Welcome you to Indorama Q3 results meeting for 2022. I'm Vikash Jalan, Vice President, Investor Relations and Planning for the group. Joining me today, Mr. D.K. Agarwal, our CEO and CFO.
Welcome.
Sanjay Ahuja, Executive President for Combined PET segment. Christopher Kenneally, Executive President for the Fibers segment. A quick disclaimer that this meeting is being recorded, and a replay of this session will be available on our website after the meeting. We have made a few assumptions and estimates on the future trends and industry trends and business, which of course are based on our analysis and available information at this point in time. With that, I now invite Mr. Agarwal to start the prepared presentation, and after that, we'll open up the session for the Q&A. Over to you, Mr. Agarwal.
Thanks, Vikash. Let's go to the slide, please. Good afternoon, ladies and gentlemen, and welcome to Q3 earnings. If you can move to the next slide, please. As you can see, we are very pleased with our performance for the first nine months Q3 of 2022, in spite of very volatile market situation. Our revenue for the quarter was $4.9 billion, an increase of 27% year-on-year. A decline of 10% quarter-on-quarter, but this volume drop is only 4%. The majority is due to the price drop because of crude oil. Our core EBITDA was $606 million, an increase of 39% year-on-year. Decline of 20% quarter-on-quarter. As I said, sales volume declined by 4% quarter-on-quarter. Core EPS of THB 1.81.
If you take last 12 months Q3 2022 of THB 6.92. This shows the resiliency of the business as we go into Q3. of course, Q2 was peak. Looking at the highlights of each business segment, if you look at CPET, YTD core EBITDA is about $1.19 billion, an increase of 42% year-on-year with a YTD core EBITDA margin of 13%. Very strong results. Our largest segment, CPET, has seen steady demand. Actually, if you see in last two years, post-pandemic, 2020 and 2021, the business grew by % per annum, which shows the strength of the business. This can be seen across all regions apart from Europe, which is presently in the midst of an energy crisis because of geopolitical situation, both on demand and margin.
Pressure in Europe will continue as long as energy markets remain quite volatile, as you know. If you come to the integrated oxides and derivatives, this is a business which is developing very strongly in our portfolio. YTD core EBITDA of $604 million, an increase of 137% year-on-year with a YTD core EBITDA margin of 18%. If you analyze this business, the integrated downstream portfolio has performed above expectation in the first nine months of this year. The acquisition of Oxiteno has brought further strength to this portfolio through its regional market leadership in surfactant, as well as with the addition of natural fatty alcohols. Oxiteno performance has been fantastic. In the integrated intermediate portfolio, I mean, ethylene and MEG spread has continued to see weakness.
Never in the history of the last 10 years, the MEG spreads are terrible. Driven by China lockdown and overcapacity hovering at unsustainable levels. Producers who are based on naphtha because it's no more feasible to run at those margins. On the other hand, MTBE, an octane booster, has been very strong performance this year and is operating a normalized margin in Q3. but as we go to Q4, we are seeing again strength in the octane value. In Fibers business, YTD core EBITDA of $189 million, a minuscule increase of 2% year-on-year with YTD core EBITDA margin of 6%. This business is certainly affected. The severity of China's Zero-COVID policy has continued to hurt polyester fiber demand and margins impacting the lifestyle fiber business.
Both hygiene and mobility fibers have been performing relatively stable year-on-year despite the high energy cost in Europe. As you know, a number of our assets are in Europe. Management has shown good agility in passing the higher energy prices. If you look at the balance sheet of the company, our balance sheet has been strengthened. At the end Q3 2022, our net debt equity has reduced to 1.1 from 1.21 at the start of this year. This is after nearly $2 billion of capital expenditure, mainly for completion of the Oxiteno and Vietnam packaging, and recently a Woola plant. As well as $389 million got pumped into working capital because of the increase in working capital, particularly Q3, which will get liquidated in Q4.
Our liquidity position of the company is pretty strong with $2.06 million in cash and cash under management plus unutilized banking lines. This is pretty strong balance sheet. Go to the next slide. I think the economic indicators are very important. As you know, the three core indicators which we are following this last few years has been very volatile. A number of unprecedented macroeconomic factors in the last 18 months. We are seeing very volatile movement of crude oil. Strengthening of dollar. Dollar index, as you can see, has gone. Which is helping us because our cost in dollars come down in the weaker currency areas. Supply chain disruption all peaking Q2 2022. Now I can see the freight rates have come down, which is certainly impacting the import parity, particularly in the European market.
IVL had exceptionally Q2, which has started normalizing Q3 2022. The Ukraine crisis brought more upheaval in the form of volatile energy prices, predominantly in Europe, as you know what has happened in Europe. While on the other hand, China's Zero-COVID policy has dramatically reduced consumption that impacted market globally. As we hear in the marketplace, that China may soon remove the Zero-COVID policy, which will certainly help in the market conditions of improving the demand. To the next slide. One of the worries as you know want to know about gas supplies in Europe, which we continuously keep you updated. In the grand scheme of things, European Union only represents 10% of IVL EBITDA based on nine months 2022, as you can see on the left-hand side of the graph.
We don't see much supply risk for most of the European countries where we operate in as they are supplied by either LNG or pipeline gas from Africa. We also have multiple sites around Europe, like Egypt and Turkey, which are totally independent of Russian supplies, and in unforeseen circumstances, we would be able to ramp up those more and supply our customers. On the other hand, Germany and Czech Republic are where we have risk of energy supply disruption this winter season, as Russia has now cut off gas supplies. We have been working on alternative sources, particularly in Germany, with some very small CapEx. As you know, in Germany now, 90% of the storage is full, and we saw a very strong correction in the spot gas prices, which will end Q4.
