Huntsman Corporation

Greetings and welcome to the Huntsman Corporation fourth quarter 2024 earnings call. At this time, all participants are in a listen-only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance, please press star zero on your telephone keypad. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ivan Marcuse, VP of IR and Corporate Development. Thank you. You may begin.

Thank you, Daryl. Good morning, everyone. Welcome to Huntsman's fourth quarter 2024 earnings call. Joining us on the call today are Peter Huntsman, Chairman, CEO, and President, Phil Lister, Executive Vice President, and CFO. Yesterday, February 17, 2025, we released our earnings for the fourth quarter 2024 via press release and posted to our website, Huntsman.com. We also posted a set of slides and detailed commentary discussing the fourth quarter 2024 on our website. Peter Huntsman will provide some opening comments shortly, and we will then move to a question and answer session for the remainder of the call. During this call, let me remind you that we may make statements about our projections or expectations for the future. All such statements are forward-looking statements, and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. We will also refer to non-GAAP financial measures, such as adjusted EBITDA, adjusted net income or loss, and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website, huntsman.com. I'll now turn the call over to Peter Huntsman.

Ivan, thank you very much for that exciting preamble, and thank you all for taking the time to join us this morning. The purpose of my taking a few minutes to begin these calls is not simply adding more to our script. It is to make sure that we're sharing with you the most recent data and for me to share our views as to the direction of our company and key markets in real time. We've given you an outlook. on first quarter on a divisional basis, we're often asked why we don't give yearly guidance. As I look at markets and the geopolitical scene over the past two weeks, I think this provides ample reason why we are reluctant to try to plan much beyond three to six months as it relates to market conditions. I'll come back to those most recent conditions in a moment. I would also like to give some further clarity on the often used phrase, we will focus on the things which we can control. On our earnings call in October of 2022, reporting on the first quarter to see the full impact of Putin's invasion of Ukraine and Europe's failed energy policies, we stated that a new normal in Europe would include higher gas prices and recessionary conditions. To offset these actions, we announced initiatives to cut costs in excess of $40 million. We delivered those savings in less than 12 months. As it became clear that Europe's focus on deindustrialization was going faster than anyone expected, many global markets were slowing. We took further steps. We've continued to do so through 2023 and 2024. These include the closure and relocation of our Everberg Belgian R&D and European headquarter office. offices in the uk brazil argentina and chile we closed or sold polyurethane system houses in malaysia thailand indonesia italy and today announced the closures of our degendorf germany and king's lynn uk locations we've opened global business service hubs in san jose costa rica and crack out poland we expanded our kuala lumpur malaysia site and now have approximately 600 positions as we have reduced headcounts and costs in Basel, Brussels, and the Woodlands. In our advanced materials divisions, we've closed our BLR capacity in Alabama and sold our Harrison City, Pennsylvania facility. We also announced today that we'll be taking actions with regards to our Moores, Germany, Malay and Hydride facility. Also in early 2023, we closed on the sale of our textile effects division. We're not sitting about wondering what to do about Europe and other troubled areas. Decisions executed have more than offset over $150 million of global inflationary costs since 2022 and seen our SG&A drop by more than 6%. We continue to assess our global assets in all of our divisions, as I believe this industry will continue to see consolidation, divestitures, and acquisitions. We will not only look at our cost structure, but also our asset footprint. I believe that we're well positioned to benefit as demand and pricing recover. Lastly, I'd like to comment about our 2025 outlook. Rather than try to predict our earnings outcome a year from now, We need to focus on capitalizing on today's market forces. Just in the past two weeks, two such forces have emerged that have potentially longer-term ramifications. The first of these are the recent announcements on tariffs. By and large, the vast majority of what we produce in Europe, the U.S., and China stay within those regions. In fact, actions to date that have focused on imports into the U.S. will likely help our earnings. Needless to say, these tariffs are changing almost daily. But I feel we are quite well situated as we ship very little across the Atlantic or the Pacific Oceans. The second shift we are seeing is around recent price announcements in many of our products. I believe that MDI was among the first of the major chemical chains to drop in demand and margins. This was due to the simultaneous rise in interest rates that slowed North American construction and the collapse of the Chinese housing market. Europe's industrial decline and overcapacity as projects announced pre-COVID came on stream. I think Huntsman remained incredibly disciplined with respect to pricing. We previously announced volume due to this. We've stated on past calls that demand needs to return before pricing picks up. As we have reported in the past few quarters, we've seen volumes improve as de-inventoring has ceased and demand has tepidly returned. I believe that we're seeing some early signs of recovery in pricing and margins return. As of today, we are seeing publicly reported polymeric MDI prices in China at a three-year high. Huntsman has also announced a series of price increases in North America as well. Again, as publicly reported, we have seen others pushing for similar actions. It is challenging to say if these actions will be successful and how soon and to what segments they will stick. However, as we sit here today, it's fair to say that there are more positive than negative movement in the MDI industry. My personal feeling is that MDI was one of the first major chemical chains to drop and may well be among those that show signs of recovery earlier than other chains. 2025 will be a year wherein we will continue to minimize our cost structure, optimize our asset footprint, and aggressively push for margin expansion across the board. In short, we will not be sitting still this year. With that, operator, let's open the line up for any questions.

