Very good afternoon, everyone. Thank you for taking time to join us in Indorama Ventures second quarter results briefing. My name is Vikas Jalan, I'm Vice President, Investor Relations and Planning at IVL. Joining me today, Mr. D.K. Agarwal, our Deputy CEO and Group CFO, Alastair Port, Executive President for IOD segment, and Christopher Kenneally, Executive President for Fibers business. A quick disclaimer that this meeting is being recorded, and a replay of this session will be available on our website after the meeting. Obviously, we have made a few assumptions and estimates on any future trends and industry trends in the business, which are based on our analysis and available information at this point in time. With that, I now invite Mr. Agarwal to share business and financial highlights for second quarter results.
After that, Alastair and Chris, and then after that, we'll open up the floor for the Q&A. Over to you, Mr. Agarwal.
Good afternoon. Welcome to the second quarter analyst report. This is the time to visit what has happened in the past few quarters. As you can see on the slides, we saw global economic activities contracted, as shown on the left-hand side chart, with global manufacturing PMI dropping below 50% since first quarter 2023. If you look at regionally, activities in Europe was particularly weak, primarily driven by mounting inflationary pressure, as you can see in U.K., very high inflation and interest rate hikes. The chart on the right hand shows the China reopening, which was weighed more towards services rather than manufacturing. They were traveling more rather than spending on manufactured good, was much weaker than expected, as you can see in the China PMI, declining in the second quarter on the right-hand side row.
Now, what we have witnessed since the latter half of 2022 was this unprecedented destocking trend. If you see on the left-hand side, there was a restocking and destocking. Let me explain that. During 2021 and first half of 2022, we had a lot of supply chain issues as a result of the post-pandemic demand resurgence. Transit times of the vessels were long and freight cost was extremely high. People were worried about the availability. This resulted in everyone needing to carry safety stocks to avoid stock outs. Our IVL business also benefited from this extra demand due to our customers building inventory and enjoyed strong premiums for being a local supplier with a high freight rates. As you know, we have a global footprint.
Now, moving into 2023, the situation reversed as supply situation normalized, while high interest rates, inflationary pressure, and sluggish demand prompted heavy destocking across the value chain. This was witnessed by many chemical companies around the world. Looking ahead into 2024, we expect this destocking trend to end in our key markets. Go to the next slide. If you see that, what has been the result from the first quarter, the total volume is 3.6 million tons. Despite the challenging market, overall group sales volume increased by 4% sequentially, as you can see, with operating rate increasing from 72% in first quarter 2023, to 76% in this quarter. Our operating rate went up.
On a year-on-year basis, overall volume, however, declined by 7% as industry inventory levels correct from the heights of 2022. Industry-wide, destocking has persisted across all three business segments. Revenue for this quarter has remained flat quarter-on-quarter at $4 billion, because that is linked to the crude oil prices. The America remained a bright spot for us with integrated model, as you know, duty protection from Chinese imports and also shale gas advantage, which we enjoyed in Americas. Our operating costs improved this quarter from lower energy prices. We benefited $26 million quarter-on-quarter conversion basis on a net basis, as although we suffered from hedging loss of $29 million. This is after the hedging loss of $29 million. For the first half, the hedging loss was $49 million.
If you look at reported EBITDA, I will achieve a reported EBITDA of $321 million in second quarter 2023, which is an increase of 7% quarter-on-quarter and a decline of 68% year-on-year. This quarter, we also had an inventory loss of $48 million due to falling prices and FX loss of $5 million in Brazil due to strengthening of Brazilian currency. The core EBITDA was $379 million, up 11% quarter-on-quarter, down 50% year-on-year. However, our operating cash flow has been very strong. This translated into operating cash flow of this quarter at $491 million, an increase of 146% quarter-on-quarter, and a decline of 46% year-on-year.
Overall, our results remain resilient as we continue to navigate these challenging market conditions. We have taken actions to safeguard our earnings and conserve cash, which we'll discuss in more detail in the subsequent slides. Go to the next slide. Now, let us talk about the headwinds and tailwinds. As you saw some of the headwinds, you saw that what are the tailwinds. We believe today that PET destocking has largely ended, as we see our plants operating at full capacity now. Secondly, significant dumping of PET material from Chinese producer into Europe has prompted an investigation by authorities. We expect the initial EU ADD ruling to come into effect in fourth quarter 2023, which will certainly curb imports from Chinese producers. We have also seen energy prices reduce further this quarter, lowering our conversion costs by $26 million.
As I mentioned, net of hedging losses of $29 million we suffered during this quarter. As you have seen, the OPEC continue to maintain our crude oil prices at around $85 a barrel now, and the low prices of gas in North America sustain shale gas advantage for our IOD operation. You will see that MTBE spreads remain strong, because weak U.S. butane prices against robust gasoline demand resulted in continued U.S. strong MTBE spreads, and Alastair will cover this in more detail. We expect this trend to continue well into 2024, with the tight gasoline market due to limited refining capacity addition. In this volatile environment, now, this is important that what actions management has taken. Management has taken several actions to address and safeguard our earnings against the temporary headwinds.
In the short term, the priority is on cash conversion, as mentioned in the Capital Markets Day earlier this year, with a target of $500 million in 2023. As of first half 2023, we have achieved already 80%, nearly $400 million, primarily through the reduction of gross working capital and capital expenditure. Focus is on maintaining healthy liquidity levels and a disciplined capital allocation strategy, cognizant of the higher interest rate environment which we are in. Management is also actively reviewing working capital optimization and curbing discretionary capital expenditure to lower the net debt. In light of the economic challenges and cost pressures, particularly in Europe, we are implementing measures to improve the competitiveness of our portfolio in the region.
We are underway with our plan to optimize the footprint of our Fibers segment, which we announced earlier, reducing the fixed costs by $25 million, and the result in shift of manufacturing base to our lower cost Asian sites. In the same direction, we are conducting an evaluation of all business segment to assess, make, or buy decision in order to maximize profitability with a particular focus on Europe. There's continued drive to deliver on the Project Olympus, target to unlock efficiency in the procurement, sales and operational excellence, while investment in digital improvements will unlock latent value of the organization as we roll out our SAP S/4HANA. Olympus delivered run rate efficiency gain of $481 million. For the long-term effectiveness of the business, we continue to strengthen the organizational structure of the company.
We see a vast amount of unlocked potential in our people. We are simplifying the organization in order to optimize efficiency and productivity of our teams, and we are centralizing the organization for leaner and more agile structure, which in turn will increase the speed of decision-making and enhance collaboration across the company by removal of silos. We are leaving no stone unturned when it come to our operation and our team, and maximizing CoMa, which is contribution, margin, and volumes, and assessing expansion opportunities in high growth market with a strong innovation pipeline. These are all some of the actions which we are taking. Coming to the next slide, if you look at the volumes, overall group sales volume increased by 4% sequentially. As you can see, with operating rates increasing from 72% in first quarter 2023 to 76% this quarter.
