. In the appendix, the updated number on the headwind is $100 million on the lower asset utilization. It says first half versus second half versus the prior $75 million, and you're expecting a $75 million benefit in 2024. Shouldn't we be expecting a $100 million benefit in 2024 on asset utilization if it's a if the headwind for 23 is higher? I mean, I wouldn't assume, are you assuming that you're going to run at lower asset utilization as we start 2024?
Mark
Frank, this is Willie. So you've got it correct on the first half, second half. That increased from $75 million to $100 million. And sequentially, as Mark has highlighted, it was a $75 million headwind to Q2. With that momentum, we would expect it to improve quite a bit as we go from Q3 to Q4. But the full year, obviously, you're taking the reference 22, and that doesn't come into effect as you look 23 to 24. So 75 is a reasonable estimate. It may be a little bit higher, but right now 75 is close enough.
Mark
Hey, Frank, part of it was we built a little inventory in the first quarter. And so you've got to offset that to the 100 because that's the first half, second half. So 75 implies we're running our assets in a similar manner next year and get that tailwind.
Frank Mitch of Thermium Research
Okay. Thanks so much.
Operator
Our next question comes from Vincent Andrews of Morgan Stanley. Vincent, please go ahead.
Vincent Andrews
Thank you. Good morning, everyone. Mark, your prepared comments talked about the potential for some state or federal incentives for the U.S. methanolysis plan. What's the sort of order of magnitude and what might be available and when will you know?
Mark
So, yeah, the Inflation Reduction Act is a great program for investing and inspiring, you know, sustainable investments. And we certainly see several of our projects that we're doing available for credit. When it comes to the second methanolysis plant here in the U.S., the one that we're doing with the Pepsi baseload, that funding could be about $350 million of capital is what's in the application. That doesn't mean that's what we're going to get. That's what we're asking for. And so the good news is we've been through a couple of rounds now and we continue to be considered for that program. It's a very competitive process. There's also some tax credits that we're pursuing as well. And we should have insight on what they choose to get all of us out of our requests in the first quarter of next year is what we've been told. But you never know. It's a government process. Who knows how the timing will work. But it's significant. It's a considerable help. We're also pursuing additional incentives in Europe with our project there in France, not at that scale, but some additional incentives. Okay.
Vincent Andrews
And could you just talk about the sale of the plant assets to INEOS? Is that something that you've been working on for a long time, or is it something that just sort of came up this year? And is there anything else like that that's being contemplated?
Mark
Thanks for the question. And obviously, we've had an ongoing relationship with NES Asset TILS and through their acquisition of the BP assets for 10 years now. So, I would say it's just through that ongoing, you know, partnership that we've had at the Texas City site. As we think about longer term, you know, in both, you know, increasing the percentage of Eastman, that specialty, as well as the highest and best use, INEOS is the best owner for that. And also as we think about strategically feedstocks for our advanced materials segment long term. So all in all, all those factors came into play and the team did a great job here and we expect to close that here in Q4. And that provides about $400 million of cash. And we expect to use that to pay down debt here in the near term and for it to be basically immediately accreted. Right now, I would say there's no other items like this in the pipeline. We're always evaluating the portfolio, but nothing imminent. Thanks very much.
Operator
Our next question comes from Patrick Cunningham of Citi. Patrick, please go ahead.
Patrick Cunningham
Hi, good morning. You've held your 2024 CAPEX guide relatively flat with this year, and I'm curious what this means for your additional recycling facilities. Do you expect any meaningful CAPEX to be deployed towards site construction next year, and is there any sort of updated timeline on site selection for the second facility?
Mark
Yeah, I would, again, 2024, we expect it to be similar to slightly below. Our choices on CapEx will be influenced by the external environment. As Mark has highlighted, we're pretty neutral on the external environment. And we can ramp that up or take it down as needed. And I think we've demonstrated that discipline over time. We are committed to beginning construction for the France project as well as the second U.S. project, as we just discussed. We expect to start construction probably in that middle-of-the-year timeframe. Also, we have some other specialty growth investments within the year, and we're waiting on the macro environment to ultimately set the pace of those. So I think what you're seeing and hearing from us is we're going to be disciplined We're finishing the year strong with the cash flows that we just talked about from the divestiture. Also, we expect to have about $250 million of free cash flow here in Q4. So we're positioning ourselves to be disciplined on capital allocation, which will be a mix of organic growth as well as share repurchases as we look into 2024.