Thank you. We will now be conducting a question and answer session. If you would like to ask a question, please press star 1 on your telephone keypad. A confirmation tone will indicate your line is in the question queue. You may press star 2 to remove yourself from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up question. One moment, please, while we poll for your questions. Our first questions come from the line of Patrick Cunningham with Citibank. Please proceed with your questions.

Hi, good morning. Thanks for taking my questions. So, you know, in the midst of the restructuring actions, you know, it seems like the downstream piece is a big part of this. But in the past, you kind of talked about this being part of the business you like. You've already gone through a lot of fixed cost takeout. First, can you help us understand the size and scope of these actions? Why is this an area of focus now? And if there's any concern in, you know, being able to fulfill that demand improvement when it does come?

Yes, I think that as you look at this across the board, we are going to calibrate our business around what customers need and what they're willing to pay for. And as we see some of our customers locating or relocating, I should say, out of Europe and moving manufacturing footprints and assets to Asia and the U.S., we obviously are going to be following them and manufacturing further downstream capacities in those areas. We've also announced in previous calls that we've been able to consolidate some of our system houses by multi-using assets in these various system houses. It used to be that you would build a system house that was built around the automotive industry or one that was built around the installation industry or One that was built around a particular region or customer cluster in Europe, for example, where we have perhaps the most developed downstream business. We, I think, over the years have done a much better job in being able to utilize one location to do what used to be two or three locations and expanding the capacity of that location, both from a technical and from a volume point of view. So we've seen the market change. We've seen fewer customers that are demanding the formulations and the products coming out of system houses. And frankly, if customers are not going to pay for the services that are rendered from those, we'll make decisions and we'll be cutting back. So I think it's a combination of all of those areas. And you're going to see a preponderance of that taking place in Europe. But we've also announced we've withdrawn from some of the Southeast Asian markets. We find that our margins of supplying raw materials out of China, for us at least, that was a better value proposition than moving downstream in some of these countries that we had to have quite a bit of local expertise and cost to be able to handle those. So it really will vary region by region.

Understood. Very helpful commentary. And I know you don't guide for the full year, but in performance products, You seem to talk about margins improving over this year. I know you have some investments there that are adding to the EBITDA line, but what are the markets driving this volume improvement, or is it a significant mix improvement, just anything underpinning that level of confidence in material margin improvement?

I do think that performance products will be gradually improving throughout the year. And we're going to see that mostly come about through the recovery in the construction area as it pertains to the Malay business. And in our means business, it's going to be everything from polyurethane spray foam catalysts to the raw materials going into the ag industry to our most recent expansion in Conroe, Texas, where we'll be servicing the chip industry with solvents and cleaning solutions and so forth. That expansion is complete, and we're in the process right now of getting qualifications from customers. So we've actually booked sales coming from that, but I wouldn't expect to see us running at that run rate that we've given earlier forecasts on until later in the year when we're fully qualified in a broader customer base.

Thank you. Our next questions come from the line of David Begleiter with Deutsche Bank. Please proceed with your questions.

Thank you. Good morning. Peter, on your Malaya announcement today, can you provide some more color as to why now, given maybe a potential rebound in European construction? How much is that business, I assume, a negative EBITDA? How negative is it? And what's the potential cash cost for shutting that business down? Thank you.

David, always good to hear from you. Yeah, we've received a couple of different inbound inquiries on that business, as you can well imagine, in a world that's rapidly changing with tariffs and trade patterns and so forth. You know, we're going to pursue those calls, and we're going to see where values are and what we want to do with that site longer term. Longer term, as we've looked at Malay, as we've looked at the downstream UPR industry, you know, we've seen Europe become a far more competitive area with imports coming in, particularly from China, from Turkey and places in Eastern Europe. I think you're probably seeing a lot of Russian materials and downstream products in Russia that find their way to the European market in spite of sanctions and so forth. And I think where we look at where we've got a cost advantage, where we've got a strong market position and so forth is in North America. We're going to weigh those issues and see if we're the best owner for that facility longer term. We're going to see how we feel about Europe from an industrial basis. The lake, as you know, is very sensitive to raw material costs on butane, energy byproduct values, and so forth. All of these things have to be taken into consideration. That's what we're doing. We're not going to be sitting here a year from now wondering what to do with that site. I think that we'll make a decision here in pretty short order.

Very good. And just on polyurethane, you mentioned some share gains as well as additional growth from the splitter in 2025. Can you provide some more color as to what's driving those share gains and potential uplift from those actions in 2025?

I think in 25, particularly in North America, you know, I think we certainly want to be able to grow with the market. As we look at the nice gains we've had over the last year or two in capacity utilization and so forth, we are still below pre-COVID numbers in MDI demand. We still have room for expansion. I think that that will include perhaps A minority of what I believe that we need to be, where we need to be expanded 2025 needs to come about through market growth. But there's also, you know, some applications and customers and so forth that we lost over the last year over the stands that we took on pricing, on trying to maintain pricing and so forth. And we are very hopeful that we'll be getting some of that back. That's not something that happens overnight, and it's not something just because you drop the price you get the business back. So it's going to be because of service, technical support, you know, a full value proposition. That's not something that happens in a single quarter. So I believe that we'll continue to make further progress through 2025.