Second half volume is to improve as destocking curtails and ramp up of capacity expansion project. If you go into the different segments, CPET sequentially improved with volume up 2% quarter-on-quarter, but dropped 9% year-on-year. As we see, PET destocking has largely ended, with Americas production normalized. In Europe, we are actually optimizing productions to minimize the impact of Chinese import till the anti-dumping duty is there. For IOD, our volume is up 14% quarter-on-quarter, driven by intermediate portfolio. What is happening in IOD? The business is benefiting from a higher EG volume to capture improved margins on purchased ethylene. Fibers volume is up 3% quarter-on-quarter, but 7% down year-on-year. Lifestyle volume improved quarter-on-quarter, but significantly down year-on-year due to strong competition from China.
We expect India volume to improve with the recent implementation of BIS. This is a certification requirement in India, recently implemented, which will curtail the Chinese imports. Stable Mobility Fibers volumes with a stronger than expected automotive production supporting our OE tires and airbag business. Hygiene volume continued to be impacted by weak demand in Europe due to inflationary pressure. You can see that the volumes are certainly going to grow. Now, let's go into the financial results. The IVL post-second quarter reported a EBITDA of $321 million, an increase of 7% quarter-on-quarter, and a decrease of 68% year-on-year. Average Brent crude oil prices for the quarter declined to $78 per barrel, resulting in inventory loss of $48 million in this quarter.
We also had $5 million of FX losses, as I mentioned, due to strengthening of Brazilian real during the quarter. The EBITDA improvement quarter-on-quarter, driven by resiliency in PET Americas business, partly negated by IOD downstream results, which we'll cover in the future slides. Ongoing Chinese capacity additions in PET, I mean, normalized supply chains have put pressure on Asia industry spread. However, our integrated PET margins remain strong as we are able to control, command significant price premium above industry benchmark, and our U.S. integrated margins remain advantaged due to shale gas advantage. Further, lower gas price in the U.S. maintained our shale gas advantage for North American operation. Lower natural gas prices have reduced IVL variable costs by nearly $26 million quarter-on-quarter, in spite of a hedging loss of $29 million.
That gives you some idea about the IVL results. If you see our regional, this is a regional breakup. Our operation in America remained a bright spot, driven by PET business, where we are insulated against Chinese imports. Lower gas prices maintained the U.S. shale gas advantage for North American business, and we have increased the glycol production to capture this improved margin, you know, taking the advantage of the shale gas. MTBE spreads has been strong due to tight gasoline market and competitive butane feedstock. In Europe, performance improved quarter-on-quarter on account of lower energy prices, although you can see it is in negative numbers here. However, performance remains negative due to competition from low-cost import and inflationary pressures kept demand relatively sluggish.
As I mentioned earlier, we are taking a close look at our European operations to improve the competitiveness of our portfolio in the region, which also includes conducting an evaluation to assess make or buy decisions to maximize the profitability. Today, we'll update you on what we have achieved in the Fibers segment. We'll provide more update on this activity in the coming months. Let's go into business segments. CPET achieved a reported EBITDA of $194 million, a growth of 37% quarter-on-quarter, down 69% year-on-year. This is excluding inventory loss of $29 million. The core EBITDA was $225 million, a growth of 37% quarter-on-quarter, down 48% year-on-year.
After a heavy period of destocking, which began at the end of 2022 in PET, volume improved by 2% quarter-on-quarter, much lower than what is typical for high season in quarter two. Normally, you know, we have a very strong quarter, increase was only 2%. Western market continued to face feedstock price regional disparity, impacting our cost competitiveness to the Chinese imports. As you know, the gasoline price in Europe and America are high, the paraxylene price is linked to it, so we have high cost in those regions. Poor domestic demand in China post-opening, amid PET capacity additions, put pressure on PET spread. Benchmark integrated PET spread averaged around similar level of $201 per ton in quarter one, remained below the 5-year historical average.
The normalizing of freight rates negatively impacted our European and Brazilian business due to competition from imports, while the U.S. PET business continued to benefit from cost-plus contracts. The European authorities are currently investing, dumping of material by Chinese producers. We expect the initial anti-dumping duty to come into effect by fourth quarter 2023. Lower energy cost benefited conversion cost by $19 million, net of $13 million hedging losses. Europe performance, in particular, was aided by normalization of energy prices. The packaging vertical realized 10% higher volume quarter-on-quarter, and a growth of 6% year-on-year, with Vietnam and Myanmar leading the growth. Specialty chemicals saw a decline in profitability. As you know, we have plant outage of our NDC unit. That is the summary about CPET. Let us little bit deep dive into what's happening in the spread.
As you can see in the slide, while the integrated PET spread from Naphtha to PET... middle graph shows you Naphtha to PET has been relatively stable, as you can see. There has been a compression of margin in integrated PTA, PET due to migration of margins into paraxylene. You can see that dark blue paraxylene spreads are high right now, while the PET, PTA spreads have been compressed. Where is our play? The current PET margins have fallen below sustainable level, squeezed by the high paraxylene prices. The pure play PET producer in China, you see on the left-hand side, if you look at the producers in China, nearly half of the capacities are not making any positive cash flow at these level of spreads. These are the pure play PET, means they don't have any integration.
It is important to recognize that the Chinese industry is highly consolidated. On the top, if you see, with top four players commanding 80% of the Chinese capacity. As seen in the past, if you see the right-hand side, which she gives you history of 10 years of spreads, these levels of spreads cannot sustain, and we expect the margins to improve as the operating rates improves. For IVL, we have devised a four-pronged strategy to navigate this landscape. How do we compete in this market condition? First, enhance our strength in the domestic markets. I mean, you know that we are present in so many countries. Utilize our strength in recycled PET as a differentiator, forward integration into packaging, and the number of markets where we operate, there is a duty protection, and as the European ADD comes, this will further help us.
That gives you a landscape. Looking at it in a different scale, as you can see that what we saw, that there were compressed industry margin, we are able to get the premium, and this premium is not the price premium, but it is the margin premium, or we call it the spread premium. How it is possible? Because we are the, see the leading producers, we are globally operating, and we have access to the premium markets. These are protected from China, because there are anti-dumping duties, there are huge duties, and they can't access to those markets. High levels of integration, which we have. Like in the United States, we have from PX to PET, and you know that, ethane to PET.
Procurement efficiencies as well as very strong customer relationship, the last 2 years has been testimony of that relationship because when they were running short of the product. Let me now remind you that 2022 was certainly an exceptional year due to supply chain disruption. If you compare our EBITDA to 2019, let's ignore what we made in first half 2022. The current weakness is in our European operation, we expect this gradual improvement in Asia and Europe by 2024. If you see the graph, first half 2019 versus first half 2023, the major issue is EMEA because of dumping of Chinese product. In Asia, margins were pressured by capacity addition and poor China demand. As previously noted, based on historical data, these spread levels are not sustainable.
It is crucial to recognize that pure-play PET players, who constitute nearly 50% of the Chinese market, are not generating positive cash flow, as I mentioned. For Americas, we expect to see continued resilient performance with some margin contraction on new contracts. 25% of our contracts in US and Mexico are multi-year contracts because, you know, you sign multi-year contracts, and they are linked to raw materials. Now, I will hand over to Chris, who will present the fiber. Alister will take over the IOD, and then I'll come back. Thank you.