On the cost side, on the right-hand side, you can see a bridge here that the energy cost for nine months has impacted us $484 million, requiring significant pricing and volume. You can see $1 billion has come from margin and volume, while $192 million came from new acquisitions. Management has been agile, but there's certainly gas is quite volatile, which will certainly have a impact in the European operation. Next slide, please. Just to explain to you the slides we have been showing, we have been following a systematic hedging policy in our business of gas now from since last year. Our aim is to hedge 50% by end of 2022 for 2023. You can see that our hedge price is significantly lower, which benefited.
In both, we have Q3 40% Q4 at much lower cost than the spot prices. In U.S., we hedged 48% Q3 and 57% Q4 2022, and you can see in 2023 also we have hedged. Sequentially, Q3, we had additional impact of $58 million due to the energy. If you see year-on-year, the impact was $181 million Q3. as you go to Q4, sequentially, there should be a lower cost of $15-$20 million Q3, while year-on-year cost impact will be still $50-$55 million. Now, I want to remind Q4 2021 itself, the gas prices had gone up, so this difference you are seeing is lower.
This is to just give you an update on our gas situation. Next slide. I think it's important to understand the portfolio of business. Today, each of our segments has scale, market strength, and their own growth opportunities. As I mentioned, PET strongly grew 5% per annum last two years, and we are the leader of the business. As you know, we have 20% market share. If it's ex-China, we are 33%. We are also leader in recycling and continue to shape the industry in this space. We will be focusing on strengthening our leadership position in recycling, and we'll be also looking to add biomass in our feedstock, as we declared in Vision 2030. Again, we think the per year PET remains to grow at 4.3%. Interesting development.
Because of very high energy cost, glass and aluminum both are becoming much more expensive in Europe, and we are seeing some substitution happening to PET there because they are very energy intensive. In IOD, integrated oxides derivative business with big strategic acquisition recent years, we are the most prominent name in surfactants, EO and ethoxylation in Americas, and certainly opens up the potential to grow this business to the rest of the world. Oxiteno will further bolster our capabilities in this space going forward. We'll be unlocking synergy benefits of Oxiteno integration to the extent of $100 million, leveraging on the bio feedstock, doubling down on innovation pipeline, and lot of growth potential in further geographical expansion and into the adjacent businesses like ethylene carbonate, which goes for the electric batteries. In fibers, we have great capabilities in the fibers too.
As we have nurtured it over many years, there is a barrier to entry. We are now leaders in auto safety, tires and bike fibers across the world, and we look to strengthen and expand the platform as well as next level R&D partnership on sustainable products and circularity such as biodegradable. All three verticals are poised for very good growth. Let's move to the next slide. I think we wanted you to understand and differentiate IVL with other chemical companies, and these are two, three differentiating factors. The biggest is the geographical diversity. With manufacturing locations in 35 countries, evenly distributed across three regions, IVL's widespread presence provides natural mitigation to the increasingly volatile geopolitical landscape. Moreover, with the recent global disruptions, IVL's ability to provide shorter supply chain and serve from multiple locations brings trust and reliability to our customers. I think this we have seen.
It acts as a perfect hedge regionally, and customers rely on us as a very reliable supplier. Another important thing is multiple earning streams. Something goes right, something goes wrong. Today, you saw MTBE being strong, while MEG and ethylene is in trough. With 3 strong business segments and 10 business verticals, IVL's combined portfolio acts as a meaningful hedge to disruption in one area at any given time. As we say, the whole is stronger than its parts. As we build an increasingly balanced portfolio, IVL is creating further opportunities for growth, especially in downstream portfolio such as home, personal care, and food packaging. The third important element, what markets you serve, and that is attractive end markets. Over 70% of the IVL products serve consumer daily necessities.
Applications such as food and beverages, as you can see in this graph, packaging, home and personal care, and crop solutions. We are not in durable business. We are in the necessity business, and that's where it's sort of we call recession-proof. Not only are these end markets relatively demand inelastic, they also have attractive growth catering to increasingly favorable consumer needs such as safety and hygiene, and which we have seen in these last years. The result of the combination. Now, if you see on the right-hand side, I just wanted you to focus here. We have made this pro forma consolidation of 2018 to 2022, the assets we had. You can see that our EBITDA per ton would have been $130 per ton, including for last 2018 to 2022.
You know, 2020 to 2021 was an exceptional year because of pandemic, because of natural calamities in the United States, and many other factors. If you exclude that, then it becomes $140 per ton. The variability, which is 20%, goes down to 14%. That shows the resiliency of the earnings of IVL through the cycles. Today, for last twelve months, of course, we benefited from import parity and the supply chain disruption. We are at $163 per ton on the same portfolio of the business. Let's move to the next slide. This is another way of looking at the business portfolio. We have split this into commodities, special position, and downstream. Commodities, of course, they remain volatile. Sometimes they give you very good money. This 43% volume was 13% of core EBITDA.
special position, when we define a special position, is basically where the consolidated market, there's a barrier to entry, there is a deficit in those markets, as you can see in Europe and Americas, where we enjoy a better position. 37% volume constitutes 34% EBITDA. When we took downstream, these are very, or you can high value-added businesses, stable and high margins. Majority, they are secured by long-term contracts. There are thousands of SKUs, 2,000 SKUs in IOD business, surfactants, LAB, propylene oxide, ethylenes, natural alcohol, synthetic alcohol, propylene oxide. You have long customer approval with safety and hygiene sensitivities, as you see. 20% of this business constitutes 36. This is the pie which we are increasing with recent acquisition to remove the volatility on the earning and improve the quality of the earning. Next slide, please.
