Good morning, ladies and gentlemen, and welcome to the Trinseo Q2 2022 Financial Results Conference Call. We welcome the Trinseo management team, Frank Bozich, President and CEO, David Stasse, Executive Vice President and CFO, and Andy Myers, Director of Investor Relations. Today's conference call will include brief remarks by management team, followed by a question and answer session. If you would like to ask a question at that time, press star followed by the one on your telephone keypad. The company distributed its press release along with its presentation slides at close of market Monday, August 8. These documents are posted on the company's investor relations website and furnished on a Form 8-K filed with the Securities and Exchange Commission. If anyone should require operator assistance during the call, please press star then zero on your telephone. I will now hand the call over to Andy Myers.
Thank you, Brent, and good morning, everyone. At this time, all participants are in a listen-only mode. After our brief remarks, instructions will follow to participate in the question and answer sessions. Our disclosure rules and cautionary note on forward-looking statements are noted on slide two. During this presentation, we may make certain forward-looking statements, including issuing guidance and describing our future expectations. We must caution you that actual results could differ materially from what is discussed, described, or implied in these statements. Factors that could cause actual results to differ include, but are not limited to risk factors set forth in Item 1A of our annual report on Form 10-K or in our other filings made with the Securities and Exchange Commission. The company undertakes no obligation to update or revise its forward-looking statements. Today's presentation includes certain non-GAAP measurements.
A reconciliation of these measurements to corresponding GAAP measures is provided in our earnings release and in the appendix of our investor presentation. A replay of the conference call and transcript will be archived on the company's investor relations website shortly following the conference call. The replay will be available until August nine, twenty twenty-three. Now, I would like to turn the call over to Frank Bozich.
Thanks, Andy, and good morning, everyone. During the Q2, we delivered healthy earnings and closed out the quarter with the third highest first half adjusted EBITDA in the company's history, all while navigating an increasingly challenging economic environment. As the Q2 progressed, we began to observe slowing demand and destocking broadly across Europe, but particularly in building and construction and consumer durables like appliances and furniture. These conditions have accelerated early in the Q3. This is most pronounced in engineered materials, polystyrene and base plastics, where we're seeing lower levels of demand compounded with customers delaying orders, awaiting lower prices from rapidly falling feedstock costs. In polycarbonate, which is quite energy-intensive, market prices have not increased to reflect the rise in energy costs. In North America, we're seeing relatively stable demand with double-digit year-over-year improvement expected in automotive.
In Asia, we're encouraged by easing COVID restrictions in China and are hopeful that it leads to increased production in the region, although regional economic data from July has not reflected that yet. The uncertainty in the global macroeconomic landscape only underscores the importance of our strategy to transform Trinseo to a less cyclical, specialty material and sustainable solution provider. A key part of that transformation remains the divestiture of our Styrenics business. We began a formal sales process during the Q1 of this year and saw strong interest from strategic and financial parties. Since that time, there have been broad changes to the economic conditions, including geopolitical uncertainty in Europe and rapid rises in interest rates to combat high inflation. This conspired to shut down the acquisition financing market, which ultimately led to us being unable to conclude a transaction at a fair valuation.
While we're focused on our transformation strategy, we are also committed to obtaining a fair value for this highly cash-generative business. On July 26th, we announced a pause to the sales process. I want to be very clear that the separation of Styrenics business is still a key component of our transformation journey. Based on the significant interest we saw during the process, we anticipate a successful separation of these assets in the future. For now, we will continue to utilize the cash they provide to fund organic growth projects, including expanding our sustainable product portfolio, decreasing our CO₂ footprint and energy intensity while returning cash to shareholders. The Styrenics divestiture was just one component of the transformation, and our work is ongoing on the other facets of that strategy shift.