Thank you, D.K.. Sawasdee Krub , and very nice to be with you all today. Allow me to take a few moments to expand on a few points that D.K. has already mentioned, both in regards to the challenges we're facing and also opportunities. Firstly, the challenges. There is no doubt that 2022 and 2023 have brought with it some unprecedented challenges in the form of inflation, certainly the China impact and destocking. For Fibers, that has translated into a few elements that you see in our results: lower demand for our products, resulting in decreased capacity utilization, certainly increased competition from China, leading to lower margins for our products, and inflation, particularly in Europe, has impacted our costs.
Looking at 2023 specifically, Fibers achieved reported EBITDA of $20 million, a decline of 37% quarter-on-quarter and 70% year-on-year. Excluding the inventory loss of $9 million, core EBITDA was $31 million, a decline of 21% quarter-on-quarter and 45% year-on-year. Lifestyle Fibers margins remained challenged as the China recovery did not materialize, certainly China fiber exports at significantly low prices continued to impact our domestic markets, such as India, Indonesia, as well as Brazil. We did experience higher volume in our lifestyle business due to the normalization of production in Thailand and Brazil. D.K. mentioned India BIS. Just to expand on that so everybody's aware of what we're talking about.
BIS is the Bureau of Indian Standards, they impose certification for importing certain products into India to ensure quality, safety, and reliability standards. In April 2023, they applied that for staple fiber, in October 2023, they'll impose the same for filament yarn. This will certainly impact our business because, one, it'll curtail our imports from China, two, we expect to be able to improve our price and our pricing, certainly in the Indian market. We'll gain benefit from this in fourth quarter 2023 onwards, as we have already qualified our materials to supply into India. For Mobility Fibers, despite softer-than-expected replacement tire demand, we've certainly seen stronger-than-expected light vehicle production, growth of 5% vs. 2022, which is really encouraging. That certainly supports our OE tires and our airbag business.
The Hygiene volume continued to be impacted from weak demand in Europe, primarily due to inflationary pressures and low utilization at our Russian plant, which we have been experiencing since the beginning of the conflict in the Ukraine. For our U.S. business, our volume was impacted by production issues in the first half 2023, but we're very confident that we are recovering now and will be in set for second half 2023. On another positive, IBL is ramping up our Hygiene Operations in India, aligning with our strategy to capture growth in this emerging market. I want to highlight that today's Fibers business is built on a strong foundation. Yes, while we have been experiencing these pressures in the market today, we do know that we are catering to the end markets that have the opportunity for long-term, sustainable growth.
They are supported by the mega trends of growing populations, urbanization, and a rising middle class, which is particularly important in our emerging markets. We remain the market leader across all of our verticals and are well-positioned to capitalize these long-term trends. At the beginning of this year, I outlined at our Capital Markets Day a very important management action plan that we had in place. We shared with you our plans on restructuring our Fibers footprint, which includes strengthening our core portfolio of our polyester-based Fibers, and the necessary actions to address underperforming sites and shifting to higher performing locations. I'm pleased to say we're progressing on that roadmap that we shared at the CMD, and indeed, we're actually ahead of the plan to deliver on our target of 10% manpower reduction in Europe, which translates into $25 million fixed cost reductions.
In addition, management is taking further actions to address challenges in the environment. Cost conservation initiatives focus on fixed cost reduction. Prudent prioritization of our CapEx and working capital will improve our cash flow significantly by year-end. We're centralizing our organization for a leaner, more agile structure, which, as D.K. alluded to earlier, will increase our speed of decision making and enhance our collaboration across the segment. Our Olympus program remains in full implementation, which brings additional efficiencies, and I know D.K. is gonna touch on that in a few slides. What does that mean? Well, it means these actions will provide us with a competitive advantage over our competition going forward. Why? We have a stronger platform to capture growth opportunities, and I think India is a great example of that.
We'll have an optimized asset footprint with a leaner cost structure, and you can see we've already started on that path and are generating results. Finally, and I think most importantly, customer centricity, enhanced customer relationships and intimacy. We are investing in our people, we're investing in our commercial competencies, which will set us up well to extract greater value pricing and expand our dialogue with our customers. In summary, there's no doubt that the industry has been facing challenges in this moment, but in this moment, we're also taking actions to set ourselves up for the future. Thanks for your time today, and with that, I believe I hand to Alastair.
Thank you, Chris. Good afternoon, everybody. IOD achieved reported EBITDA of $94 million, a decline of 27% quarter-on-quarter and 70% year-on-year. Excluding inventory loss, core EBITDA was $109 million, declined by 22% quarter-on-quarter and 58% year-on-year. Please note that when you look at Quarter Two reported EBITDA, this figure includes an insurance settlement of $64 million for the IVOL shutdown in prior periods, and a licensing income of $2 million. PMI continued to remain flat to falling in Q2, which saw the lowest chemical activity in some regions for 17 years, with rig counts declining. In Downstream, the portfolio achieved $62 million in reported EBITDA, a decline of 36% quarter-on-quarter and 65% year-on-year.
Core EBITDA was $69 million, down 32% quarter-on-quarter and 54% year-on-year. Please note that in Q1 2023, we included an adjustment of 2022 profit of $16 million. Market de-inventory by customers on the back of working capital control targets and also more robust supply chains, as D.K. mentioned, downstream volume remained at a similar level quarter-on-quarter. We're experiencing lower margins amid pricing pressure from imports on ethanolamines and solvents, and also via the weak construction and consumer goods markets, affecting propylene oxide and pure ethylene oxide sales. We successfully completed the five-year turnaround at the Port Neches cracker. We finished the Camaçari and Mauá turnarounds. These all negatively impacted the downstream business by $7 million.
As we move to the integrated intermediates, this portfolio achieved $31 million in reported EBITDA, an increase of 6% quarter-on-quarter and a decrease of 77% year-on-year. Excluding the $9 million of inventory loss, core EBITDA was $41 million in line with the last quarter, declined by 63% year-on-year. The U.S. integrated MEG margins remained advantaged quarter-on-quarter due to the low gas price. Quarter-on-quarter volume improved significantly as we recommenced both Clear Lake and Lake Charles operations. Our EG EBITDA improved quarter-on-quarter by $20 million. U.S. MTBE spreads fell during Quarter Two, from $624 a ton to $578 a ton, as concerns on the global economy and China growth weighed on oil prices.
However, the spreads remained high versus historical norms, and they remained high due to the resilient gasoline demand, favorable butane prices amid poor petrochemical and heating demand. Lower PO demand lowered MTBE production, impacting MTBE CoMa by $6 million. We're actively improving MTBE to propylene oxide production ratio to maximize MTBE volumes amidst strong demand. How does the outlook look? Downstream volumes will start to recover as destocking in crop solutions and HBC markets end, and the economies kick-start. Crop prices are rising on the back of Ukraine grain blockades. Both the downstream and intermediates business will continue to benefit from low U.S. gas price. MTBE spreads to remain strong as a result of the summer driving seasons, keeping gasoline market tight and butane prices low.
We see opportunities arising in the market, particularly in the surfactants and ethanolamines, due to the recent FM by co-producers. As D.K. mentioned, what are we doing in the short term? We will continue to de-delay discretionary spend, hiring, CapEx, and working capital control will have significant attention until the markets recover. However, we've continued to focus on our resources on Olympus, synergies, innovation, and digital improvements to unlock the latent value within IOD. I'll hand you to D.K..
