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spk02: One moment for our next question. Abby, can we have Mike jump back in the queue? Yes, one moment. Our next question comes from Dave Storms with StoneGate. Your line is open.
spk06: I mentioned earlier that the Pasadena plant is expecting 90% of the cost for the year and not expected to be up and running until the middle of next year. Should we expect that to be running at full capacity or should we expect there to be a a couple quarters worth of ramp up as Pasadena gets fully operational.
spk03: Yeah, the Lander statement is more accurate. So when we think about starting up an asset of this size, there's a lot of unit operations that have to go through commissioning. And more importantly, the product mix that we'll be putting through there, some of it is highly specialized and there's customer qualification periods. and protocols that we have to follow. So it'll be a ramp up in the second half of the year for sure.
spk06: Okay. And that's more just based on the logistics, though. It's not a question of getting contracts in the door. If the demand is there, the contracts are there. It's just the nature of the business.
spk03: Yeah. Starting up new assets, there's a customer qualification protocol that has to be followed to get customers to approve production from new sites.
spk02: Understood. Thank you very much. One moment for our next question.
spk00: Our next question comes from Mike Harrison with Seaport Research Partners. Your line is open.
spk02: Mike, we cannot hear you. Please make sure your line is unmuted. One moment for our next question.
spk00: Our next question comes from David Silver with CL King and Associates. Your line is open.
spk04: Yeah, thanks. This question would be just for Scott, and I'd just like to ask him to reflect if you could, Scott, on your long experience in the surfactants industry, and what, if anything, would you call out right about now that may be you know, deviates from, I think, the three decades that you've been managing that business and now the whole company here. But I don't know. This is my opinion, not yours. But for a long time, I would say surfactants was not one of the more volatile or trickier, you know, subsectors within the chemical industry. And I would contrast that maybe with the past three and a half, four years with where first, to me, there was the very unusual demand boost from the pandemic, the issues surrounding supply chain reliability, and maybe some of your new product development and customer development efforts. But as you stand here right now, you've coming off a few consecutive record years, and then this year, maybe some, you know, a pullback. But as you look ahead, I mean, do you think that the next year or two are going to be a reversion to the mean, something of a catch-up, you know, for demand that might have been deferred or delayed this year? We might see a comeback over the next 12 months or something. But from your perspective, managing this business over a very long period of time, What sticks out to you as maybe the transitional points versus the secular growth points that you might care to call out?
spk03: Thanks for the question, David. Let me say that I think what not just the surfactant industry, but what the chemical industry has experienced in the last 18 months has been unprecedented. in my career within the industry. To see volume reductions of, you know, 10 to 20% in a calendar year is, I think, unprecedented, definitely in the surfactant market. You know, it was really driven, in my opinion, by the supply chain constraints and the, I'll call it, hoarding of material in 2022 as economies opened up around the world after the pandemic. and the supply chain constraints caused a really strong year of demand in 2022, and we're paying the price for it this year as there's a lot of inventory reconciliation happening. Combine that with the fact that Step-In is finishing the end of our largest historical investment cycle in CapEx over the last three years. Those two things don't marry up too well together, and you can see it in our P&L right now. But the outlook and the prospects we have long term in our business and the investments we're making are absolutely the right investments to continue to grow value for our shareholders. It's just, I think, a unique point in time right now where we got caught in our historical heavy spend cycle and we've seen an unprecedented downturn driven by inflation and the impact on the consumer. You know, you can tell the consumer is impacted with the six plus quarters of record inflation that we've seen, at least here in the U.S. So that would be my thoughts right now, David.
spk04: Very good. Thanks a lot. I appreciate it.
spk00: Thank you. One moment for our next question. As a reminder, to ask a question, you will need to press star 11 on your telephone and wait for your name to be announced. Our next question comes from Robert Court with AWAM. Your line is open.
spk05: Thank you. Good morning. I was hoping you might be able to help me. Interested in sort of what you guys are thinking about on your gross margin cadence and price cost. I notice here you had businesses that were up high single, mid-double digit pricing in the first quarter, and now that's reversed, presumably because you're passing through those lower costs. I guess if I think about your cost structure, that might imply your raw materials are down 20% or 25%. in the quarter you reported. So am I thinking about that right? And, you know, you've mentioned destocking and some slower volumes. Does that mean your purchases today are actually meaningfully better than that even? And then maybe if you could just help me out, I know you have passed through arrangements on a good amount of the portfolio, but how is that going to change the cadence of that gross margin going forward? Because I think you're in the 12, 13% range and at times your company's had margins that are 50% and above that. So, any help you could provide there would be great.
spk01: Thank you. Look, great question, but as we have been talking in the last few quarters, there is always a lag with all these pricing and raw materials activities, right? So, what we saw last year, of course, we were taking a lot of pricing because raw materials were going up, but at the end, you had also lower raw material prices in your P&L because you had inventory, right? So you get that benefit. In the way down, that's the lag that you see as well. I mean, as you mentioned, we have pass-through contracts in our business, not in 100% of the business, of course, just a portion of the surfactant business and the rest moves with the market. But of course, with lower raw material prices, things get more competitive. And we need to adjust our prices. And we have been very clear that, for example, Latin America, MCTs, the specialty product business, and a little bit in Europe is where we have seen a lot of pricing pressure from imports from Asia. So there is a lag. What I will say is most of the high raw material prices are washed out. We are expecting a Q4 for polymers and surfactants where our standards are in line with the market prices, right? And the only remaining piece that we have is in the NCT business. You are going to see still an impact in Q4 because of, I mean, fatty acid prices went down 70%. So we are still consuming the old ones.
spk05: uh so and then we'll see what happens in 2024 but q4 should be should be pretty clean uh accept the nct business and if i could just follow up it's very helpful can you tell me beyond the fatty acids i mean i know you have a big broad basket but there are there a handful of more significant raw materials for you or and i guess should we be concerned now that oil is rallying you know you might have to deal with inflation again next year?
spk03: Yeah, no, I think generally, other than what Louise mentioned, we feel we're in good shape now with where our raw material costs are versus related to market pricing. So I think we're going to see a more stabilization going forward. Too early to tell what's going to happen with raw materials. There's too much volatility in the markets right now that don't give us a real clear picture.
spk01: We have proof historically that we can make money in the way up and in the way down with the respective lag. There is always a lag. But we have a business model that allow us to price also up when things are going up.
spk05: Got it. Thanks very much.
spk00: Thank you. That concludes the question and answer session. At this time, I would like to turn the call back to Scott Behrens for closing remarks.
spk03: Thank you very much for joining us on today's call. We appreciate your interest in ownership and step in company, and please have a great day.
spk00: Thank you for your participation in today's conference. This does conclude the program. You may now disconnect.
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