The integration of the acquired PMMA business and Aristech Surfaces is going as planned, and we're on track to capture at least $60 million of run rate synergies by mid-2024. We also recently completed the first wave of the ERP implementation for the PMMA business in North America, with the European go live expected later this year. When complete, we expect these migrations will result in transition service savings of approximately $6 million per year. In addition, we still expect annual savings of at least $25 million related to the upgrade of our legacy Trinseo ERP system, which we expect to complete next year. Another important part of our transformation is growing in recycled PMMA-containing products.
This is accomplished not only by growing sale of existing product offerings, but also by introducing new offerings like the recent launch of our ALTUGLAS R-Life acrylics, which are comprised of chemically recycled PMMA and are used in a variety of applications, including transportation, building and construction, and lighting. Sales of our recycled products not only have a positive environmental impact, but also align with our strategy of targeting higher growth, higher margin, and less cyclical markets. Including sales from the recently acquired plastics collector and recycler, Heathland, first half sales volume and variable margin for products containing recycled content grew 62% and 86% respectively versus prior year. Our first half revenue for these products was $39 million. Further growth in recycled content sales will be supported by focused R&D and capital projects.
More information on our sustainability strategy and metrics can be found in our twelfth Annual Sustainability Report, which we released in July. New additions to this year's report include the TCFD framework, in addition to SASB and GRI, as well as the inaugural Supplemental Core Impact Report, which provides a holistic view of how we define, create, and disperse value. The report also includes our highlights from 2021 and updated progress toward our 2020-2030 sustainability goals, including emissions reductions, employee safety, and D&I targets. I want to thank our sustainability team for another stellar report and our employees who've been integrating sustainability into our daily operations and company culture. Before I turn the call over to Dave, I want to make a few comments regarding natural gas in Europe. There are two key questions our stakeholders are interested in understanding.
The first is, what if there's a limited natural gas availability in Europe? The second, what is the impact of higher and more volatile prices? We have 14 production sites in Europe, including 4 in Germany. With the exception of Stade Polycarbonate and Böhlen Styrene Monomer, we have robust contingency plans for continuing operations in the event of a natural gas curtailment. Böhlen is currently down for planned maintenance, but looking forward. If energy supply is curtailed, we have the option to idle Böhlen and procure styrene from the market or to run Terneuzen site more intensely. In Stade, there are multiple lines, and we consume 50%—about 50% of the site's production for our higher-margin compounded products. We have the ability to reduce rates by 50% without impacting our downstream specialty business.
Our network of sites provides us with the unique ability to utilize alternative energy sources if Russian gas is curtailed or to ship from other regions at lower cost to meet market demand. Overall, a significant curtailment could become an upside in some of our chemistries due to their plant locations and the options to use non-Russian energy. For example, approximately 30% of European styrene monomer comes from plants in Germany and Eastern Europe, and in certain curtailment scenarios, we could see supply-driven fly up margins. Regarding higher natural gas prices, during the first half of the year, the average gas price in Europe was approximately $100 per megawatt hour, and our spending on natural gas was more than $100 million higher than last year. We've taken numerous commercial actions to pass through this cost increase, including increasing the frequency of our pricing updates.
In fact, I'm happy to say that we have maintained our unit margins in almost all of our products except styrene and polycarbonate. However, we estimate that our earnings were impacted by about $25 million from higher gas prices in the first half of the year, primarily in styrene, polycarbonate, and polycarbonate-containing compounds. If natural gas prices stay at their current levels through the second half of the year, the year-over-year impact would be $170 million dollar higher cost than the second half of 2021.
In the event of continued high prices and no curtailment or rationalization of supply, we can supply from other regions at significantly lower costs. In short, we have contingency plans that allow for our continued ability to supply and optimize costs in either scenario, with some potential upside if there are supply disruptions related to curtailments. Now I'll turn the call over to Dave, who will talk more about our financial performance.