Mark
We feel good about our organic growth strategy. We think that kind of growth clearly creates a lot of shareholder value with great returns on capital. It's unfortunate the macro environment took a turn on us just as we were launching into the circular programs and a lot of other specialty growth. But as we've talked about with our view of 24 and the expectation that markets will normalize as you go into 25 and 26, we believe earnings and our cash will come back significantly as we move forward. You've got to remember this year, a lot of our headwind in earnings to 22 is non-cash. $110 million of pension, $75 million of asset utilization to generate cash. So when we're just looking at earnings, a lot of it is a non-cash hit relative to 22. So we feel very good about our cash earnings and how we're doing in this environment, as well as how we look forward to the future.
Mark
And maybe just to build on that, Mark, on the cash, as we think about 2024 cash, as Mark's highlighted, our baseline is starting at approximately $1.4 billion of operating cash flow. That's through the combination of higher cash earnings, call that roughly $250 million. We always assume working capital is flat, so that would be a reduction of about $100 million year over year. And then we've got higher cash taxes, which also includes some of the taxes on the Texas City
Patrick Cunningham
That's very helpful. And then I appreciate that the sort of forward outlook doesn't have any restocking expectations embedded, but based on your conversations with customers coming out of this destocking, do any end markets have, you know, precariously thin inventories, or do you get the sense that this has just been a trimming of safety stocks built over the last couple of years?
Mark
no it's definitely both um there's definitely safety stocks that were built up in supply chain crisis more than customers were sharing with us um uh and so they're you know hence the sort of destocking we're seeing this year um but we're seeing signs where suddenly we get an order from a customer you know some of our big customers where they've you know brought inventory down so low they can't actually make product and they didn't urgent shipment sent to them so You're starting to see people hitting bottom, which is encouraging. If you look at all the data we put together here around destocking and the underlying markets, you definitely can see that we're turning the back half of this year where the destocking has played out. As you look at next year, when you get into this question of restocking, we wanted to build a really conservative view of how we could perform next year. because the macro economy, frankly, is so uncertain. So we don't have any restocking in there, but it's reasonable to expect that some restocking is going to have to happen with some of these customers if the markets start to stabilize and grow at all. And so, you know, that'll happen. That would be upside to sort of how we look at next year. It's certainly going to happen in ag, as I think about it. That's one place we know for sure that a rebuild event will occur.
Operator
Our next question comes from Jeff of JPMorgan. Jeff, please go ahead.
Jeff
Thanks very much. How much did the methanolysis plant in Kingsport cost?
Mark
So, Jeff, on the methanalysis in Kingsport, I think, as we've highlighted earlier this year, we had a range of $700 to $800 million as we started the year. And we went to the higher end of that estimate. We've been able to manage the increase for the Kingsport methanalysis within that discipline budget that we've been able to demonstrate through the year. That's how I would summarize that.
Mark
We don't disclose specific project capital for competitive reasons.
Mark
The additional thing that I would continue to highlight, Jeff, is, you know, if we think about, you know, $450 million of EBITDA, also the fact that we're going to be generating $75 million of EBITDA on the first plant here from a year-over-year basis in 2024, I think that demonstrates, you know, that velocity of EBITDA. And, you know, we think that that's at $150 by the end of 2024. That sets us up well for strong returns on this investment.
Jeff
So, my memory is that you had planned to expand your Triton capacity in Kingsport with the building of the methanolysis plant, but chose not to do that.
Mark
In your Normandy plan— No, we didn't choose to—I'm sorry, go ahead.
Jeff
In the Normandy plant, I thought that there was also a Triton component there as well. Since you didn't build the Triton, the extra Triton capacity in the United States, are you still going to build the Triton capacity in Normandy in that I would think that Triton would be more favorably made in the United States? are you going to scale back whatever it is that you thought you were going to build in Normandy, given the way that economic conditions have evolved?