We have been talking to you about Project Olympus. We are very proud of this. It has provided an excellent structured and disciplined approach to continuous cost and commercial innovation. As you can see in the graph, we remain on target to achieve $460 million efficiency gain by end of this year. As you can see on the right-hand side, this cuts across, and these are sustainable earnings. Operational excellence to deliver $253 million by end of this year through yield improvement, reliability improvement, cost optimization, and debottlenecking opportunities. Believe me, there are so many initiatives at this site, and it is managed through a key software.
Similarly, on the procurement and supply chain, we deliver $99 million by the end of this year by leveraging economies of scale, which we did not unlock earlier, competitive bidding process, and competitive cost efficiency through carrying out activities in-house. This journey continues. Sales excellence, again, by optimizing the product mix, enhance HVA, and keep improving by using digital tools. Organization to perform to deliver $29 million by the end of this year through organization improvement. The journey continues, and as you can see, we are not stopping in 2023. We continue this in 2024, and this has been certainly improving, helping us to be most cost competitive. Go to the next slide.
On recycling, we continue to make a great progress in our recycling aspiration with 690 KT of post-consumer PET bottle recycling capacity as at the end Q3, and our target of 750 is going to be reached very soon. This is input of bottles. Last month, IVL announced the official opening of PETValue bottle-to-bottle recycling plant in Philippines in partnership with Coca-Cola Beverages Philippines, and we are very proud of this. This is the bottling arm of Coca-Cola. The plant is IVL's latest recycled PET facility as a global integrated petrochemical company builds on its position as the world's largest producer of recycled resin. This is located in Philippines.
Our journey on recycle, I must remind that, we haven't unlocked much value so far, return on these investments, as we are still ramping up this production and you will see those getting, returns coming up from the next year onwards as we are scaling them up. Next slide. I think we continue to remain, we get recognized. IVL stands out on the industry for our leadership as a sustainable chemical company, positioned for long-term growth and returns. Beyond strong financial returns, IVL leads the change in sustainability, continuing to build from strength to strength. In addition, over the years, IVL has been continuously recognized on its corporate governance, processes and performances through awards and certificates, as you can see on the slide. Every day we get new news.
Kimberly-Clark is going to award us with some supplier awards, so we are very proud and this has gone into the DNA of the company. Now, let's move into the financial results. Go to the next slide, please. Next, please. This gives you a snapshot in span of four years, and you can see that 2020-2022, I mean, we're talking of $15.2 billion and LTM is $18.8 billion. A CAGR of 12%. We have demonstrated acquisitions, integrated them, successfully turnaround the assets and which has translated into the EBITDA. As you can see, 18% CAGR. Last twelve months, company has churned $2.5 billion of EBITDA versus $1.8 and being the average of $1.8 for 2020-2022.
It's easy to acquire, difficult to integrate and difficult to unlock the value. It also translates into the core earnings per share. As you can see, last twelve months is THB 6.9. An average of 2020-2022 is THB 4 per share. Which also improves the core return on equity. In last twelve Q3, we have created a return of 24% core return on equity. It's a proven track record and with each cycle, we have improved the quality of the earnings and company continues on the journey of the growth. Next slide. Let's look into some numbers. Revenue of $4.9 billion. This company is now a $20 billion company. Last quarter we made $5.5 billion.
Of course, because of this correction and the prices linked to the crude oil. That's a decrease of 10% quarter-on-quarter, increase of 27% year-on-year. Reported EBITDA of $511 million, as you can see, and a core EBITDA of $608 million. We had inventory losses, which is again 758, which is a drop of 20% quarter-on-quarter, but increase of 39% year-on-year. The core EBITDA margin of 12% and core ROC of 15%. If you see the core net profit is THB 10.3 billion versus thirteen point two Q2, which is 22% drop, but 74% increase year-on-year. Our operating cash flow were lower, $279 million.
Conversion has not been that great this quarter because as I said, we really blocked our working capital cycle by 7 days, which 6 days pumped in $360 million. We'll get this unlocked Q4 as we liquidate our inventories. The core EPS was 1.81 THB versus 2.32 THB, and last quarter was 1.02 THB. Core ROC Q3 is 14.8% versus 20.2% Q2. i said return on equity is 21.3%. The reported EBITDA, as I said, because of inventory losses, has come to THB 511 million. Of course, we got a big gain in Q2. the reported net profit is THB 8.1 billion.
If you go to the next slide, which gives you LTM basis. LTM basis, we did 15.1 million tons, $18.8 billion. Just want to remind you here that Oxiteno's only two quarters have been added here, because we made the acquisition in April. The core EBITDA is THB 2.476 billion. Dollars versus $1.55. A growth of 60% LTM Q3 2021. Core net profit of THB 39.6 billion, which is a growth of 115%. Operating cash flow has been very strong, THB 1.952 billion. As I said that it got blocked in Q3, which will get released in the Q4.
Core EPS in last twelve months has been THB 6.92 versus 3.16. ROC for last twelve months has been 16.8% and return on equity is 24.5%. As you can see, cumulatively last twelve months we had inventory gain, which makes reported EBITDA to $2.776 billion. Reported net profit of THB 47.9 billion baht and reported EPS of 8.39 billion. Reported EPS of THB 8.39. That gives you last twelve months, what is the earnings highlights of the company. Let's move to the next. Look at the volume. As you can see, CPET saw marginal decline. This is because of lower demand in Europe and also but volumes in Asia, America remains steady. In IOD, downstream remained robust.