Yeah. Thank you. Thank you, Alastair. I think, slightly covering on the Project Olympus, you know, this is a ongoing cost transformation program, continues to drive efficiencies in 2023, enhancing the organization's competitiveness. I mean, this is a timing to improve the competitiveness and be prepared when the market turns around. As you can see, to date, we have unlocked additional gain delivered to the run rate of efficiency gain of $481 million. As you mentioned earlier, these improvements were driven mainly by operational excellence, procurement, supply chain initiative, and cross-segments synergies. We are also highlighting to you some updates on the key initiatives to future-proof our organization, such as SAP S/4HANA, digital, and IVX. We have advanced in digitalization using SAP S/4HANA, going live across our selected American sites and some Asian sites.
It's going very smooth, very challenging project. EMEA sites are set for February 2024. 50-plus live dashboard across CPET and IOD segments are under development, offering real-time insights into the key operational metrics. Additionally, the successful implementation of SAP SuccessFactors program across IVL has streamlined the talent management activities and brought the latest HR practices in a global scale. Through our digital initiatives, we expect to achieve $45 million saving by the end of this year. Under IVX, which is Six Sigma, we focus on leadership and operational excellence. Over 19,500 employees now have Lean Six Sigma White Belt certification, and 600-plus efficiency projects are in place, aiming for $80 million saving for Project Olympus in 2023. That's a little bit update on Olympus. Let's go to the next slide. As I mentioned, this is a time for conserving cash.
In CMD, we talked about $500 million in 2023. In first half 2023, we have achieved 80% of this plan and conserved $400 million, which came from reduction of 9 days of working capital due to operational improvements. We considered cash up to $76 million, the release of working capital. We continue to work towards working capital optimization and expect to have further marginal improvements in second half. We also very critically looked at our CapEx plan. In 2023, we plan to reduce our CapEx by $139 million over to what was committed in our Capital Markets Day. This is by optimization of maintenance CapEx of $64 million and a reduction in growth CapEx of $75 million. We also looked at 2024 CapExes.
We are further optimizing it, as you can see, by $130 million-$135 million against what was planned earlier this year. Our focus remains deleveraging in present high interest cost environment. You can see that we are focusing on CapEx. This shows you some historical operating cash flow. I will continue to maintain our history of consistent operating cash flow generation, a testament to the resilience of our platform, underlying fundamental, and the advantage grown from our diversified footprint in terms of geography, in terms of product. With visible and growing cash flow, coupled with a substantial liquidity of $1.8 billion, our company is well positioned to navigate and excel amidst the ongoing market turbulence and prepare for when the market revives.
For the LTM period of quarter 23, our operating cash flow reached about $1.5 billion, reflecting a 121% cash conversion rate. This improvement is a direct result of our strategic focus on optimizing working capital, as elaborated in the earlier slide. In addition to our strong cash flow history, we are also focused on prudent financial management. Our net debt to equity remain unchanged at 1.18 times at the end of June 23, with a CapEx of $391 million in first half 23, which were fully funded by operating cash flows. Looking forward, we see 4C improvement in our net debt to equity, primarily driven by reduction in CapEx commitments, as I explained, throughout 23 and 24, along with ongoing refinement on the working capital optimization strategy.
These achievements collectively reflect our prudent financial management and our commitment to enhancing our company's long-term financial health. If you go to the balance sheet, we maintain a very balanced and disciplined approach to risk management, which you can see on this slide. We have a natural hedge on Forex with global assets and a manufacturing footprint in 35 countries. Our debt and net assets matches in the currencies. At this time, we have a little higher Thai baht debt due to lower interest rate. which we plan is also to balance going forward. We are also maintaining liquidity, as I mentioned, in term, form of cash and cash under management, plus unutilized committed credit lines, which stands as $1.8 billion.
On top of this, we have either completed or committed, but under documentation process for our long-term debt repayment of nearly $700 million for 2024 to maintain strong liquidity. With the rise in benchmark rates and growth CapEx, our finance costs went up to $103 million in second quarter 2023. In second half 2023, the interest costs are expected to around $100 million-$205 million each quarter. Management is also actively reviewing working capital optimization, as I mentioned, curbing discretionary spending to lower the net debt. We maintain average net-to-debt to equity at around one time, as you know, across the cycles. However, in second quarter 2023, it was 1.18 due to acquisition in 2022.
We are focused on deleveraging and expect net net equity to improve with our cash conservation strategy and operating cash flow, which gets generated. Our ESG focus remains robust. Today, the ESG-linked debt proportion increased to 26% of gross debt in second quarter 2023, which was 20% in 2022, showing our commitment towards sustainability. In July, very recently, we successfully signed Thailand's first sustainability-linked trade finance facility of $50 million to support IVL's day-to-day contribution to our ambitious sustainability commitment. This new facility reflects IVL's leadership in leveraging sustainable financing in Thailand and our commitment globally. This is the last slide to give you some outlook. We remain concerned today about the macroeconomic outlook for the rest of the year. As you know, that China hasn't recovered, and there is a deflationary environment in China.
We believe that the global economic environment will remain subdued in remaining part of the year, with weak manufacturing activity, interest rate high, although, as you know, this, the inflation data wasn't bad day back. Fear of U.S. recession, but surprisingly high labor cost, overall impacting demand slowdown and cost increases. While destocking, as we stand, more or less completed across most of our businesses, the demand slowdown will persist and put a dampener on a very meaningful recovery in the macroeconomic. IVL recovery of earning will come from a determined, cost-conscious approach and using the low demand phase to push forward with our asset optimization plan. We will review our capital allocations to conserve cash and lower our financial costs. We believe that we have consumed most of our high-cost inventories in the first half.
As you know, when prices drop, you basically carry a high-cost inventory, and that's what we consumed in first half 2023, and you saw that we lowered our carryover stock by the gross working capital reduction of nine days. Therefore, we believe that we should have a better performance in the second half, based on higher utilization rates and lower utility prices. Hopefully, we anticipate that the stimulus plan in China will bring some life to the petrochemical chain, and we are seeing the global automotive industry finally in recovery phase. Overall, as we move through the year, we expect contribution from management actions and the factors mentionable to reflect improvement over first half results, and also position ourselves well when the recovery happens in 2024. Thank you very much. Now we can take your question, answers.
Thank you. Audience, you can raise your hand, and you can ask your question. Okay, I can see that there's one hand raised by CLSA, Kunaphat. Can you please unmute and ask your question, Kunaphat?
Hi, Vikash. Hi, thank you for the presentation. I have two questions on the PET. First question is on the PET spread, because I see the July PET spread now falling to about $136. I wonder, because in the presentation, we were talking about the new supply of the PET. My question is, how much capacity that has already come to the market, and how much do we expect for the second half this year and also 2024? The second question is, because 80% of the Chinese producers are not PX integrated, and I wonder how much is their cash cost versus IVL's?
Maybe last one is on the destocking situation, because in the MD&A, we were talking about the destocking of their IOD, and I wonder if, do we see any, any destocking or it's already over for the PET? Yeah, I think that's all from me. Thank you.