Mark
So, yeah, let me clarify a couple of points there, Jeff. First, with the Kingsport Methanolysis Plant and the Triton expansion that we intend to do here at Kingsport, we're still doing it, right? We've just pushed the construction timeline of that plant out. to better align with the macro economy. So our intention here is to still have 85,000 tons of capacity being brought online of additional Triton capability. It's just going to come online more in 25 than in 24 because, you know, the durable market where a lot of that Triton is sold is obviously down. So there's no change in our strategy whatsoever. It's just an adjustment of timing, and that's part of what Willie was getting at in sort of how we adjusted our spend rate on capital this year to make room for the higher cost of finishing methanolysis by pushing that capital on the Triton project out into the next year. And so that's what we've done here. So no changes at all in how we think about the value creation from the first investment. It's just a shift a little bit in timing in the short term. The good news around our assets in Tennessee is they're flexible, right? We can swing our Triton lines between Triton and making copolyester. We can make PET. We can assign that recycled content to whatever products we want across our integrated system. So that allows us to monetize the value of the recycled content as quickly as we can make it as we ramp up the facility. So that's not going to be hindered by the macroeconomic environment and durables. because there's plenty of packaging out there that we can make both in our copolyester applications like our shrink or in some PET. So we'll be monetizing the full value of all the DMT as fast as we can make it and driving that utilization rate up as fast as we possibly can. And then as higher value markets like Triton come back, we'll shift the mix in how we assign the recycled content to the higher value markets. We've got a great flexibility that's created a huge amount of value and makes up great over the last decade as we grew Triton on the same assets that once made PET over a decade ago. We can take advantage of that now. In regards to the French plant, we're not changing anything there either. The design of that plant is to have two polymer lines, both of which are flexible between making PET or textiles Or what we said is specialties, but that's actually copolyesters, not Triton. To your point, Triton is much more economically made here in the U.S. with the integrated systems and monomers that we have to make that very unique polymer. So this will be just more PETG products that go into packaging, cosmetics, bottles, and things like that, and a variety of other applications that we make with our traditional PETGs. So nothing's changed in our asset strategy whatsoever from a product mix point of view. Kingsport's all specialties. France is half PET, half specialty, and the second U.S. plant here is all PET or textiles.
Operator
Okay, great. Thank you. Our next question comes from Salvatore Tiano of Bank of America. Salvatore, please go ahead.
spk14
Thank you very much. Firstly, I want to ask a little bit about your plasticizers footprint. How much would you say of your total sales or earnings was coming from the Texas City facility that you're selling? And can you discuss a little bit what are the economics of the agreement where e-mails will actually operate the asset, but technically you're still the owner of it?
Mark
Yes, so we... retain the ownership of the Texas City plasticizers. That was the original strategic intent of buying the Texas City facility along with, I'll call it the infrastructure that the site had. So first, we're retaining the ownership and the sales. Second, I would say the economics around that are substantially the same as it operated today within chemical intermediates. So the only thing that you're going to see is reduced sales of acetyls out of the Texas City side within chemical intermediates. The remaining plasticizer business is and remains intact.
spk14
Okay, perfect. And I also want to ask about pulp prices. I think there has been some traction with increases in the past one or two months max. What are you seeing there and could this be a headwind in the end for 2024?
Mark
No, we're not expecting any headwinds from pulp. Part of what we did in our tow contracts is improve our pricing, obviously, to get our margins back to being able to reliably supply our customers. Because this is an extremely valuable product for them, and reliability is a priority for them. But we also change the contracts. It used to be fixed price contracts, and we had to ride the benefit or the headwind associated with pulp prices or energy. We've now adjusted those contracts to be more like our means business, where there are more costs passed through and adjusts. for changes in energy or pulp, so that's not a concern as we go forward. It's not perfect, but it's a significant improvement from where we were in the past.
spk14
Perfect. Thank you very much.
Operator
Our next question comes from Mike Lighthead of Barclays. Mike, please go ahead.
Mike Lighthead
Great. Thank you. Good morning, guys. First, Mark, I wanted to follow up on fivers. In January, when we started the year, when you had the annual prices sort of locked in, you expected to make about $275 million this year in EBIT. Now we're looking north of $410. So can you maybe just talk about what's changed versus starting years at largely cost? And just help us with your confidence in the sustainability of this higher level here.
Mark
So what I would highlight is the fact that, you know, One, we're confident in the base of where we've gotten to at this point in time. So we're at, you know, greater than 410 for this year. The business team has done a tremendous job of getting the contract structure in place. That's what Mark just highlighted. You know, from our confidence of both the margins within this business Also, as we think about fibers more broadly with the textiles and the textiles growth as we go from 23 to 24, I guess I would just highlight that right now we're substantially complete with the contracts for 2024 and have a high commitment level as we highlighted in the prepared remarks for 25. Going back to the first part of your question, ultimately part of that was growing in confidence. We do have lower energy cost than we had expected at the beginning of the year. And as we gained momentum and seeing how the contracts and the contract structures were working, we just reconfirmed that as we grew the earnings and grew the confidence by year end. A lot of it is great business, and we're happy with where it's headed and will be a strong contributor to cash as we go forward.