Thanks, Frank. I'd like to start by giving a little more color on what we're seeing in some important end markets in each region. As Frank mentioned, during the Q2, we encountered softening demand in Europe, driven by economic uncertainty and higher costs of materials and energy. Please recall that more than 50% of Trinseo's sales are in Europe. This demand softening was most acute in consumer durables and building and construction. Q2 automotive volume was sequentially similar, but still down significantly year-over-year as chip shortages and materials constraints persisted. In Asia, we saw broad weakness in destocking in all markets in the Q2 due to the COVID-19 restrictions. While we are hopeful for a robust demand recovery in the second half of the year, we've seen no sign of it yet in the Q3, so we've not included this in our guidance.
The area of relative strength in both the second and Q3 is North America, where volumes are relatively stable. Americas Styrenics had a very strong quarter, driven by high styrene margins despite an unplanned outage early in the quarter. Both benzene and styrene prices increased significantly in the Q2, ultimately reaching record high prices in June. This led to a $32 million positive timing impact in the Q2, as well as a $181 million working capital build. Both benzene and styrene have fallen more than 20% since June, and we expect this downward trend to continue through the end of the year. As such, we expect a large working capital release in the second half, as well as negative net timing.
We've already seen this early in the Q3, as free cash flow in July was more than $50 million. Our ability to generate cash even in challenging economic times has been a consistent theme over the course of the company's history. For example, even in 2020, the worst economic environment in recent history, we generated almost $200 million of free cash flow. We're in a solid position to continue our transformation agenda and return cash to shareholders. Now I'll turn the call back over to Frank for an overview of our latest outlook.
Thanks, Dave. Moving on to our full year outlook. We are guiding to net income of $28 million-$63 million and adjusted EBITDA of $475 million-$525 million. This reduction in our guidance reflects three factors. These are the continued slowing of the European economy impacting demand, near-term destocking by customers in advance of lower raw material prices, and market prices in styrene and polycarbonate that failed to recover recently increased energy costs. We believe the Q3 will be the trough for the year due to the destocking we're seeing in Europe and Asia, and we expect this to resolve itself later in the quarter. In response to these challenging conditions, we're taking action to improve profitability and cash generation.
For example, we're lowering our capital spending to $150 million by deferring projects that do not impact safety or reliability. We're actively managing costs by managing attrition and reducing discretionary spending. Please note that these cost controls will not impact our transformation or growth initiatives, including sustainability investments. As we mentioned, this forecast includes about $35 million of negative net timing impact in the second half as raw material prices begin to normalize from extremely high levels. Now, as Dave mentioned earlier, the lower prices will also trigger a release of working capital during the second half. We estimate that cash from operations for the full year to be approximately $250 million, leading to a free cash flow of $100 million.
This assumes that the working capital impact is roughly neutral for the year, offsetting the $284 million working capital used in the first half via inventory control and a large benefit as raw material prices are reduced from historically high levels. There's currently a lot of uncertainty in the forward outlook for the global economy. Even if this slowdown turns into a more pronounced economic downturn, we are well-positioned to continue producing solid earnings while using the proceeds from our highly cash generative business to organically invest in growth platforms that, along with our transformation strategy, while returning cash to shareholders. Now we're happy to take your questions.
At this time, I would like to remind everyone, in order to ask a question, press star followed by the number one on your telephone keypad. Your first question comes from the line of Frank Mitsch with Fermium Research. Your line is open.
Hey, good morning, folks, and thank you so much. Frank, I was wondering if we could dig a little bit deeper into the volumes that you're seeing, that you saw in the Q2 and what you saw in July, you know, preferably by geography. You know, how that trend was and, you know, was there a material deceleration in July and then and so far in August? I believe that you had mentioned that in China you had anticipated to see the benefits in July of the lockdown ending, but you didn't see that. If you could give us a tour of the world in terms of that volume sequence, that would be awesome. Thank you.
Sure. Let me first say that globally I'd say automotive volumes have held steady into the Q2 and the beginning of the Q3. What we have seen is an effect that we've seen in previous cycles where commodity prices have dropped rapidly and people suspend buying to reduce inventory, anticipating lower future feedstock costs or raw material costs. You know, we could point to a couple of those periods, namely Q3, Q4, 2018 is a great example.