And, David, you can assume if the market develops, as we think, about a $15 million benefit year on year from the splitter at Geismar.

Thank you. Our next questions come from the line of Frank Mitch with Firmingham Research. Please proceed with your question.

Hey, good morning. At the risk of playing an armchair psychologist, Peter, it sounds like you're more optimistic than we've heard you in quite some time. So I'm curious as to what might be more specific in terms of what's driving that optimism, if I'm reading that correctly. Is it what you're seeing out of China post-New Year's? I mean, any sort of color there would be helpful.

Yeah, Frank, always good to hear from you. Yeah, and you're not the first person that has tried to provide free psychiatric counseling to me, and I appreciate that. As we look at the markets right now, and again, I don't want us to be over-reading this, pricing actions that are taken in the first quarter of 2025 will at quickest be felt at the beginning of second quarter, right? So let's get, I mean, we go out today and we say we're raising prices today, and I'm just speaking from Huntsman's perspective to Huntsman's customers. I'm speaking about our competition and what they may or may not be deciding on here. China is a very large polymeric MDI consumer, and the published price in China is one that is quite public. And the published price, by and large, is fairly accurate to a very large chunk of the market in China. Those prices where we have seen them over the last two quarters have been remarkably stable, and they've been at about a three-year high. So again, at a place where You would think that with the capacity that comes on and so forth, there seems to be fairly good macro demand in discipline. I would note that we are not seeing any, I would say, material stimuli in China that's pushing greater demand and so forth. We keep hearing rumors that that's forthcoming, that it was going to come right at the end of the Chinese New Year. So far, I haven't seen any. But China, as we said probably about a year ago, we think China's just going to see a very gradual recovery, and I think that's going to continue through 2025. As I look at the U.S., we are, and again, this is in the public domain, we have gone out with a series of price increases. And I want to just emphasize the U.S. market, you'll have price points in the U.S. market because you've got a very commoditized polymeric all the way down to downstream adhesions and so forth. You have price points all over the place. So when we talk about a $0.10 per pound or $0.15 per pound, That may not be effective immediately. It may not be effective across the board. I'd also remind you, in the U.S., we also have a number of contracts, especially in the building and trades, where you'll see pricing pass-through. We'll agree on a price, and the price will only move with raw materials. Now, those have reopeners usually every six, 12 months, depending on the contract and so forth, where we can go in and negotiate an expansion on the margin component of that. My point in the U.S., Frank, is that pricing is in the contracts, timing, variability is all over the place. What I am seeing in the U.S. that I have not seen for at least the last two years or so is multiple players at the first time announcing price increase in multiple segments. It's not all the same price. It's not all the same segment. It's not all the same timing. But I've not seen that for about two years or so. So it tells me that with the end of de-inventoring, a gradual recovery of what we're seeing, kind of getting back to that million plus homes, you know, the continuity and consistency. And frankly, just having operated for the last two plus years at below, well below a cash cost reinvestment in North America, It feels like there's more stickiness to the price discussions we've had thus far. And when you're the only one out there pushing for a price increase, it's pretty lonely. I don't feel that we're the only ones. I know we're not the only ones out there pushing for a price increase right now. So a whole variety of factors. In Europe, I would say that Europe's going to continue to be a struggle. They've got a lot of imports coming in. They haven't decided yet, do they want to try to protect industry? Do they want to do anything on energy costs? Do they want to do anything on tariffs? I think everybody in Europe's just trying to wait to see what tomorrow brings.

That's very comprehensive. Thank you. If I could follow up on the U.S. and MDI and China, you know, the U.S. is looking at a preliminary anti-dumping probe on Chinese MDI coming in. I'm curious if you have any thoughts as to how that may play out and what might be the impact and when might be the impact for you guys.

Well, we are participating. and that is we have been given a request from the U.S. ITC, which then will take its recommendation to the Department of Commerce, who then gives it back to the ITC, then probably gives it back to the Department of Commerce, and then it's decided by somebody who's apparently getting a check who's 134 years old from Social Security. My point is, Frank, in these sort of things, by the time there's a final adjudication, It probably won't be any sooner than a year or so from now, but given where the U.S. is and given some of the potentials that are out there, I don't think that it would be a negative if the Commerce Department were to rule, you know, that there's dumping that is taking place here. We certainly, I believe, would be a benefactor of that.

Thank you. Our next questions come from the line of Jeff Tsakakis with JP Morgan. Please proceed with your question.

Thanks very much. I think your EBITDA projection in performance products is 25 to 35 for the first quarter, so call it 30. And last year, you did 42. So why are we down 30% in performance products? And are we going to continue at that level in 2025? Can you analyze the EBITDA decrease for the first quarter?