Mark
The cost structure and utilization benefits, and we were being conservative about how well some of the investments we were making and running the plant efficiently were going to play out until we had that proven out. And so all that came together. So it's not just price. We've made investments and are operating our facilities a lot better. And that we didn't want to sort of count on until we've proven it to ourselves.
Mike Lighthead
Great. That's super helpful. And then second, I just wanted to follow up on the trajectory of CapEx. Obviously, you've given us some numbers about CapEx going somewhat lower next year. But when I just think about your large growth projects, we've got about two more methanolysis projects on the horizon. You mentioned earlier to Jeff about the new timing on Triton. So just high level, should we expect CapEx to roughly stay around this $800 million range the next few years? Should it trend higher or lower overall?
Mark
Yeah, what you would expect is, again, that we expect around 800 or less in 2024. To your point, obviously we're in the detailed engineering phases right now. And then, you know, France would be probably first out of the gate on long lead and then construction, you know, closely followed by the second U.S. So we would expect 2025 you would be building CAPEX. And it's just going to depend on the timeline. So what I would say is it'll be above 800 million, and we'll give you more firm answers on how we see 25 when we actually get the project schedule set.
Josh Spector
Great. Thank you.
Operator
Our next question comes from Josh Spector of UBS. Josh, please go ahead.
Josh Spector
Hey, guys. This is James Cannon. I'm for Josh. Thanks for taking my question. In AFP, you called out in your guidance some RAS increasing in the fourth quarter. I believe you transferred some propylene from the CIA segment. I'm assuming that might be a big part of it, but is there anything else we should be thinking about in that bucket?
Mark
Yeah, so we buy methanol, we buy ammonia, and we do have propylene-derived specialty products and coatings. So all those products obviously are impacted by oil and overall market dynamics and creating some headwinds as those are increasing, especially from the oil change. you know, it flows through and there's just a lag in how the contract prices catch up to it. And so you'll have a headwind in the fourth quarter and that sequential will then turn to a tailwind in the first quarter from the fourth quarter when those pricing adjustments catch up.
Josh Spector
All right. Great. Thanks. And then just on the specialty fluids that you called out some pull forward, Can you give a little bit more color on what you saw there and kind of how much you expect to get pulled out of Q4?
Mark
So original guidance was we had some great fills on some LNG plants in the second quarter. We had originally expected that to be a bit more in the third, you know, at the beginning of the year. So those fills were made. And so when you looked at the sequential drop from Q2 to Q3, we thought it would be about $30 million. But we had some additional fills show up in the third quarter. So that drop, it turned out to only be about $20 million. But the flu sales for the year are changing. So that just means now that there's an additional $10 million drop of that 30 that will happen from Q3 to Q4. So that's part of why AFP is declining sequentially into the fourth quarter. But overall, great business. And we really like these LNG fills. There's obviously a lot of construction for traditional chemical construction activity uncertainty, especially with PET plants in China where a lot of these fills go. And it's been great to diversify our exposure to that cycle with these LNG plants that also use a lot of heat transfer fluids. And I think as we look at that set of the markets, we see a lot of LNG facilities being built with the Ukraine-Russia situation. and are very well positioned with our products for those fills, which also turn out to be pretty high value products for what they need to do. And we continue to really diversify our exposure into these places that are not as connected to what's going on in China, which is great.
spk08
Great.
Josh Spector
Thanks.
Operator
Our next question comes from Kevin McCarthy of Vertical Research Partners. Kevin, the line is yours.
Kevin McCarthy
Yes, good morning. Mark, I didn't see anything in the prepared remarks that you released on the subject of the UAW strike. Can you speak to whether or not that's having any material impact, and if so, what you might be baking into the fourth quarter? or any auto related commentary in general would be welcome.