Yeah. Thank you, Kunaphat, let me take your questions. Destocking in PET has actually come to an end because we can see that our demand in U.S. has normalized. PET, in Europe, of course, we have optimized, the demand has come back with the strong weather. The destocking in PET has come to an end. IOD downstream, as you rightly said, there may be still some carryover, that's why it is reflected in the second half volume. Now, your next question was on the 80% of the Chinese PX producers. You're right. You can see nearly 75% people doesn't have any PX integration, 50% nearly are the pure play PET, balance are integrated PTA, PET.
You're right, in July, they just dropped, and you can see in the right-hand side, we are showing the July, which went significantly low. We don't think that we have a first quartile cost position in Asia, and we don't think that their cost structure is lower, being a pure play. Basically, what they are trying to do is that the integrated paraxylene producers have been more aggressive. Your question on capacity, yes, there's a lot of capacity came in China, which is nearly 3.2 million tons, but 2.5 million tons came in China and 0.7 million tons in non-China. It's very important to understand what is the relevance of China here.
On the right-hand side, if you see, the Chinese product, demand is about 7.7 million tons, still growing by 5%. China exported, in 2023, 1.9 million tons May. You look at the right-hand side, they don't export to United States. They don't ex-- they are not able to export to Brazil because of high duties, Japan because of high duties, and I'll show you the other slides. What you see here, North America, is basically Mexico, which is going. Their presence is in South America and Europe, they have exported a significant quantity. Europe will have anti-dumping duty by fourth quarter. This is in the last phase. Let us go to the slide that where do we sell and how this looks like. Can you bring that slide up? The production slide.
You know, we are in the U.S., we are in Brazil, and these markets are significantly protected. What is happening, like as I mentioned, Japan has significant duties. Can you... This is to give you one wrap before I show you this one. This shows, if you see on the left-hand side, 2023, 46% of our sales is exposed to China exports, but because this include European EMEA margin, EMEA sales, which is European sales. Post anti-dumping duty, only 30% of the sales gets affected, which is basically domestic China, as well as some exports from China, plus some other regions. Why this is? Because right-hand side, you see that these are the protected markets, which are heavily protected, like United States, there is no import from China.
It is, there is anti-dumping duty, there is a Trump duty of 25%, there's a countervailing duty, so no imports from China. It doesn't affect. India, 5.5%, but there is an anti-dumping duty, and recently the BIS will get implemented next year. Europe, once we have the anti-dumping duty, that market gets protected. Mexico is also having 9% duty, and anti-dumping duty is expected. Brazil, you see, that is anti-dumping duty. You have to look at two different markets: what is influenced by China, what is not influenced by China. As I mentioned, the Chinese pure play and integrated PTA, PET, because $136 when you talk, is the PTA, PET integrated. This is far below their cash costs, so that doesn't survive.
We have seen in the past also, such margins come, and then the operating rates go down, and then they, the margins go up. I'll also like to show you one more slide. Can we bring Vikas, the pricing? You know, there are two benchmark prices. One is the Chinese benchmark prices, another is Southeast Asia benchmark prices, and the Taiwan benchmark prices. You're bringing that? If you see that, there is a gap of $140-$150 per ton on those prices. Actually, China is also not representative of the prices because these prices in these markets are determined by what is their potential to export to other countries. Yes, China integrated spreads have come down. The pure play won't be able to stay in these margins.
This is the spread which are. This is, here you see, this is the gap, which is ASEAN PET price versus China PET price, and you can see this is widening. The bar shows what is export from ASEAN, which is Southeast Asia. This is also published prices and premium over the China. Why do they enjoy this premium also? Because China has anti-dumping duties, but these people don't have anti-dumping duties, so they can enjoy a better margin. China is relevant, but not so relevant in the global market in which we operate. Hopefully, that answered your question. If you have any follow-up question, please.
I wonder if we have already seen the, the cut run of the Chinese producers in the past one month?
Oh, absolutely. It is really rough, the last July, and this is because of the very low Chinese demand, which has not been come as the Chinese economy opened, and it's not sustainable. As you saw in that graph, this is again, another bottom which we are touching, and normally we have seen in the past, the operating rates, goes up, they cut the operating rate, and then the spreads goes up. You're absolutely right. I mean, this is real rough from China perspective. Also I wanted to show that where we sell the product and why do we enjoy the premium.
Okay, thank you. One last question is on the energy cost hedging. I see the energy cost coming down, and we did have some hedging loss in 2Q, I wonder what, what is our position now for, for the 2H this year?
You're right. First half, we had about $49 million loss on hedging. The second half, I mean, depend on the, how the market is. You just recently saw Australia, there was a strike and the gas prices went up. We assume that there will be a loss of $35 million-$40 million in the next, half, depending on how the prices go and move, because they are quite volatile. We still follow the policy of 50% hedge, which we are following, that by end of the year, we can hedge for 2024, 50%, which is actually mark-to-market, nearly breakeven or... That continuous policy we will maintain.
Khun D.K., I just want to make sure I understand correctly on the hedging. Did you say that we are gonna have hedging loss in the second half this year?
Yes. First half, realized is $49 million. If you take today's market price, it is around $35 million-$40 million. You know, this we consume, right? In our plants. It will depend whether we will, whether we'll have those losses, depending on the price in the month of consumption. We calculate this based on the month of consumption. First half, what we assumed, $49 million. If I would not hedge, my energy saving would have been higher by $49, the way to look at it.
You mean that you hedge at higher price than the market?
Yes. Yes, yes.
That's why you think we're gonna?
Yes.
we're gonna have a, a loss in the second half again?
Yeah. Second half, depending on the market price. If the market price goes up, then anyway, the conversion cost, it's a notional loss, right? It depends on the market price in which it gets consumed.
Yeah. Okay, thank you.
Thank you, Khun Naphat. I can see next, we have JP Morgan, Sumit. Can you please go ahead and ask a question?
Hi.
Yep.
Yeah, sure. Can you hear me, Vikas?
Yeah, we can hear you, Sumit. Please go ahead.
Okay. Yeah, thank you. My question is more on the destocking trend, maybe broad for industry. I ask this question considering your global footprint, so you will have the best color, I believe, among many companies. Just want to understand, firstly, from a geography standpoint, do you see any difference where one, one geography is better over another or, or, or, or not? As you said, PET, you still see... You, you, you've completed the destocking, but on the IOD side, you still see some happening. Why, why is that the case? Why is it different product-wise?
Lastly, maybe from a more medium-term perspective, do you believe that this is a permanent change from the buyers, or is it very temporary because of the disruptions we saw in the past? Thank you.
Yeah. Thank you, Sumit, and I will ask Alastair on IOD, but let me first cover the what has exactly happened and what happened in PET. In 2021, you know, there was so, so much supply chain disruption, as we showed you, and there was extra demands. The vessel transit times were high, congestions at the port was high. People were worried about the materials, so extra order happened. Demand was stronger. People were carrying a lot of inventory. When the supply chain normalized, naturally, everybody wanted to carry lower inventory, so they cut down, and the transit time also went down.
This significantly impacted PET, but your question was on geography, it impacted more in United States and Europe rather than Asia, because Asia basically was still importing some from China, some from domestic supplier, but more impact was in these regions. In PET, in first quarter, we saw in United States destocking happening, and that's why you can see that our America performance wasn't great in the first quarter. The volumes were lower, now we see that it is improved because destocking is more or less completed. Destocking also depends on the value chain, that how much value chain. PET comes at the converter, who makes the bottles, and then stops at beverage producer. When you look at IOD, you are talking of supplying to our customers, customer is supplying to another customers.