The decline in operating rate was due to lower MEG. Because of MEG margins being very low, we are adjusting the production rate. I mean, it doesn't make sense to make more MEG, more losses. Fibers. Lifestyle fiber was impacted by market slowdown in China and high downstream inventory. I mean, COVID. Mobility fibers saw lower sales volume Q3 2022 and in line with the European decline and higher utility cost. Hygiene fibers saw demand normalization with the easing of COVID pandemic. How do we see Q4? of Q4 is generally seasonally weak in CPET, which we have seen in the margin. Little bit drop in the margin, and this normally happens.
We have seen in the past also when the margins drop, Chinese start cutting the production and then the pre-buying happens, and then you start with the season and improvement in the margins. IOD's integrated intermediates. We are adjusting the MEG production, as I mentioned, to optimize the profitability. You can see that we are still talking of MEG of 0.7 million tons Q4 production. It's lowering the MEG production. Fibers will be about 0.4. Regionally, you can see how the fractions will be. As we are in middle of November, we have a good visibility of the volumes. Let's move to the next slide. That's about the volumes.
This shows you that we are very pleased with the record LTM core EBITDA, as I mentioned, of $2.476 billion versus $1.55 billion. Every quarter you can see Q2 was certainly the peak, supported by strong MTBE and very strong PET margins. You can see Q3, $606 million. Very strong results. You saw the volume at 15.1. CPET, steady demand volume across all regions other than Europe, where we see the energy crisis impacted both demand and margin, particularly Q3. we think Europe will still be a headwind in terms of energy markets as energy markets remain volatile. IOD, the downstream performed above expectations. As we mentioned, Oxiteno brought further strength in the business in surfactants and fatty alcohols.
Intermediates saw weakness in ethylene and MEG, as I mentioned. In fibers, we have China's Zero-COVID policy continued to hurt polyester fiber demand and margin, impacting lifestyle fiber. As I mentioned, hygiene and mobility performed relatively stable year-on-year and despite of higher energy cost. That's on Q3. how do we see the outlook? I mean, we see that Europe will remain challenging. There may be some drop in the margins in Asia PET, as I said, on the seasonality. The volumes will remain reasonably strong. Let's go to the next slide. If you look at it regionally, because it's very important to understand which region is contributing. Americas remain strong with the addition of Oxiteno assets. Again, I said there's only two quarters, $1.4 billion versus $765 million.
Europe was $337 million versus $371 million. You can see the impact in Europe coming in Q3, where we have only churned $41 million EBITDA and $379 million in Americas and $175 million in Asia. Regionally, Americas remains very insulated market. As we see, European operations certainly will have headwinds, although the European energy prices are coming down in Q4. volumes in Americas and Asia are expected to remain steady. Regionally, it is very important. Americas contribute a significant portion of EBITDA of IVL. If you go to the next slide. This is a bridge Q3. we made $1 billion of EBITDA, reported EBITDA. Of course, $252 million were exceptional items like inventory gains and other insurance gains. Core EBITDA was $758 million.
This quarter we are making $606. You can see additional energy cost of $58 million impacted us in the variable cost. Margin was only $19 million, and volume was $81 million. We had the inventory loss of $96 million. Fixed cost saving is primarily due to lower temporary manpower costs with lower sales as we optimize the operation. That gives you Q3 ebitda. If you move to the next slide, which gives Q3 2021 Q3 2022. It's an interesting slide to understand. The core EBITDA of $437. We had an inventory gain last quarter, the same quarter last Q3 2021. Volume has been marginally down because of plant turnarounds and also inventory management.
The margins improved by 300, and that shows the agility of the management to pass on the energy increases, also benefited from supply chain disruption. The fixed cost was higher, but got neutralized by Olympus. Oxiteno and Vietnam packaging contributed $104 million. A fantastic acquisition, Oxiteno, and that's where $606 million of EBITDA and inventory loss of $96. It gives you a bridge, how did we Q3 2021 Q3 2022. let's go to the next slide. Now if we dive into each business, Combined PET, as you can see, $1.459 billion in last twelve months, which is a 44% increase year-on-year. Quarter by quarter, you can Q2 was Q3 is $327 million.
EBITDA per ton is q2, Q3 is $122, and the EBITDA margins is 13% and 11%. Now, this is marginal decline in the volume. This is as a result of lower demand in Europe, as I mentioned. Also, the Asia and America remains steady. The energy prices certainly impacted our European operations and margin. However, as I speak, I think and I mentioned about recycling. Recycling did not churn any EBITDA. I think we will, as we are stabilizing the recycling operations and scaling them up, you will see the returns coming up very soon. How do we see the outlook? The seasonal weakness is there in Q4, as I mentioned in Asia and Europe, of course, because of the energy, but America has seen the steady performance.
2023 with nearly 45% of the contract and some of the contracts are still under negotiation, I think will be done at, for Mexico and United States at a better margin or same. As I mentioned earlier, the PTA margins have significantly improved. America remains quite protected in the business. CPET has really performed quite well. If you go to the next business, which is IOD, and you can see in last twelve months, $726 million of EBITDA, which only includes 2 quarters of Oxiteno. It's now, if you normalize it, you're basically talking of $850 million business thus, which is a significant improvement, 158% year-on-year. The light gray, which is the difficult part of the business, which has been MTBE and MEG.
You'll see the MEG has been contributing negatively, but MTBE's improved Q2 with $109 million, Q3 is $24 million. I mean, there's a negative EBITDA from MEG, basically. That is due to, as you can see, the ethylene margins are bad and MEG spreads are very low. The ethylene margins continue to remain weak with high ethane cost Q3. this further negatively impacted the performance of integrated MEG Q3 2022 and will show you some MEG graphs. They are still continuing to remain bad. However, the silver lining in the downstream business, you can see $194 million in core EBITDA Q3, up from $150 million. That remains quite strong.