Mark
Sure. So specifically UAW, the math on that is it's a pretty limited impact on us. About 20% of our auto and other business globally is in the United States. So just overall exposure is not that high. And then you're just talking about three brands of many that are in the US that are being impacted by the UAW. it's not a material impact. I would say that overall the auto business obviously has been a solid business for us. We've seen a lot of growth in the business in the U.S. and Europe in particular for the interlayer business as well as the films business. I would note that China has been a challenge all year long, so we haven't seen the growth we expected We definitely thought we'd see some improved growth in the back half of the year, and that's one of the things that didn't play out as we thought from July to now in how we've adjusted our outlook down a bit. That's particularly impacting our performance films business, which has an important business in China, and we're not seeing the growth that we expected there, and even some contraction right now at the sales level in some parts of that Chinese business. You know raw it's been a great business we expected to be better next year than this year, but it's it's you know there's a lot of ups and downs going on across the different markets.
Kevin McCarthy
Thank you for that and then Secondly, if I may perhaps for Willie I think earlier this year, you had guided to a cost headwind related to pension and OPEB of 110 million dollars if my notes are correct. Is that still the case? And more importantly, what happens to that line item moving forward into 2024? Does it come back down or would you point to a different trajectory?
Mark
Yes, so ultimately that number is set for the year at the beginning of the year. So the 110 is just coming through quarterly as we expected. That gets marked to market at the end of the year. So there will be, I thought, a gain-loss from asset returns as well as interest rates. And right now, as we look at where rates are, assets, and returns, it's probably a modest headwind if you were to market to market right now. But again, we'll give you an update. We don't expect anything material, but we'll update you at year end.
Kevin McCarthy
And any insight on 2024, Willie?
Mark
From a pension standpoint, we expect it to be a modest headwind if we look at it right now. That will change a lot depending on how rates finish up for the year.
Operator
Our next question comes from Lawrence Alexander of Jefferies. Lawrence, please go ahead.
Lawrence Alexander
Hi, good morning. This is Dan Rizwan for Lawrence. Thank you for taking my question. I don't know if I missed this or not, but so for the second plant in the U.S. and the plant that you're building in France, do we think of those as when they are up and running to be $150 million in EBITDA additions as well? Or is it greater scale or less than that? Or how should we think about it long term?
Mark
Yeah, we've never given, I'll call it plant by plant. We said greater than 450. And, you know, as Mark highlighted earlier in some of our conversations, the first plant is more specialty with our Triton portfolio. So you can expect it to be higher than the other two.
Lawrence Alexander
Okay. Thanks. And then if we think about you saying, you know, medical demand, there being some destocking, but getting back to more, I guess, normalization. I was just wondering if that end market is at pre-COVID levels in terms of elective surgeries and the actual overall demand versus, you know, some of the inventory adjustments we're seeing right now.
Mark
Yeah, the elective surgeries that are occurring are certainly growing roughly 5% a year and definitely, you know, above sort of pre-COVID levels if you look at it. Not a lot, but a little bit. You know, the issue we're having in medical is not about demand at all, right? You know, like in consumer durables, you know, laptops, TVs, appliances are not being sold, you know, nearly as much as they were. Medical is really stable in market. The customers, though, were very nervous during the supply chain crisis about having enough material. And so they built a lot of inventory to be, you know, safe. And because you cannot have a problem in getting medical devices, you know, delivered in our packaging. to the marketplace for obvious reasons. So, you know, they finally got calm that there's plenty of, you know, supply and reliability and started destocking in the second quarter of this year. And they're still doing it through this quarter. But it's just a destocking event. The markets are solid and expected to be better next year than this year.
Lawrence Alexander
Thank you very much.
Operator
Our next question comes from Mike Sison of Wells Fargo. Mike, please go ahead.
Mike Sison
Hi, this is Richard on for Mike. So just a question on the 2024 outlook. Are you assuming any price improvement next year? We've seen prices come down in the third quarter and second quarter despite higher raw material pressures. So just wondering if there's, you know, any... price mix improvement that we should expect, you know, new product launches, that type of thing?