This is a phenomenon that lasts for one to two quarters. As they flush out higher cost inventory and they, you know, anticipate buying lower cost material. We see that it's been most pronounced in Europe and in Asia, in both building and construction and in consumer goods. Like for example, think white goods or appliances. I would say most pronounced in Europe, in those two markets, building and construction and consumer goods. Second most pronounced in Asia. North America is relatively steady.
That's helpful. Is that more of a July and August phenomena in Europe than a June phenomena? Or did you already see it in June? I'm just trying to gauge this in my soul.
Yeah, we started seeing it in June when the prices started dropping. I'd also say there is some slowdown from higher cost in Europe and the economy slowing.
Frank, this is Dave. I'd like to add something. I think Frank is right. We started to see this in June. It really accelerated in July. I think we see August being, you know, effectively a repeat of July. You know, what's historically happened when we've seen these destocking periods, as you know, Frank, is, you know, a V-shaped recovery where, you know, when the feedstock prices drop, you see a big snapback and restocking. We clearly do not have that in our forecast. What we think is different this time is, you know, the inflationary environment and, you know, the impact that's having on consumers and consumer demand.
You know, what our guidance is reflective of, I think, is, you know, clearly some improvement in demand in September, in the Q4, but clearly not a V-shaped, more of a, you know, more of an L-shaped recovery, I would say, in the back half of the year. You know, not the snapback that you're used to maybe in previous destocking cycles.
That's very helpful. On the free cash flow side, you know, the EBITDA for the year was lowered by $150. The free cash flow was lowered by just $75. Now, you did mention that working capital has been released so far $50 million in the quarter. You know, is that the main reason why you're projecting your free cash flow to be at least not decline as much as your EBITDA? Is it really just all in the working capital side?
We've lowered our CapEx also. From the last forecast, we've lowered CapEx by $30 million, Frank, and we've obviously taken a look at everything and deferred volume-related CapEx and CapEx that we can defer that has no impact on reliability or safety. We've done that. Our cash taxes have come down, obviously, reflective of lower profitability. We're gonna be very aggressive in the back half of the year on reducing our inventory. I think all of that, Frank, is kind of what gives you that result.
Thank you so much.
Your next question comes from the line of David Begleiter with Deutsche Bank. Your line is open.
Thank you. Frank and Dave, just on Styrenics, would you consider selling AmSty separately?
We actually have restrictive covenants in our bylaws, where, you know, our joint venture partner has certain affirmative rights under the structure. We wouldn't, you know. They would have certain rights that, you know, if we wanted to sell it independent of the other assets. Okay. Now, that being said, we actually like AmSty in this cycle because they're quite advantaged in their cost structure, relative to the rest of the world, and they're performing extremely well. In this environment, you know, it would have to be a very fair or attractive, valuation for us to be interested in parting with it.
Understood. Just on feedstocks and polystyrene for the period of time where you still own it, do you plan on running the businesses any differently? Specifically on feedstocks, do you expect this business to be negative EBITDA in the back half of the year? Thank you.
We think in Q3 it will be negative and get to zero in Q4. That's anticipating operating rates moderating, like we've said, over time to get to a sort of a equilibrium supply-demand balance. But it will be negative in Q3. Again, it's a good business. We like the business very much. It has a lot of opportunity and sustainability. It's a very cash generative business, as you know. We'll continue to operate it as normal, business as usual. When the right circumstances exist, we would consider divesting it for fair value. The one opportunity that we do have to improve the performance that's in our control is really how we operate Böhlen.
It's as I mentioned, it's currently in a turnaround, and we do have the opportunity there to delay its restart or idle it for some period of time and more and better leverage our asset in Terneuzen coupled with market purchases.
Thank you very much.
Your next question is from the line of Mike Leithead with Barclays. Your line is open.