$99 million was primarily driven by strong margin across all the product portfolios. These are the stable margin businesses. Naturally, Oxiteno acquisition has added the value into this. IOD remains quite a strong business. I just want to highlight here the downstream demand remains pretty strong. Home personal care, crop solution. I don't know if you followed the Bayer's results. The Bayer result has been strong in Q3. we have been doing a lot of price excellence across synergy benefits. We are targeting $100 million of synergy gains on integration of Oxiteno. Of course, high oil price also leads to activity on the oil field production. You know, oil field surfactants improves the oil. We are very excited about this. As I Q4 octane still remains short, healthy MTBE spreads.
We don't think ethylene and MEG margins are going to improve till China opens up, which is likely to be very soon, then it will improve, certainly help in MEG margins, more exports of polyethylene from United States, which will pull the ethylene margin also. Surfactant demand remains quite strong. Go to the next slide. This shows you Oxiteno's performance since our acquisition. You see that $79 million in Latin America Q2, $92 million Q3, and Pasadena has been successfully turned around from negative. Pasadena will be churning nearly $30 million. The investment and replacement cost is $250 million. Pasadena is actually, as we are optimizing the production, ramping up, changing the product mix, aimed towards going up to $40-$45 million.
A strong margin across product portfolios, strong downstream demand for home personal care and agriculture, and as I mentioned, accelerated Pasadena turnaround. We have a lot of innovation. I was in the U.S., we recently opened up the new lab facilities, so we have large number of R&D platform and lot of pipeline of new products in the marketplace. They fetch certainly high contribution margin. Let's go to the next slide. I think you certainly will like to know what's happening in the United States on the ethane. As the gas prices reduce, the crack margin went down, the ethane is coming down. On the right-hand side, you'll see the ethylene crack margins are very, very low.
With the inventory of ethylene highest in five years, and that's what is pushing this ethylene crack margins pretty bad, which is certainly impacting our business. We have taken steps right now to mitigate the losses on ethylene to take a turnaround of the Lake Charles cracker for 45 days. If China's demand opens, these are not sustainable. As you can see, the reinvestment economics is $500. You saw in 2021 itself, when there was disruption, the crack margins were good. But right now, we don't see a nearby future immediate improvement in this. If you go to the next slide. MEG spreads, you can see five years, seven years average was $500 per ton. Look at the Asia integrated MEG spreads, it's $77. I mean, it's below even variable costs.
We are seeing a lot of people cutting production. This is driven by a lot of capacity which got built in 2021 and polyester demand went down in China because of Zero-COVID policy, and that resulted in a terrible situation. What we are seeing, people cutting production on MEG, and only U.S.-based ethane-based, you can see there is a slight upward, $220-$253, and that is happening primarily because of drop in ethane prices, and that's what is yielding this. You can see on the right-hand side, the shale gas advantage, slightly improving. I mean, MEG is not in a good shape. We don't see immediate improvement, but as the fiber opens up in China, certainly this will help them where it is not sustainable. If you go to the next slide. I think MTBE is an interesting.
What is happening in the MTBE world is the octane shortage. Octane shortage. Why octane shortage is happening, it's important to understand. Naphtha crack margins, as you might be following, is negative. All the refineries are adding Naphtha into the gasoline blend. When you add Naphtha, you need more octane. The octane is becoming short, and you can see Q2, the peak was $880 per ton of MTBE spreads, which got normalized Q3. right-hand side, you Q4 as October has again improved to $600, and it's going to go further up as I speak today, in November, it is going up.
Which is Q4 is seasonally weak because that's where the butane gets blended to the gasoline, and butane is also cheaper, as you can see on the left-hand curve, US North Butane versus naphtha. How do we see in 2023? On the right-hand side, you can see we have put forward curve that what sort of forward curve is available of gasoline minus butane. MTBE spreads, MTBE sells over a premium over gasoline. I think we can see a range of $500-$700 per ton for 2023. 2023 is also going to remain short in octane, and this will certainly help in MTBE profitability. That's a silver lining in the intermediate business. If you go to the next slide. I think this is the business which has been difficult for us.
The Fibers segment achieved a core EBITDA of $49 million. The $55 million, which is in Q2, which is 11% decrease and 2% year-on-year. The lifestyle segment, where we have very competitive assets in Indonesia and in India, is due to market slowdown in China with high downstream inventory and COVID lockdowns. In Europe, in lifestyle, the utility cost impacted by the war. Hygiene fiber has seen slightly margin better because we got the lag gain due to decrease in polypropylene prices. As I speak to you, October polypropylene prices have dropped by 12 cents a pound. Polypropylene is very long in the world, and which certainly will create more lag in Q4, and of course, makes hygiene fiber more cost competitive.
The Fibers was negatively impacted by lower sales volume Q3, in line with the seasonal European decline and high utility cost. However, quite a significant operational in Europe, the management was very agile in selling, putting the gas prices as they are. Fibers, there's a lot of work which we are doing, and hopefully that will help. With the market improvement, this will improve the results. As LTM, you can see it's $271 million versus $245. If you go to the next slide. This is a debt bridge we made. That $6.2 billion was the net debt at the end of last year or beginning of this year.
We created core EBITDA of $2 billion, our operating cash flows, taxes paid, and you see it would have deleveraged to 4.4. Basically, Oxiteno and Vietnam packaging took $1.8 billion in interest and dividend, and we are back to the same $6.6 billion. Now, what it indicates that we could fund the Oxiteno and Vietnam packaging from our internal cash flow generation, in spite of paying the dividend of $180 million. Company still has very strong liquidity of $2.6 billion as cash and cash under management. Just to show you a debt bridge from last year-end to September 2022. If you go to the next slide.