It is a value chain, is quite longer, similarly in fiber. Let Alastair add on IOD. Alastair, go ahead.
Sure. Thanks. Thanks, D.K.. Thanks for the question. Yeah, I'll, I'll, I'll end on agrochemical products, but start on generally what we're seeing. As D.K. opened up, a lot of stock built up in 2022, in Q2 and Q3, really because of a number of factors. Factor 1 is coming out of COVID, with a lot of containers being blocked in Shanghai, et cetera. People panicked and said, "We need to build up inventory." Link that to freight rates, and local inventory was king. Link it to, I guess, the previous year, 2021, where we saw hurricanes in the U.S., we saw polar vortex in the U.S. Reliability wasn't in the supply chain during those preceding years.
People saw high demand, high crop prices, high selling prices, therefore took the opportunity to bolster their, you know, inventory and working capital. Come the end of 2022, what did you see? Well, you saw freight prices going down, you saw normalization of reliability. A lot of our peers and competitors were running really well. There was no hurricane seasons, there was no weather events, particularly. Then the interest rates on working capital went up. There became a very hard stop on buying around the world, and I think we saw that right across every factor of the chemical industry. I think you saw that sudden rise up because of nervousness and because people could afford it, and then that sudden rise down because affordability disappeared and reliability improved. I think that's what you physically saw.
When it comes to agrochemical, you saw all of that in a microcosm of real increase. You saw a lot of imports coming in from China that were very cheap, especially around glyphosate, et cetera. You saw very good crop prices and very good crop yields, and therefore, high demand. You saw very high prices, so everybody jumped in and bought at the same time. What did you see after that? You saw falling prices, you saw reliability. Therefore, I think coming into this year, a huge portion of the petrochemical need you need for the herbicides and insecticides, et cetera, were already present. Therefore, the ordering system through the supply chain all shuddered to a much greater slowdown. What are we seeing today?
Well, we're seeing a lot of glyphosate inventory still. That's where our DEA goes globally. That will work its way through. We saw a slowdown of herbicides and insecticides that our more high value-added surfactants going into slowing down. That's starting to pick up. We're seeing an increase in volume, we're seeing an increase in mix. Not back to normality yet, but we're seeing it starting to come through. I think if I think about all of the fertilizer and crop chemicals inventories, it reached record inventory level around about February of 2023. In that period, the U.S. fertilizing crop protection manufacturers actually shipped about 12% more volume year on year between March and May. You can see the inventory coming down.
On the other side of the fence, people haven't stopped growing and are using the inventory. It's one of these supply chains where you had the bullwhip up, now we got the bullwhip down. It will start normalizing. We're thinking we're seeing green shoots now. We're thinking maybe give it another quarter. Q3 might be similar, Q4 will be stronger. You'll see it. People still need the chemicals. People are still growing, food. People are growing more food, and therefore, the need for these chemicals is gonna increase. You'll start seeing normalization and then steady improvement after that.
Thank you, Alastair. I think as you also heard, that one of our competitor has some force majeure, which certainly, you know, has increased demand of Ethylamines in U.S.. Here, also, I want to show you this slide, that is there an end demand issue? It's not. You can see the financial results of Coke, Pepsi, Procter & Gamble. Procter & Gamble uses our IOD derivatives, surfactants, they are in our Fibers Hygiene business. You can see their revenue is going up and their earnings going up. It's also due to the prices which they have increased, but volumes have really struggled. It is all the, the destocking is happening in the chain margin, and I think it is coming to an end, and we'll see that very strong demand comes back as the economy revives.
I hope that answered your question, Sumit.
Yes, just one quick follow-up. Which of these... I mean, are there any trends that you'd point or you think are structural? I mean, I can just think of higher interest costs as one, which has led to sort of, you know, higher carrying costs for working capital. I mean, are there any other structural trends you see, or these are sort of more of a cyclical trends which should, which should very, very much be behind us?
Yeah, that's a very good question. consumer, there is no structural change in the products which we, we serve, right? 70% of our products are very resilient. Either they are beverages, they are personal home care, people are still cleaning. These are, you know, these are not the luxury spending where they reduce the expenditure. It's basically destocking. End market demand is still reasonable. Of course, it's not that strong as was in COVID time. Interest cost, high interest cost, certainly is affecting the construction industry, so there is some products which are linked to construction industry, that gets affected. Automobile, as I mentioned to you, the automobile, actually, demand has gone up. You might read in any of the chemical, that they are showing strong automobile recovery.
That is because you remember that last couple of years, there was shortage of semiconductors, which actually resulted in low automobile production. That restriction has gone away, so even automobile is now stronger. It's there's no structural change in our business, and it's just a destocking impact which we are seeing right now, and which is faced by all the chemical industry today.
Thank you. That's all of my questions.
Thank you, Sumit, for your questions. Mayank, from Morgan Stanley, can you ask a question?
Sure, Vikas. Can you hear me well?
Yeah, please go ahead, Mayank.
Thank you. I think, firstly, thank you for doing the presentation. Most of my questions are a bit more strategic and related to what you have been, I think, focusing on this presentation around cash conservation and costs and CapEx. Can we just think about, like, a bigger picture perspective? Obviously you have done all these acquisitions now. Do you think about now balance sheet deleveraging as the next one, two, three-year kind of step that you want to talk about? If that's the case, how do you see your balance sheet net debt evolving over the next six months and 18 months? If you can just start with that, I'll follow up with a few others.
Mayank, as you know, in this present volatile environment, our focus is major is right now on the deleveraging. You saw that a lot of cash reduction we have done in the CapEx is $139 million in itself in 2023, and then we have $710 million. As we think about end of the year will be 1.13 debt equity and further deleverage in 2024. However, we are a very growth-oriented company. Certainly, we are not looking at any major M&A today. Looking at our balance sheet as well as the present economic environment, our focus is right now in the cost reduction, improving the footprint, taking the necessary actions so that we be cost competitive.
That would be the on the deleveraging. Hopefully, that answered you.
Yeah, I think a few things, correct. I think on the slide that you're showing right now, if you look at, you still have almost half of your CapEx as growth CapEx. Is there a way you can think about of reducing this number and keeping it to minimal, or just running at more like maintenance CapEx till you kind of get clarity on demand and outlook on that, so that it helps the deleveraging process quicker? Because, technically, on a $7 billion near debt, $100 million is a smaller number to kind of delever, correct? That's the way we are thinking about it.
Yeah. The way you look at it, over the cycle, if we make $2 billion EBITDA, interest cost of $400 million is $1.6 billion, taxes about $100 million-$150 million, so $1.45 billion. If $600 million-$700 million, then you deleverage post-dividend about $650 million-$700 million. That's the plan over the cycle, you know? You're absolutely right. The growth CapEx, we have trimmed. We are further going to look into it in Capital Markets Day on how we can reduce growth and further maintenance costs. Right now, at present, in our earlier slides, it was this expenditure was $1 billion+, in Capital Markets Day, which is now $890 million, and even 2024 was higher.