Mark
Well, so from a price on an existing product, you know, sold this year versus next year on the specialties, we're not really expecting much price increases except for where we have cost pass through contracts and the prices will adjust up or down based on where raw materials are going. Now, obviously, if we're in an increasing raw material environment, we will increase prices across the specialties. But in our scenario that we gave you where raw materials are relatively flat next year to this year, I would not expect to increase prices in the specialties. I do expect prices probably to go up in chemical intermediates because right now we're at the bottom of the market, right? We're at the cash cost in the olefin derivatives. We're at the cash cost of the marginal producer in these markets. It's a pretty, you know, it's a very challenging market situation right now in olefins. And so there is an expectation of some normalization of those prices getting better. I mean, the value of the price of propylene relative to oil is about 40% lower than normal. That's extreme and never ever seen before in the past. So that's a lot of the compression that we're facing due to just an excess amount of capacity being added, as well as very low demand in a number of applications that use propylene So there's some balancing of that that will occur even with just the end of destocking and some stable markets growing. So that's one place where I would expect some prices to improve and margins to improve, sort of how we look at it at this stage. I would say the teams have done a phenomenally good job of holding prices at very high levels in this very challenging market that's created a lot of improvement in our price to variable cost ratio. offsetting some of the volume challenges.
Mike Sison
Great. And as a follow-up, any update on terms of the market for pricing for the product from your Kingsport plant and circular products? How is that progressing moving forward as you move to develop the other large projects?
Mark
Yeah, so pricing is holding up really well. We're having no issues with the premiums that we need to get for the recycled content-related products on the specialty side and having good conversations with our customers on the PET side for the premiums that we need to get that go in line with the economics that we've provided to you. So we feel really really good about that. It's an exciting time right now with the methanalysis plan being completed and starting up. We have a phenomenal number of people working hard and making sure that startup process goes well. Back to Frank's comment, the video is a great marketing tool with customers. It's an outstanding story when you see these huge piles of garbage, multi-colored garbage, all kinds of types of garbage that we're taking and running through our process and coming out with a clear pellet. Customers are very surprised and impressed by the low-quality material that we're using that is headed to, you know, cannot be reused with mechanical recyclers at all. You know, this is going to go to landfill or incineration or really low-end applications. And they're just very impressed that we can take that garbage and turn it into a clear food-grade quality pellet. And so the customer engagements around that story of getting things truly out of landfill and incineration, not just using a clear bottle that could have been mechanical recycled, is driving a lot of engagement. The other thing that's important to keep in mind is a lot of the applications we're targeting with this recycled content, both in the specialty but especially in the PET, our applications were mechanical recycling is not really able to meet the specifications in performance because the quality is just not good enough. Our product is identical to virgin material made from fossil fuels. Mechanical is not. It's got integrity issues, color issues. So we are really targeting those applications where mechanical is not a choice. That allows us to command a better premium than mechanical and support our economics.
Mike Sison
Thank you.
Operator
Our next question comes from Alexey Yefremov of KeyBank Capital Markets. Alexey, please go ahead.
Alexey Yefremov
Thanks. Good morning. And staying with methanol, so there have been many projects in the industry where capital cost estimates have been revised higher over the last year or two. And I believe you presented your return on capital objections for the two additional methanolysis plans a couple of years ago. So is it reasonable to assume capex probably needs to go up versus your initial expectations? And if so, how are you mitigating return on capital now?
Mark
Yeah. an important question and one we're very focused on. The capital headwinds that we encountered in the project here in Kingsport were really isolated to construction quality and productivity issues around pipe installation. And that was a very specific issue. It had nothing to do about the design of the plant or the scope of the plant in what we're trying to do when we got into these issues here in the last six months. And, you know, the way we're approaching the next two projects, we're taking a very different approach using very large contractors, you know, that are very capable of controlling those costs in a much better way than what happened here. So we feel, you know, we're in a far better shape. Also, we're not trying to build a new plant, right? So this is a new first, you know, time, 100,000-ton plant that we're building. You know, the plants that we're going to build in France and the second one in the U.S. are basically – know the same plant we built here you know with some some sort of modest improvements uh so we're not you know going into this um without already knowing what the capital cost is you know for the methanolysis unit and the polymer lines you know are built all the time well established to understand what those capital costs are going to be infrastructure is also pretty straightforward that surround the plant so We feel good that we can come up with a high quality estimate for the next two projects, and we can manage the construction process far better than what happened in Kingsport. And so we're still working those numbers. They're still in line with what we expected to deliver a 12% return or greater for the France and the second US plant. Remember, the first plant here is greater than 15%, even with the higher capital costs. So we feel good about sort of where we are on the capital side of this. And of course, we're pursuing these additional incentives for both projects, as I discussed earlier. And obviously, if we get those, that's going to help manage capital risk as well as improve returns.