Sure. I'll comment. And most of that is going to come around the drop-off that we've seen in profitability with our Malay facility in Europe. And do we intend that would be the lion's share of that? Do we intend to continue at that sort of a run rate? Absolutely not. We are taking cost initiatives and cost measures throughout 25 that will be announced throughout the year. We've got capacity that will be coming on in Conroe. We've got capacity that will be coming on to further our catalyst chemistry in Petferdo, Hungary. They'll be coming on in mid-year. forecasts that show the second half of the year hockey sticks. But we do have capacity that will be coming into the market at the end of the first half. And that volume will be coming into the market in the second half. And I believe that as we've seen the de-inventorings, we've been hopefully quite clear on past calls. I think performance products and a lot of the amine chemistry in particular really saw a de-inventory that took place on that supply chain. later than polyurethanes and even advanced material. And I think that we'll see a gradual recovery of that taking place throughout the year.

And in polyurethanes, what's the year-over-year volume growth, either that you expect in the first quarter of 2025 or that you've experienced year-to-date?

I would think that that's going to be around about 5% as we look at the first quarter versus first quarter. First quarter, 25 to first quarter, 24. Somewhere in that low single digit.

And relatively consistent, Jeff, with what we saw in 2024, continued growth, which is obviously important to the economy. to the color that Peter gave around pricing.

And I would just know that's based on recovery, not on growth. That may sound like an oxymoron, but again, I think these markets are still recovering. I don't believe that we're seeing real growth taking place yet from the pre-COVID levels.

Thank you. Our next question has come from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.

Thank you, and good morning, everyone. I'm wondering if you could speak a bit more to volume expectations in the European market. You had some recovery there last year, and just obviously with all the uncertainty there, just wondering what you're expecting in Europe.

I'd like to be more optimistic about Europe. I think it's going to be rather flat, and a lot of the volume pickup that we saw this year versus last year We had a pretty bad comparison last year as we had an electrical outage at our Rotterdam facility that cost us some volume. So, you know, as we look at that, it's going to – the comparison probably makes it a bit skewed. I'd also just remind you that at the latter part of this quarter first and beginning part of the next quarter, there's a 40-day – And just to remind everybody, this is a cluster turnaround that involves a number of our raw material suppliers and even some of our downstream customers. Everybody that's kind of involved on that entire ship channel in Rotterdam, they all come down once every four years in an effort to try to do all your maintenance and everything. And the key is, coming back up, you can only come up as fast as the slowest, least competent operator can bring their facility up and running. So hopefully that will be 40 days or less with probably slightly more than 50% of that in Q1 and the rest of that being in Q2.

Okay. And then if I could just ask on a follow-up on all of your pricing commentary, which was very helpful, if I heard what you said correctly, It sounds like you're suggesting it's possible that there could be some good price achievement this year that would not come at the expense of volume, meaning that the volume needs to go up with sort of just the overall recovery in the markets, but that you might still also be able to get price so that there wouldn't be any tradeoff between the two. Is that a correct interpretation of what you said?

Yes, that would be a correct interpretation. If we are sitting here reporting in first quarter that we've lost market share and we're giving up volume in order to get pricing, I will not be happy.

Thank you. Our next question has come from the line of John Roberts with Mizuho Securities. Please proceed with your questions.

Thank you. Do you think the reciprocal tariffs will change the trade flows for your customers that could impact you, or do you think it's just going to change price and there will be minimal change in trade flows at your customers?

I think, John, it's really too early to tell exactly how that is. I'm always surprised when tariffs are in. They usually are not as damaging as people expect them to be. On the other hand, where we do see changes, it usually comes from areas that we're not expecting either. I know that sounds like a nebulous answer, but oftentimes decisions will also be made months before tariffs in anticipation of them coming. People will be building up stockpiles. You'll see buying habits changing and so forth. In this particular round, I'm not seeing a lot of inventory build from our customers. Again, I can't speak for others, but from our customers, I'm not seeing a big, what I would call a tariff buildup. So maybe that's because, again, they're changing almost on a daily basis as to what's valid, what's not, and who's getting nailed and who's not. So I'm not sure. That would be a pretty tough gamble to take, saying, We're going to build inventory and tie up working capital today for something we think may be coming in May or June of this year in tariffs.

Okay. And then the 2025 Supply Chain Financing Program, is that a standard factoring program? So the free cash flow increase is temporary until you decide to end that program?

John, I'd characterize it as a standard supply chain financing program. I think we've indicated that we're targeting about $30 million benefit from that program. You're correct, if we chose to end that program, then theoretically that would go away. That's not how we're viewing it. We're viewing it as a structured program for the future for the company.

Thank you. Our next question has come from the line of Salvatore Tiana with the Bank of America. Please proceed with your question.

Yes, thank you very much. I wanted to follow up a little bit on tariffs and get a better understanding, specifically because the China tariff should already be in effect. So is there anything you're seeing with regard to, for example, imported MDI or that you would expect in the weeks ahead? Because this is not a theoretical scenario. This is something that already is in place. And secondly, as we talk about potential anti-dumping duties for MDI, and also for epoxes in the U.S., how do you think this will play out together with the standard tariffs? Meaning, would this be implemented on top of the tariffs? Would it be one or the other so the 10% China tariff goes away if the U.S. goes with anti-dumping duties? How would this work out?