The other way of looking at it, we started the year with net debt to equity of 1.1, which has improved to 1.1 times by end Q3. you just saw this is after capital expenditure of $2 billion and $389 million in net working capital. Our liquidity still remains very strong. Stronger dollar helps our business in not only Thai baht I mean, but the fixed cost where, you know, in many countries where the currencies have weakened like Egypt, like India and Indonesia, and that has helped because our dollar fixed cost has gone down. It will also improve the equity because of translation gain which you get for investments overseas.
62% of our debt is fixed rate, which is very timely because as you know, the Fed has been very, very aggressive and we have increased our interest cost by $9 million-$10 million this year because of the benchmark increase on the floating portion. Certainly this has been very good news because we have frozen, I mean, that 62% debt is on fixed basis. We have a good growth headroom of $5 billion even at 1 debt equity. If you go to the next slide. This is the most volatile period the currencies have. It's very important that you have fantastic natural hedge on foreign currencies, and we have been managing a very strong discipline into it. That's why you don't see FX losses coming into our balance sheet.
Rather, we have borrowed Thai baht to fund the acquisition and which goes into translation gain loss. We also have diversified the funding sources and 20% of our debt comes from sustainability refinancing, which there's a commitment to an ESG but also at a lower cost. On the right-hand side, you can see the debt maturity after the refinancing of $500 million, which we are planning and that it is well distributed and gives you a debt service coverage ratio, which is quite good. This shows the strength of the financials of the company. Next slide, please. As we move into Q4, to take a stock of the situation, yes, there will be some seasonal weakness in the margin Q4, in Asia.
European operations certainly continue to have headwind because of volatile energy cost and also lower freight as you saw on the earlier slide. IOD's integrated intermediate portfolio will continue to see healthy MTBE spreads for the reason I have explained, octane shortage. We don't see ethylene and energy margin to improve in near future, but certainly the worst is behind us, and with the opening of China, this will help. Surfactant demands continue to remain strong, and we have a very good pipeline. In fibers business, lifestyle again continued to remain weak Q4, because of China lockdown. As I said, China opens up, this will help. Hygiene should benefit from polypropylene lag situation as we negotiate next year's PP contracts and also the lag gain which will come and which will also make the competitive fiber.
That pretty much summary on Q4. if you go to the next slide. What is the summary of IVL? We have made so many acquisitions around the world, successfully integrated last being Oxiteno, a fantastic acquisition still to unlock the synergy value of $100 million. A lot of initiatives which are going. I think as I summarize, 70% of our portfolio caters to consumer daily necessities, which is very important to differentiate us from other chemical companies which are more in durables. We saw this during COVID, where demand growth remained positive, and that's why the Corpus Christi project, as you know, we initiated, which is on track for end of quarter 2024. We have seen our chemical peers post year-on-year losses, while IVL has shown significant improvement.
A geographical spread that insulates us from geopolitical risks, having created regional hubs, our supply chains have remained intact, and I think that has differentiated IVL. Today, we have more balanced portfolio with three segments. As you saw the three different segments and the earnings streams. Our platform's proven track record of withstanding volatility across cycles, consistently improving on our EBITDA pattern as you saw each cycle, and we explained to you how this performed over the last five years. Its cash flow. Very prudent balance sheet. Thank you very much. That was the last slide. Now we can open to the questions. Thank you very much.
Thank you, Mr. Agarwal. We can take the questions. I can see, Kaushal Ladha is first. Can you please ask your question?
Thank you, D.K., for the detailed presentation.
Komsun.
Thank you. Can you hear me?
Yeah, please go ahead.
Okay. Thank you, D.K. And the team for the presentation. I have a few questions. First one is, can you be a bit more specific on Oxiteno EBITDA in Q3, in particular, Pasadena plant versus Q2? i was just wondering, I didn't catch what you were saying, how did you fix the issue in Pasadena, which has been turning around very good. Second, how was the West spread negotiations coming along? You mentioned briefly on Mexico and the U.S. What about the others? On the CPET, how was the premium there, you know, approaching versus, like, the first six months. Are you seeing the premium is declining because of the Fed rates easing?
Another one on the MEG chain is that what if China is not going to easing the lockdown in the first half of next year? What would the end game there? How would you improve, or how should we approach this issue? Are you going to cut further, or there should be a consolidation in the industry because everyone was, like, losing money? The last one is when you were mentioning about MTBE outlook, is that particularly on the U.S. in terms of the Naphtha being used in the gasoline pool and the cracker that has been cut production or on a global basis? Because I think that the U.S. is mainly on the ethane. Thank you.
Very good, Kaushal Ladha. Thank you for all your questions. If you see here, this $92 million is 79. This is Latin America, okay? This is basically Latin Q4 2021 is $52 million, $63 million, $79 million, $92 million. This is only Latin America, which is Mexico and Brazil. The Pasadena went from -$6 to $15. This is Q3 2022. Vikash Jalan, do you Q3 specific performance in Pasadena? I know it is running at $7.67-$8 million, but I wanted to be very precise as I should do. It should create a $30 million positive EBITDA versus $6 million. What did we do in Pasadena? Let me explain to you. The Pasadena, basically, we improved the product portfolio.
We switched some commodity surfactants from Pasadena to our Port Neches, and we improved the product mix in Pasadena. Number two, we have some still the synergy value is not unlocked yet, which will get unlocked from January 2023. They buy ethylene oxide from a third party, which contract will come to an end, and we will captively supply from our plant. That will unlock between EO pricing, what they were paying versus the glycol pricing. The Pasadena is because of the capacity utilization, and this will continue to improve. That is on the Oxiteno performance. Your second question was on the West spread. I did mention to you. In Mexico and United States, 80% of the contracts are raw material linked.