Alexey Yefremov
Thanks, Mark. And you've pre-processed a fair amount of materials for the Kingsport plan. any lessons so far versus your initial expectations in terms of how this front-end technology works and what the costs are?
Mark
So far, the processing has gone well. There's always hiccups. It's a proprietary new process that we developed that takes a lot of steps out of the sortation compared to a mechanical recycler. We're excited about taking that approach. Chemical recycling allows you to do that because you're not needing perfect, clear material to sell back to the market, as the big pile suggests in the video. But the process is up and running and working well at this stage, and we feel good about how that's going to work. Our overall cost, when we think about sourcing material and processing it into the front of the plant, is a little bit better than we expected. So we're feeling really good on the feedstock side here. Feel great about having 70% of the feedstock already in long-term contracts in France as well. So I know feedstock was a big question in the beginning of this whole process as a risk. We've actually managed that one reasonably well. Customers are going well. Now the final step is starting up the technology, improving its economics and its effectiveness. as sort of the final big milestone in front of us here over the next two months. So we're really excited to sort of chuck all those boxes, keep going forward with this plant, use it to help improve earnings next year in a difficult environment, and get these next two projects underway and create a lot of value for our owners.
Alexey Yefremov
Thanks. Makes sense.
Operator
Let's make the next question the last one, please. Thank you. Our next question, our final question comes from Duffy Fisher of Goldman Sachs. Duffy, the line is yours.
Duffy Fisher
Yeah, good morning, guys. If we could, let's stay on methanolysis. If we assume we're kind of at the run rate of our 450 million EBITDA from the three plants, how volatile would that $450 million be over a typical, let's say, seven-year cycle? And then talk about the volatility you may see on the pricing side and the volatility you may see on the feedstock side over that seven-year cycle.
Mark
That's a great question, Duffy, and one that's been a big focus for us. As we've told you from the beginning, the approach we're taking with this plant is to be more of a – a industrial gas-type project in how we deliver very stable margins and attractive margins when you look at the economics for these projects. So on the PET side, we're doing contracts that pass through the changes in feedstock and energy costs, delivering stable margins for us. We have no intention of getting back into you know, the merchant PT market in going forward. And if we don't get those contracts, as we've said, we won't build the plants, but we're getting the contracts and we're feeling good about it. So those margins will be stable in the PT side. On the specialty side, you know, we have demonstrated great pricing power around our specialty products and managing the price to variable cost ratio really well and keeping those ratios stable. From a demand point of view, What I'd say is the PT market, the packaging market is a lot more stable than some of the other more discretionary markets. So we think that will actually add stability from these projects as well as to the company portfolio. The other thing I'd note is it's a regional business. You know, taking packaging waste out of the environment, you know, the brands and even more so the regulators want to solve the local packaging waste issue in Europe or the U.S. So they want that waste taken back into polymer and then provided back into the packaging and create a closed loop in food grade where fossil fuel-based PET is no longer used. So this disconnects us from China. You know, we're not trying to solve China's waste problem in the U.S. or Europe. We're trying to solve the European and the US waste problems. It becomes more of a regional business. The brands will have to be really careful about making sure they're focused on solving the local impact to protect their brand equity. The regulators are writing policy, especially in Europe. It's already written that the polymer has to be made from packaging placed on the European market. You know, that regional aspect of this business has been a core reason, you know, we've been interested and excited about making these investments. So, you know, it's, you know, not perfect. You know, you still have macroeconomic demand uncertainty, but it's going to be very stable EBITDA.
Duffy Fisher
Great. And then just one technical question about your acetic acid sale. Did you sell the technology for Acetic to them as well, or if you chose to, you could build a plant or you could do something like that SIPCAM licensing deal that you did before where you actually kept the technology?
Mark
Duffy, the sale of the Texas City facility is, you know, that is not part of the strategic focus for Eastman. As Mark has highlighted, we're about anhydride and anhydride derivatives and cellulosics. So the key thing here is this is great for NEO's Acetyl business and for Eastman as we go forward with our focus on circular and a circular economy.
Mark
But it has no effect on our rights to use our technology or license our technology. Great.
Duffy Fisher
Thank you, guys.
Mark
Thank you, Debbie.
Greg Riddle
Okay, everyone, thanks very much for joining us today. We appreciate that and hope that you have a great rest of your day and a great weekend.
Operator
Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.
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