Yes, absolutely, that is the focus, the how to in, in the present high cost of, interest cost environment.
Sorry for just asking this again, but, like, if you think about now the net debt of around $7 odd billion, so are we saying $600 million-$650 million is the annual reduction that we're thinking about now going forward? Is that the way you think about it, or how do you look at it now?
I mean, this is over the cycle. Over the cycle.
Okay.
The $2 billion, I'm just saying $2 billion, certainly last year, we did much higher than that. We have a lot of CapExes, which has not resulted into the operating... There is a non-operating debt, like, particularly as you can see, our recycling assets, our Mocksville expansion in Hygiene, where a lot of CapExes has been made, but they are not throwing the cash. Over next, 2024, 2025, those will throw additional cash coming out, you know? You have to look at like this, and the free cash flow. Can we, to the extent of depending on what earnings potential we have, is about $700 million-$900 million a year, at least. Then working capital, because remember, this debt also includes working capital.
If you are able to reduce another $200 million-$300 million working capital, that will also add into reducing the debt. Whatever the debt, whatever earning goes, that goes into the equity. The debt equity will significantly improve because it is a multiplier effect, right?
Fair enough. I think the last question was on the interest cost. I think you had shown us that maturity of your interest or of your debt, I think next year or so, you still have around 15%-20% of your debt coming up for refinancing, I suppose. What is the thinking process in terms of a more steady state interest cost or interest rate that you can kind of go going forward now? Because over the last 2 years, your interest costs are nearly double, correct? Just trying to see where do you settle at.
No, absolutely, you're right. Our effective interest cost is right now 4.91%. 60% is right now fixed, remaining is floating as the benchmark is there. The benchmark went up. As far as the 19%, what you see here, the Thai Baht interest rate is of course, comparatively lower than the US. You can see the differential, the 7% will get refinanced as debentures. We are also strategizing the 12% repayment, whatever it come, we are negotiating in Thai Baht loans, which will be lower interest costs. Our target interest cost will remain around 5%-5.10%, in the next year at least. Then it will scale down as the interest rate environment eases.
It will all, the mix of different currencies, and the tenure which we have, and then we have the sustainability link, which has a better. All the next year's repayments, are. Right now, our strategy is to keep floating for some time because we think the interest curve will correct, and the focus will remain that we can keep this interest cost in that region.
Got it. Very useful. Thank you.
Just to add, Mayank, on top of that, we have a liquidity of $1.8 billion in the cash, in cash under management, plus, the unutilized banks.
Yeah, floating interest rate, as you know, working capital is cheaper, so we can also utilize the working capital. That's the focus right now on the finance cost. Yeah.
Sure. Thank you.
Thank you, Mayank. Next is Khun Yupapan from Thanachart. Can you ask a question?
Hello. Hi. Thank you for your presentation. I have a question regarding the PET business. How much is the industry cash cost right now? Can you share us, how many % of the supply is now making loss? Regarding the pipeline of the new supply addition, when should we expect that the new supply wave will end? Is this the last year of new supply, or should we expect the supply wave to be continue over the next 2 years?
Yeah. If we can go to that slide, the cash cost, industry cash cost in China, because if you see the majority capacity addition is in China, which as we said, about, nearly 3 million tons is coming over this year. There is some additions planned next year, but predominantly in China. All these, which are not integrated with paraxylene, are making losses, PTA-PET integrated, because it has come very, very low. As you can see, that, that is making losses. In China, we will see these additions in capacity. We have seen this in past. Also, as I mentioned, the operating rates goes down, because there is a very consolidated industry, 80%, four players. As I mentioned, the most important is the environment in which we operate.
Our exposure in China is we only produce 500,000 tons, which sells to domestic and China export, out of 5.4 million tons. The remaining production is either in Asia, is in Thailand, Indonesia, India, which, as I showed to you, the benchmark prices become higher. Chinese, even if they remain at lower, the different margins are protect-- the countries are protected, and we don't believe that Chinese can sustain these margins. If you can go to that 1422, that will show you better spread and how the spreads have moved. You can go to that slide. Can you bring that slide? This is the ASEAN price advantage, which I told you, these are the published prices over China PET prices. These are two published prices from ICIS, so you can see.
Now, this is the graph to look at it for last 18 years. This is from 2004 to 2022. The, the side, the shaded area is the max and minimum range of the spread. You can see that what we are seeing today, this is going outside the graph, right? Although the cost increase is there, if you take 18 years cost increase, it's a significant increase. We do see sometimes these strange spreads. You saw in October 12, November 12, and this is July. These are some strange periods. Then you can see that operating rates gets adjusted, and the margin goes up. You can say that 80% of the people today who are producing in China are making cash losses.
Maybe the integrated paraxylene guys, because they are making money in paraxylene, so they may be making money. Then again, you have to look at it, whether you look at it as an integrated play or you look at it as a PET, PTA play, because they can always sell paraxylene in the market.
Thank you. I, I have another question, another questions. I see that you have guided the PET operating, operating in the third quarter, but it's still down from the second quarter, and it's still, I think, still low related to normal level. You mentioned that the destocking already end. Is there a reason why that you expect the lower margin operating rate in this third quarter?
No. Third quarter, we are showing here 4.93 million tons. Towards those first half and second half, you'll see is 5.24. Actually, in India, in PET, we'll be operating higher. You can see it's a 76% operating rate. The Indian capacities has been added into this in PET. Overall, for IVL, we are talking of 77% operating rate versus 74. Which is 7.67 million tons. We had a shutdown of the cracker in IOD in second quarter. This is normally taken every 5 years. You can see that IOD is also 1.45 million tons, once is 1.38, and the fibers will be also higher. I think the volume growth is in all the verticals.
Thank you, Ka.
Thank you. I can see that there's one question from Credit Suisse, Khun Boom. She has asked about an update on Corpus Christi project and how it's going to impact the business.
Khun Boom. The three partners are still looking at the project. The project cost, as we have been reviewing, is slightly higher than the original budget. There will be a meeting, and we'll get back to you, but right now, the project is on the track. The demand in United States, as you know, that a 1 million tons, 1.1 million tons is imported in U.S.. When you take U.S. and North America together, because that's the NAFTA, that's where it's about 1.2 million tons. The capacity which will come, even if it comes in PET, is 1.2 million tons.
That will basically replace imports, partly, and, the partly can be also because this will be a cost competitive facility for exports. The latest update is, project is right now at present on track, but there will be a meeting of principals to look at the project cost and decide accordingly.
There's no hand raised, so actually, I'll pick up from the WhatsApp. On this slide, when we talk about this protected markets, so if you talk a little bit about that.
Yeah. If you see, you know, the... What this slide shows that about 28% for market is in Americas, which is basically Brazil, Mexico, and United States. All three markets are fully protected. You can see the-- The product from China right now is flowing only in Mexico, about 250 KT, which will, again, as anti-dumping duty comes, that becomes a protected market. Right now, the biggest dumping is in Europe, which anti-dumping duties will come in fourth quarter. That is, you can see, 23% of our sales, and that's where you saw the margins are under pressure. In Asia, whatever we make 49%, basically, or the, this 49% is basically India, Thailand. As I showed you the graph, that India is again a protected market, there will be BIS.