I'll try to get the first part of the question. Let Phil answer the second part of the question. As we're looking at, again, I don't think that you see instantaneous cause and effect on tariffs. If you're a large European or Asian company that the chemical company is importing into the U.S., if you're a Chinese company, you've been paying 30% in products like malachite, hydride, and MDI. You're now paying 40% depending on how trade negotiations go and how rulings and so forth can come with the Commerce Department. It may go higher than that. Which of those companies may say, I'm not going to produce and move product from China. I may be moving it from Europe or some other location, and you may be able to divert some of those tariffs. But usually, they're going to add costs somewhere in your supply chain. So, and that, I believe, over time puts pressure on margins and puts pressure to put prices through. So, again, I don't believe that what we're seeing today is necessarily tariff related, but we may see in the second and third quarter of 2025, you may see some pressure because of that.

And Sal? Look, MDI already had a 30% tariff, so add another 10% to that from China. So that's where we are. That's where we are, as you say, today. As the investigation with the ITC goes on, I mean, typically those are then additive to those tariffs, but let's just see how the actual investigation evolves over the coming months.

Okay, perfect. And I want to follow up a little bit on potential strategic reviews. I mean, the past few years, including now, the focus has been on underperforming assets and trying to see whether something can be divested or needs to be shut down. But what about considering options for assets that are actually performing well, like your advanced materials division that, you know, as you've highlighted, the margins have been stable despite the turmoil. And given where your stock price is, the valuation for Hansman, perhaps it would make more sense instead of focusing on underperforming assets to focus on realizing the value that the market does not see in Hansman in your best assets. Is something that you would consider?

Well, I would remind you that our advanced materials in Europe are some of our most valuable and highest margin assets we have in the company today. Again, that's in one of the most high-cost countries in the world, Switzerland, supplying European customers. So I don't want to completely write off Europe, though. I guess the Swiss would always argue if they're part of Europe or not. I would just say that I don't want to paint all of Europe as that we're looking at all assets there in the same vein. I will just repeat what we've said on previous calls. that if we have an opportunity to expand, if we have an opportunity to exercise a merger or M&A in this company, we're going to be leaning very heavily towards looking more like advanced materials than any of the other divisions. That's not to say we don't love the other divisions, but it is to say we do want longer-term that margin, the lack of volatility, and, you know, a global footprint that I think is going to be more conducive to investors. So, yeah, we're not going to look at everything the same.

Thank you. Our next questions come from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your questions.

Thank you, and good morning. Peter, would you comment on MDI industry operating rates by region and where you see the tightest and loosest market conditions today?

Yeah, I believe that you're going to see the loosest market conditions today in Europe, and you're probably going to see some of the tightest market conditions in the U.S., But having said that, I think that there's factors when you factor in imports, the impact that imported material is going to take. When you look at certain regions are exporting more than they're importing MDI, it's tough to just say that there's three different numbers, three different regions, and never the twain shall meet. But I think by and large, you probably have the highest amount of excess capacity, and I would add the oldest and highest cost capacity is in Europe. As you look at the global operating rates, I would guess that it's probably north of 85 and south of 90%, you know, that mid to high 80s sort of a number. And, again, that's going to depend, again, how many companies are shut down at any given point for maintenance, trade flows. You put a boat, a ship on the water, it's going to be out of action. You're going to have a large load of material there for months potentially. So they're just – I used to – give a lot more focus to that MDI capacity utilization. I think it's a number worth following, but I wouldn't read too much into it because there are a lot of variables and factors that go into that.

Understood. And then as a follow-up, in the prepared remarks that you released yesterday evening, Peter, I think you talked about escalation of energy in Europe and specifically natural gas in the region around $15 per mm BTU. How are you and just competitors broadly handling that? In other words, do you foresee a return to some sort of surcharge regime? Are you dealing with it through normal course pricing? Maybe you could talk about the next quarter or two and how that might evolve.