This means you sell them raw material linked businesses, and 50% of those contracts are already closed. In next week we expect to close more contracts. Those are better margin or same margin as last year. Why? Because PTA margins are linked to paraxylene in U.S., so that also helps. Other countries, Europe, certainly we will have some impact because of the freights. Brazil, there may be impact of the some freight on the impact of the spread, but we are reducing the discount and optimizing their operation. Asia doesn't matter because Asia is anyway FOB plus business. Asia is market mostly market linked. Hope that explained you. The premiums naturally will narrow down as compared to the historical premium because the Western in Europe it will get affected. CPET will have some impact coming in.
The other question was on MEG. Let's go to the MEG graph. I mean, MEG is very worse. This has never happened in the history of MEG. Integrated players like Naphtha and Naphtha-based glycol producer, they are losing like hell, as you rightly said. Now, when the situation will improve, I mean, people are just cutting production. I heard that one producer in Singapore may shut down the plant. Now, whether there will be consolidation in the industry, there is a lot of coal-based MEG in China which may shut down or may operate at very low capacity. Well, China, you said open up last six months, next six months. I'm hearing that it may open earlier because naturally China's economy is getting hurt. But what's just behind us, I mean, you can't have $77 Asia MEG spread over Naphtha.
This means here you have to cover the cost of making ethylene and making glycol. This is lot of it is even doesn't recover the variable cost. This is much behind us. Worst is behind us. Your last question was on MTBE. Let me explain you what is. Go to the MTBE slide. MTBE is made from butane, and basically this is a PO/MTBE technology where you get TBA and then we add butane and methanol to make MTBE. Nothing. Ethane doesn't play a role here. It's the butane, and butane goes in LPG, and export of butane has also reduced. You can see the U.S. butane price versus naphtha is coming down, and it is 42% of the crude oil. Butane is low.
MTBE premium over gasoline, which is dark blue, left-hand side you will see, is today $0.80 premium. In the dark blue you can see there. How much is US MTBE minus gasoline? That is because of octane shortage. You must have heard that octane is quite short, and there is a forward curve in the market where you can sell RBOB and buy butane. That is showing a lot of strength right now, as I just showed you. Ethane has nothing to do here. It's basically butane and methanol is also long, so methanol cost is also expected to go down. That gives you hopefully the answer on MTBE. I hope I've covered all your questions.
There was a question on this China reopening, if it delays. If you want to give some comments on that, Mr. Agarwal.
Oh.
Yeah.
China reopening, I mean, even if it delays MEG demand, I mean, they're running at 70% polyester operating rate. I mean, the PTA margins are bad. MEG demand is already bad, so I don't see anything worse happening. We saw the ethylene crack margins going so bad, so we don't see, even if it delays, it's gonna get worse than this. Of course, I think here we have just try to see a slide. We expect China to start reopening Q2. i was actually talking this morning to one of our board colleagues, and he mentioned that there may be a possibility that it will open earlier. Let's keep our fingers crossed on China.
Thank you.
You saw their domestic manufacturing of Paxlovid pill, which kills the, you know, the COVID. Hopefully China has to come out of it. They're having a lot of issues with the housing and all that, so...
Thank you.
Thank you.
Thank you.
Kaushal . We have Sumedh Samant from J.P. Morgan. Can you ask, please?
Yeah. Hi. Thank you. Thank you for the detailed presentation. I have, I think, three questions. Firstly, just wanted to check with you on the interest expenses. They increased quite a bit suddenly from 2Q to 3Q. Just wanted to check, is it a function of some of the new amendments that you have done and the new debt that has kicked in, or is it purely a function of interest rate increase? And should we assume that this rate sustains going forward in terms of absolute number? So that's my first question. Secondly, the question is on Asia PET spreads. At least what I see in Bloomberg, the Asia PET spreads and prices both have come down quite sharply in the last 2-3 weeks. What has happened there?
Is it simply the winter demand weakness or is it something worse? Just wanted to check on that, whether you have any views. Thirdly, once again, I think the IOD downstream segment performance is really commendable. Just wanted to check whether the increase in EBITDA, especially this quarter, is it a function of weaker ethylene or is it purely, you know, like strong spread and ethylene? If ethylene improves, then actually that will be a gain towards overall IOD. Thank you.
Very good. Sumedh, good questions, and thank you for those questions. Vikash, can we bring on interest expense? Naturally, it's a factor of. No, we had a bridge of interest expense, right? That's how much. You know, 38% is floating, which has resulted in $9 million extra interest expense Q3 q2. then there was a, you know, we have a deferred consideration of $150 million on the Oxiteno deal, and as per our accounting, we have to provide the interest on those deferred consideration. That is also actually for two quarters it has gone there. These are the debt. Of course, as you saw, the debt is at $6.6 billion. Q4, there may be still a marginal increase because naturally the benchmark prices have further increased. Fed rates, and then it will have impact on 38% of the debt which is floating, you know. That will have impact. Vikash, you have exact numbers if you want to share that.
Yes, Mr. Agarwal. Sumedh, this increase in the benchmark in Q3 is about 1.3% in LIBOR. That impacted about $8 million-$9 million for the interest cost. Then $2 million-$4 million is the variance because of the different financing cost which came in in this quarter. The impact I'm telling you on the 1.3% benchmark increase is on the floating portion. 38% of our debt is on floating, so that's the impact. Yeah. That's why the increase in the Q3.
That's the $9 million.
Yeah.