This, and like, in Brazil, when we talked about there's an anti-dumping duty, even in this some Indian markets like Japan. Japan from China, there is a duty of 80%-120%. Japanese market cannot be accessed by China. The world is split between what Chinese can export and what Chinese cannot export. The Chinese exports are predominantly going in Middle East, in part of the Asia and the CIS countries, which is Russia and all that. That's what you saw on the export statistics. That gives you the, that what environment which when we operate, and that's why IVL has a better premium in terms of margin versus the Chinese competitor.
That's why we think that more reference number now is not China, but the other countries like Southeast Asia, which I showed you the graph.
Okay, thank you. There's a question, hand raise by Macquarie. Kaushal, can you please go ahead?
Hi, Vikas, can you hear me?
Yeah, we can hear you. Please go ahead.
Thank you, management, for the presentation. First, is just on Oxiteno. Could you sort of share what was the contribution from Oxiteno this quarter? Also, if you could remind us of, you know, what is the FX sensitivity to the bottom line for that operation over there?
Yeah, Andrew, you want to take that? Let's bring the Oxiteno slide. Yeah.
Thanks for the question. Well, let, let me start off by saying that there's, there's absolutely nothing wrong with the Oxiteno business, and it's still a good acquisition from IOD and IVL's point of view. Let, let's just think about the business that they have today. I, I think it's balanced. It's got a resilient portfolio during normal times. If you remember, a lot of the products that they make, 75% are nondiscretionary and 25% are discretionary. Nondiscretionary sales can be impacted by severe market factors. However, these markets do tend to recover faster than discretionary markets. I think we split the business down into four real segments. One is home and personal care, which is really a nondiscretionary market.
It can be impacted a little bit by use of maybe lower-tier surfactant products rather than the higher tier when spending power gets limited. The business in South America for home and personal care is actually quite resilient, and half one is actually higher than half one last year. As you know, and we just talked about, the crop solutions business, which is about 30% of the surfactant sales, is significantly affected by inventory loss. Then, the coatings business that normally goes into both export markets and internal markets, and that's been impacted by a lot of imported product, which we're now battling against and making sure we're competitive against them.
That's the overall look at Oxiteno. If you look at this slide, and this is a half 1 to half 1, 2022 to 2023. You can see the volumes were down about 13%, primarily due to destocking that's been going on since Q4 of 2022. The core EBITDA, you can see the gap there. Now, part of that is the large inventory gain we got in half 1 of 2022, versus the inventory loss through falling prices, raw material prices, that we see in half 1 of 2023. Obviously, that will correct itself as prices stabilize and even start rising. Then there's a tax swing of about $9 million of incentives that's changed.
If you look at the business EBITDA, half one to half one, there's about a $58 million gap. Think about that in terms of two ways. One is, about $25 million is volume loss, really in that destocking phase. That's the volume we will get back as the markets pick up. Then the impact of margin loss across the supply chain disruptions, we could command higher premiums. You know, we became a very localized, insular ability to run in Oxiteno. We will keep some of that as the volumes pick up, maybe not all of it.
As we think about Oxiteno going forward, it's gonna move back to about a $50 million a quarter run rate, so that would be about $200 million a year run rate. That's pre-synergy. As you know, we've got a pretty aggressive synergy creation program that covers operations, it covers supply chain, it covers optimization networks, it covers share of wallet, it covers swapping products between regions, et cetera, et cetera. That's gonna add about $70 million-$80 million on top of that. If you think about the Oxiteno run rate, think about we will go back to the $50 million a quarter run rate.
Thanks, Alastair. I hope it clarifies that we are looking at a normalized $200 million. Last year, we had this gain due to inventory gain, and this is due to some... Because palm kernel oil, there is a big lag coming from Indonesia to Brazil. Then post synergy, we're looking at $270 million-$280 million. Your question on the exchange, of course, the Brazilian currency became stronger this six months because the interest rates were at 13.75, so it had a one-time impact of that $6 million-$7 million, what you saw. Recently, Brazil has cut the interest rates because the real inflation is 5.5%.
We are expecting further interest rate cuts in Brazil, and that has started already weakening the currency. It should get normalized in the coming quarters.
Thank you. Just maybe another question for you, D.K.. I mean, I've not really been following the anti-dumping sort of process that's sort of taking place in Europe. Could you sort of remind us that, you know, is this a new issue, or is this something that's been discussed for a long, long period? What has changed, you know, in the last couple of months?
Yeah. This process takes about 9-12 months. This process started when the products started coming from China in a significant quantity. It's a long process because you have to get investigated. They investigate the producer, they investigate the customer. So that process is completed. Now, this will go into the commission's final approval, after and the official gazette, it will come in the fourth quarter, on the Chinese product coming from of the PET in Europe, EU 27 countries. So it's, it's a, it's a long process, which is now at the far end of the, you know, the last quarter process. That's all.
Okay, understood. Just my last question: in terms of your portfolio, you know, which products have seen the most demand destruction because of high inflation? Or, you know, has the portfolio overall, in terms of demand, end demand, has been quite resilient despite high inflation?
Yeah. I think if you, we showed you the slide of Coke, Pepsi and Procter & Gamble. 70% of the product portfolio, like food and beverages, if you look at our Home and Personal Care, did not get affected in IOD. What we saw was the destocking crop solutions, what Alastair explained, that's the destocking. Construction linked, we saw some destruction in, like, some of the specialty polymers or the Fibers business, which is, of course, inflation-linked or NDC. Some reduction in the because of the electronic sales, like TVs, large format TVs. Those were the very small percentage of our business.
I would say this is more a inventory adjustment which is happening and which is clearly reflected in the earnings of these end customers who are serving the end consumer, basically. Once this stocking is completed, and we are already seeing in PET completed, IOD is at far end, so then we'll see this demand recovering quicker.
Okay. Thank you.
Yeah.
Thank you, Kaushal. I can see one question in chat box from DBS, Khun Bond. Thanks for asking question. It says, "Just wonder why income tax expense is high in second quarter 2023. Even if you exclude the non-recurring items, it remains still high.
Yeah. That is right. The ETR was second quarter was having some adjustments of the first quarter, but if you look at first quarter and second quarter combined, the ETR is how much, Vikas?
Yeah. It's very, very less than 10%.
10%. Kindly look it as a first half combined, because there was some adjustment extraordinary, which came into the second quarter, and the first quarter adjustments were there.
Now also there would be, Khun Bond, there would be some impact of the mix, the regional earning mix. Yeah. Thank you. Audience, if you have any question, you can ask them now. I have one clarification, which, which few people are asking, that, this hedging gains and losses we have on the energy, are we normalizing them in the core EBITDA? We are not.
No, we are not normalizing it. This is after the hedging loss. The way we are showing this hedging loss is basically that if, if we would not have hedged the energy, then our cost would have been lower by that, but it is not adjusted in core EBITDA. If you want to normalize, you will have to add it back to the core EBITDA to normalize it.
That was just clarification. I don't see any more questions here. Audience, if you have any question, you can ask them now. Otherwise, we can... Okay, there are no more questions. Thank you.
Thank you very much.
Thank you very much.
For attending the. We look forward to see you in the third quarter. Thank you. Bye.
Thank you.