Yeah, if you look at the natural gas price in Europe a week ago, it was around $16 a you know, depending on Louisiana or Texas today, we're paying around, you know, two and change, around $3 per M and BTU. And that's an order of magnitude of 5X between U.S. and Europe, depending on where you have your facilities. If you're looking to throw China into that, China is about on par, if not cheaper, depending if they're burning coal or not, which the vast majority of their energy comes from coal, is even more competitive than the U.S. when it comes to electricity and various raw material components. As we look at natural gas pricing today, it's around $14.50. So you've seen a dollar and a half drop in Europe, which has gotten very little notice. If you saw a dollar and a half drop in the U.S., it would almost be cataclysmic. Nobody would be making any money making natural gas at a buck and change. So, again, we need to be looking at these longer-term, trends and so forth the simple fact of the matter is europe does not have a energy policy that that has anything to do with the production of hydrocarbons the value of hydrocarbons and the importance of hydrocarbons and i think this is this has been costing them for the last couple of years uh you know their industry it's going to continue to cost in their industry uh so as we look at that We've seen this coming for some time. I'd remind you that I know it's going back in history, but 15, 20 years ago, we produced literally 10 times the volume, Huntsman did, of volume of petrochemicals that amount of time ago, 15, 20 years ago, than we do today in Europe. That's astounding to think that we've dropped. Now, a lot of that are divisions we sold off. We spun off and billions of pounds of that are also parts that were just completely shut down. But to think that we've seen a 90% drop in our chemical production in Europe tells you something about the failure of European energy policy. I'm just glad today as we look at our portfolio today, we essentially, when you think about advanced materials and performance products, and much of our MDI downstream business and TPUs and so forth, these are not heavy energy-intensive businesses that are reliant on natural gas as we used to be a couple of years ago. So what are we doing to focus? We're focusing on where we can make the most money on the least energy-intensive capacities and so forth. As we've said on past earnings calls, we're going to look at our energy-intensive footprints in Europe and see if there are places outside of Europe, Middle East, U.S., other places where we can perhaps produce this product at a cheaper rate. And that's a lot easier said than done, obviously. And we're going to continue to explore alternatives because the longer-term prospects without a sound plan in place just do not seem very good for energy-intensive industries for Europe.

Thank you. Our next questions come from the line of Hassan Ahmed with Alemic Global. Please proceed with your questions.

Morning, Peter and Phil. You know, a question around volumes. You know, you certainly sound a little more positive with regards to, you know, the destocking being behind us. You know, you mentioned within polyurethanes, it seems... you know, pricing may have crossed out, maybe beginning to pick up a little bit. And in your prepared remarks, you talked about how in 2024, volumes were up 6% across your portfolio, but yet well below normal levels, right? So I'm just trying to get a sense of as and when the recovery happens, you know, factoring in restocking, factoring in market growth, what that volumetric uptake may look like just to get us back to normal. And then obviously there'd be market growth.

Well, I think that if you go back, just looking in history, you go back to 2021, that was obviously a time when we were sold out in most all of our production, particularly around polyurethanes since 2021. We've started a splitter in Geismar, Louisiana. So the next go-round when we're, quote, in a sold-out position, I would hope that we'd have even more value-added downstream components at MDI than more of the bulk commodity grades that we were more reliant on a couple of years ago. And I think that when we look at it as a more sold-out position, you know, 20, 2018, 2021. I mean, these are kind of the times when you see that. And I think, but for COVID, you probably would have seen, you know, an 18 through 21 sort of a quasi super cycle that would have taken place over a multi-year period. And we've obviously seen the fall off now. Our biggest issue, I believe, in most of our, every division we have is volume. And polyurethanes can be volume and margins.

Very helpful, Peter. And as a follow-up, in a world with tariffs, certain product areas, anti-dumping duties and the like, as you look at your portfolio, I mean, it's obviously more global than your competitors. From a sort of positioning perspective in this sort of tariff, anti-dumping duty environment, would you consider the geographic positioning of your portfolio as a major advantage relative to your competitors?

I really can't. I'm reluctant to speak about our competitors, especially since I've got one, two, three, four, five, six lawyers on it. No, I've only got one lawyer at the table here. But I like the idea that over time, We followed on what ICI started 20 some odd years ago, and that is you produce where you sell. And you don't become reliant on global trading, which coming from ICI probably sounds a bit strange. But anyways, it's having those global footprints. I look around the world right now, easily 90 plus percent of what we produce is sold within those respective regions. And I think that for us, that's a very good fit.

Thank you. Our next questions come from the line of Josh Spector with UBS. Please proceed with your questions.

Hey, good morning. First, I just wanted to ask on the corporate cost for 2025. I mean, the cost hasn't come down in the last few years despite the cost savings. Can you just go through why?

Sorry, Josh, can you repeat that?

Yeah, so just why haven't your corporate costs come down from $165 million over the last two to three years despite the cost savings?

Yeah, I mean, I think our corporate costs ultimately have come down from a high of about $199 million a couple of years ago to $175. They were $160 odd today. You've got inflation running through that, Josh, just as we said. We run at $40 to $50 million of inflation overall. In addition to that, we've had some more LIFO losses. And in addition to that, some FX impacts as well. But in general, the underlying costs have been coming down.

Okay, fair enough. If I could follow up from an earlier question, just specifically around Europe and the downstream system houses that you're making some changes to. I just want to clarify, what's your plan for Europe then with that business? Do you sell more polymeric and monomeric MDI and less formulations and your services costs are lower and therefore that's how you get back to profitability? Or is there a different strategy at play to how you approach that region?

No, I think that, look, you've got demand is coming down. We've got excess capacity in some of our system houses. And you fill out the most efficient, most flexible system houses that you've got. You fill those out. And where you've got excess capacity, you remove the excess capacity. And unfortunately, in a region that has continued to deindustrialize, that pie has just gotten smaller and smaller over the last couple of years. So yes, we're going to have to just unfortunately look at our asset base and align that with where our customers are, where they're investing. A lot of European auto companies, for example, are investing more in new products and new applications in the US and in China. Some of that capacity and some of that work that was formerly done in Europe is going to be done elsewhere. We've got to follow the customers and where the applications are taking place. But as we have excess capacity, we also need to remove it.