Okay. Now, Sumedh, the second question was on Asia PET spread. Yes, you're right. The Asia PET spread Q4 really dropped. It is a matter of two things. One is the Chinese demand because of the Chinese lockdown, which is continuing. Second, this is a Q4 is normally weak in the spreads and, destocking. Basically, people have been destocking. What we have seen in the past, this is that whenever such spreads drop, the Chinese operating rate goes down, and then that goes up. We think that this is just a one-off thing. There's no structural issue in PET industry. The third question was on IOD downstream. You talked about is it driven by ethylene cheaper. Downstream, let me explain you.
We have ethylene pass-through mechanism in North America, and in South America, we buy ethylene, so there is no benefit of ethylene. We don't manufacture ethylene. South America, entire ethylene is bought, including Mexico, EO. So in North America, this is passed on, and this is many, many products in this. You also talk of ethanolamines, as I said, ethylene oxide, propylene oxide, linear alkyl benzene, LAB is quite strong and so all those products are there. This strength certainly is coming from product mix. The applications which we make, and you know, the particularly like crop solutions, oil field and home and personal care. As I said, there is a synergy to be unlocked by cross-selling ethylene oxide in this. We feel that, there's no big impact of ethylene being cheaper, you know, in North America because it's mostly pass-through. I hope answered all these questions, three of you. Yeah. Got it. Thank you so much. Thank you, Kaushal Ladha.
Thank you, Sumedh . Kumpung from Credit Suisse, can you ask your question?
Hi, thank you, D.K.. Can I just ask one question about Oxiteno? If we look at on the same basis that you earlier guided, when you made acquisition of the asset, that we should expect an EBITDA of about $200 million a year. Can you tell us how much you're actually making this quarter on that basis and how much of that is sustainable into 2023? Yeah, what should we expect from that asset, kind of in 2023? Because half of the, you know like for example like Vika resident wheel and all that will probably stay, right? We just wanna understand, you know, the cycle of it. Thank you.
Thank you. Yes, you are right. Can we bring the Oxiteno slide? You're right that the way we bought the business at that time, we expected around $220 million, and that's why we said we bought the business at 6x EBITDA multiple, 6.2x EBITDA multiple. You can see here since Q2, this is Latin America only, $79 million, Q3 is $92 million. If you take including Pasadena, it was roughly $99-$100 million. Certainly there were some tailwinds in oleochemical business, which is also part of this. As I just said, ethylene, we buy the ethylene. There is MEG. They also have MEG, actually, but MEG we are not running with very...
Running very limited because it doesn't contribute much, as you saw in the MEG business. How much you think is sustainable going forward? I think, as I said, we have synergy value of $100 million. I feel it's difficult to say, but there is no reason that we should not make $270 million-$300 million EBITDA in this business. Elections in Brazil are over. We are seeing less volatility in currency. It's a very strong market. We have leadership in those market. We have a lot of innovative products. We have a highly talented management there. There's a lot of opportunity of cross-selling, which we are developing. I feel very encouraged by this acquisition. You can see on the bottom, there are 160+ initiatives identified.
We feel really pleasantly very happy with this acquisition, and you have seen quarter by quarter. Sustainable, I would say there was some extraordinary gain in oleochemicals because oleochemicals was pretty strong. Barring that, I don't see any reason why they should not perform equally good.
Just one more question. You mentioned that there's a tailwind,
Tailwind in the Oxiteno business? Kumpung, you asked about Oxiteno? Sorry, you're on mute, I think.
She's asking about tailwind in buying ethylene. Is there any tailwind?
Oh.
No. There is no tailwind in buying ethylene. No. There is no tailwind in buying ethylene because we are buying ethylene linked to formula price, and that is not linked to United States. It's more tailwind of oleochemicals. I mean, oleochemical was strong this year, exceptionally.
Oh, okay. Because it's very strong demand.
It's a mix. Demand, volume, and product mix. You know, this is a business where we do value pricing. Let me give you an example. We make certain products which go for insecticides, herbicides, right? The contribution margin in those businesses is nearly $1,100 per ton or $1,200 per ton. What value we are creating for the customer? Remember, Brazil is a protected market. You know, import duties are there. You have all these advantages in Brazil. Agriculture is very strong in Brazil. The only thing which I feel, which is a headwind in 2023 is partly the coatings business and paint, because if the recession hits, then naturally coating and paint can get affected. That is the reason. Yes, they are such good results.
Thank you.
Thank you, Kumpung. I don't have any more raised hands here, but if you have any question, you can ask them now. Anyone, please?
Hi, it's Duladeth Bik . I just have a follow-up question. When you were talking about Argentina performing better on oleo, are you referring to fatty alcohol?
Yes. They buy palm kernel oil and make fatty alcohols, and fatty alcohols and glycerin is a by-product, and fatty alcohols goes for our captive consumption in our surfactant. Yeah, they have a fatty alcohol plant. Correct.
Thank you.
I have one question on the chat in the personal WhatsApp is about the lower taxes in this quarter. Is it the lower taxes in this quarter, why it is so, and is it going to be a new level going forward?
Well, it's not going to be a new level. Certainly the tax rate was low because we had one extraordinary gain in Brazil because there was a tax loss which came in from our previous Ultrapar, which was accounted as deferred tax asset. That was the reason of this. Do you want to give a specific answer, Vikash, that what is going to be the future?
Yeah. Just to add to Mr. Agarwal, our tax rate is about 18%-19%. If you see historically, we have been in those levels. In this quarter is about around 10%, because of this deferred tax assets that we have created in Brazil. We are going to get that benefit in the next quarters of those assets. Our tax rates going forward is expected to be in the historical range, about 18%-19%.
18.
There is no change. Yeah. We thank you, everybody, for joining us for this session. We'll stay connected with you one-on-one. Okay. Take care. Bye-bye.