Thank you. Our next question has come from the line of Alexey Yefremov with KeyBank Capital Markets. Please proceed with your questions.

Thanks. Good morning, everyone. Peter, thanks for your commentary on NDI pricing in the U.S. And I realize that there isn't just one price out there. You just described that. Nevertheless, one flaw, you know, announced a 15 cents per pound increase here. So could you maybe approximately size the order of magnitude of what you are trying to achieve or what you see your competitors trying to achieve relative to maybe that 15 cents per pound for one of the grades? Are we talking about 5 cents per pound, 10 or 15 that you're hoping to achieve by, let's say, middle of the year?

Our price increase that went out before Juan was, by the way, was at least $0.10 per pound. And again, some people were going to try to ram that through as quickly as possible. Others, you're going to have pricing protection. Others, certain other applications, they may see more, they may see less of that. But ours is less, or at least $0. Thanks a lot.

Very helpful. As a follow-up, I wanted to ask you about Maryland. So, you're describing qualification initiatives. So, can you maybe tell us what's been achieved with Maryland in 24 and whether your outlook and timeline for commercial scale-up of this product has changed?

Yeah, in the past year, we have expanded to a 30-ton reactor. This gives us, when this reactor will give us two things. It'll give us product that we can start producing at a commercial scale and commercial economics, and it will also give us product from which we can start qualifications in a number of different applications. And so for us, You know, we believe that during 2025 we will see production out of that 30-ton reactor that will be going to market, that will be sold into the market, and will be going to a phase that is larger than that reaction. And that will be started as that will be a 5,000 kiloton. reactor that will be started up probably sometime next year. At that point, I'd say a 5,000 ton reactor, not 5,000 kiloton. I'd be great if we could get a 5K reactor. That, I believe, is probably, just from the physics point of view, as large as you can go. And then you start multiplying that size of reactor So that will give us the same materials of the reactor we have today. It'll just give us better economics than what we have today. So a bit more developmental work to do on the reactor side, but we do have product that we are taking into the market, and we are working with a number of applications. First of those that we hope to get will probably be in EV battery applications that we hope to be reporting on later this year.

Thank you. Our next question has come from the line of Michael Sasson with Wells Fargo. Please proceed with your questions.

Hey, good morning. You know, I understand difficulty in looking beyond the first quarter, but Peter, you know, is there potential that 2Q EBITDA sequentially should be better than 1Q? Or maybe the way to ask it is what do you think needs to happen to see a sequential improvement? Are you seeing any hints from customers that you know, demand seasonally should uplift into Q. So just kind of your general thoughts of how EBITDA could get better as the year unfolds.

Yeah, and I know this sounds like a really simplistic answer, but seasonally, yes, we will see an improvement in earnings just because we're now starting to get an April, May, June construction time period, whereas first quarter, there's not as much construction going on. And I do believe that we will see some traction in pricing on MDI during the second quarter as well. I'm very hopeful on that. I want to be absolutely clear. We won't know until customers pay the invoice. We can make all the announcements we want, but until we start getting more money from our customers, we're not successful. So I think between seasonality and improvement in pricings in PU, Advanced materials, again, that's not a highly cyclical or seasonal business and performance products. That will improve as we see further acceptance of our means going into new market applications, and as you see, UPR and Malay derivatives to improve during the construction seasonality as well. So, yes, I would certainly hope that Q2 would be better than Q month. Q1 month.

Got it. And then just a quick follow-up. I think you mentioned that China MDI prices are at three-year highs. I don't suspect that China MDI margins are at three-year highs. So if they're not, maybe you can give us a thought where they are and what needs to happen for the margins to improve.

Yeah, I don't want to get into the granularity on an EBITDA on a regional basis, but I would say that right now I would be very happy if all the regions were at the same margin as China. And, you know, look, what we need in China more than anything else is demand. It would be great to see some sort of a stimulus that would, you know, we saw the bursting, I believe, this is my personal opinion, we saw a bursting of a housing bubble that probably started back in the 80s. And I think it was probably one of the longest, most sustained housing bubbles that was formed as hundreds of millions of people went from rural into urban living. And China benefited greatly during that time period. Obviously, that slowed down. And to the extent that recovers and gets some traction, I think that would be a huge plus.

Thank you. Our next question has come from the line of Matthew Blair with TPH. Please proceed with your questions.

Great. Thank you, and good morning, everyone. On slide 13, the dividend from equity affiliate guidance for 2025 shows a $75 million headwind year over year. It seems like a pretty large number in the context of your contribution from the the China PO MTBE plant, I think was about 39 million of equity income in 2024. So could you help us understand, um, you know, the moving parts on, on the 75 million? Thanks.

Yeah, Matthew. Good question. Um, so two items, which I see that headwind one you've talked about, which is all around the MTB margins and how those have deteriorated fairly significantly from the second half of 24. and have remained very low here in the first part of 25. So that's one part. The other part, you may recall that we had a approximately $40 million dividend as a result of the restructuring of our Chinese MDI joint venture, the so-called slick joint venture. And that was a one-off, which I think we highlighted at the time. That goes away, and therefore it's a headwind in 2025.

Great, thank you. And then could you also clarify on the European notes that will be repaid in the first quarter, is that going to be a straight payoff of cash or do you expect to refinance those notes?

No, we don't expect to refinance those. We took out a 2034 note in June. quarter, the end of quarter three, quarter four of last year for $350 million, which we then swapped to about a four and a quarter percent rate. So no, that'll be a straight payoff, which we'll do in the first quarter.

Thank you. Our next questions come from the line of Lawrence Alexander with Jefferies. Please proceed with your questions.

Good morning. I have two questions. One is, if the U.S. Construction market recovers and USMDI becomes relatively tight. If there isn't a broader inflation cycle to destroy demand or some other demand shock, what would you see as the natural breakpoint for the regional spread in margins? Is there any safety valve, any obvious product substitution that we should be thinking about in terms of what would regulate the where U.S. margins sit relative to the rest of the world. And then secondly, if things do tighten back up, just extrapolating from your green shoots, and maybe I'm being too optimistic, and you get a return to a decent run rate on free cash flow, what are your priorities in terms of capital returns, deleveraging, portfolio shifts to reduce cyclicality going forward?

Yeah, Lawrence, good to hear from you. I would love to test your hypotheses and see how high we can get prices before we start to see things. I think that there's three things to keep in mind. First of all, let's think about what the application is going to be. Some applications have pretty low content of MDI, and so you can get prices – probably close to double in MDI, and it's not going to hurt the downstream application all that much. But when you talk about construction per se, number two, you're looking at products that, let's just say, spray for home insulation. You've got competing products there in fiberglass, mineral wool, and so forth that you're competing against. And so, you know, the higher you push the price up for spray foam, the more competition you're going to have coming in on your mineral fiber and so forth. As you look at OSB, I would imagine in places where it's still, you're still able to use it, you'd see formaldehyde products and so forth. You know, so eventually you start hitting product substitutions. Some of that's going to be at a lower price point than not. A lot of that depends on what your overall content of MDI is going to be. The third area that I was just factoring is, you know, if margins get out of kilter, if you will, comparison to the other regions, you will see, amazingly, you do see people that actually produce MDI in Europe and ship it to the U.S., even in today's lousy economics. I'm not sure how that works. But according to trade data, you still have companies that are doing that. So as your margins go up disproportionate to the other two regions, you are going to attract more imports. Some of that's going to be impacted by tariffs. Others of it, much less so. So I think factoring those three things, where do you have, what is your content per end use application, what is your competitive materials, and thirdly, at what point do you start attracting imports coming in and flooding the market, if you will?

Lawrence, on capital allocation, look, as you think about a portfolio that heads back towards mid-cycle over time, Debt levels, I think I've said, we're comfortable with the debt levels of long-term debt of about $1.5 billion. I think that's appropriate for this portfolio. CapEx running today, 180 to 190, probably a little light if you move towards a mid-cycle level of earnings. So more like, think about 230, 240 on a mid-cycle level. Dividends want to remain competitive from a dividend standpoint. It's a 6% yield today. That's obviously off of trough economics right now. And then we'll get into, once we are delivering excess free cash flow, well in excess of our dividend, then we'll get into the debate of share repurchase versus M&A on our advanced materials business, which we continue to want to build over time. So hopefully that's the way to think about capital allocations. We move back towards mid-cycle earnings over time.

And operator, we've... Lawrence, thank you very much. And Operator, we typically like to end at the top of the hour. Why don't we take one more question and then we'll wrap up the call afterwards.

You got it. Our final questions are coming from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your questions.

Great. Thanks for taking my questions. I guess I just wanted to ask about capital allocation. So obviously you've undergone a review here in Europe. I think you've mentioned it in the past. Are there other kind of cleanup that you'd like to pursue? And then I guess maybe you can discuss leverage and the dividend. Are you still committed there? Yeah, thanks.

Yeah, I would just say on the dividend, yes, we are very much committed. And as we look out to 2025, we believe that, you know, our objective as a management team is to make sure that we cover that dividend and then some. So, yeah, I would say just speaking on behalf of the Board who met just a couple of days ago on our quarterly meeting, that dividend is something that is near sacred to us. Capital allocation to other areas.

I think as we've said on the call, we're focused on a number of restructuring some of our asset footprint. We've talked about the downstream areas We're going through a strategic review on maleic and hydride. Arun, you know, Peter listed a lot of actions that we've taken over the last three years, and we'll continue to look. at our portfolio on a regular basis. In terms of overall leverage, we closed at 3.6 times. I do expect a bit of a kick-up in the first quarter just because of a natural free cash outflow in the first quarter. But as you look out with this portfolio over a number of years, you see that coming down as you return to more mid-cycle level of earnings over time. Thanks.

Operator, we'd like to thank everybody for joining us this morning, and we'll look forward to meeting, hopefully, all of you during the next quarter here.

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.