Great. Thanks so much, guys. First question, I just wanted to better understand the earnings bridge into the back half. 164 EBITDA in 2Q, the back half implies about, I don't know, $75 million or so per quarter in 3Q and 4Q. Are you assuming a step down 3Q into 4Q? Do you take a big step in 3Q before recovering in 4Q? Just how you guys are thinking about the trajectory of your business into the back half.
Yeah. Q3 will be the trough quarter for the year and with a recovery in Q4, and there's a couple drivers. Number one is that we anticipate most of the timing, negative timing that we'll experience to occur in Q3. We stated that was about $35 million of negative timing impact. And also the destocking effect that we see, we believe is gonna be most pronounced in Q3. People will use the extended August shutdown in Europe to extend the August shutdown in Europe to destock and await lower raw material prices.
Got it. That makes sense. Then maybe second, I guess, just high level on the portfolio. I mean, you touched on in your remarks that the Styrenics business is giving you some pretty substantial free cash flow right now. My guess is if we look at Trinseo ex Styrenics right now, some of the destocking, the polycarbonate weakness, it's a bit of a tough picture right now. I guess, does that give you any pause in trying to ultimately divest this business? I guess just how do you think about the re-rating potential for the stock when there's still some pretty significant volatility in areas like base plastics within the portfolio?
Yeah, I think that we have the right strategies to separate Styrenics and, you know, find the right home for it and with someone who will invest in it. The remainder of the portfolio, we're quite happy with. You know, frankly, we've been able, notwithstanding the margin challenge that we've got in polycarbonate, the rest of the portfolio, we've been able to manage margins and sustain our unit margins at levels that are very attractive through this cycle. You know, we just anticipate that there's going to be some destocking mainly in those other markets. In the long term, we feel very good about it, and we know we have the ability to grow this business because of the growth opportunities that we have. I don't see that this would give us any pause about the way we're thinking about it, the portfolio.
Makes sense. Thank you.
Your next question comes from the line of Hassan Ahmed with Alembic Global Advisors. Your line is open.
Morning, Frank and Dave. You know, just question around, you know, in the past, as you guys went through the portfolio transformation, you know, you sort of, you know, gave us some indications of what the new normal earnings power of the company will be. Obviously, you know, the macro has changed a fair bit since then. I'm just trying to get a sense of, in your mind, what you think, you know, the trough earnings potential of the current portfolio with Styrenics in the mix is.
Yeah. I think that if we look at trough earnings in, you know, in a sustained negative environment, that would probably be in the $400 range.
Essentially, yeah. Essentially, you know, if one was to sit there and annualize Q3, which seems to be far lower on an annualized basis, I mean, would one get to that $400 number?
No. Q3 is gonna be depressed below that sort of annual run rate level because we're gonna see the $35 million of negative timing flowing through, and we're gonna also have European August shutdown, which is normal slowness and seasonality coupled with destocking. We think, you know, again, I would, you know. I'm not gonna guide Q3, but, you know, we think Q3 will be the trough of the year, but it's in an abnormal period for us simply because of the factors that I described.
Understood.
Hassan, I think over the course of a year when we've looked at this and tried to, you know, quantify what trough earnings would be, I think that, you know, the annual number is about 400, as Frank said. You know, that's reflective of the trough condition of each business. You'd have to have obviously each business simultaneously in trough conditions. The other thing I would point out to you, Hassan, is even at $400 million EBITDA, we would still be quite cash generative. Our maintenance CapEx is $60 million a year. Our interest is about $95 million a year. You know, at that level of EBITDA, our cash taxes are probably in the $30 million range. You know, even in you know, that kind of draconian situation, we're still generating, you know, $150 million-$200 million in free cash flow a year.
Let me just add one more comment. You know, we again see automotive is very steady. We see North America as very steady. You know, there's significant pressure in Europe right now where the European market is slowing. You know, we've had 3 weeks of $200 natural gas. And so it's Europe is the biggest concern and, you know, and with the dropping demand in Europe, I think that's the one region where you have, you know, we would expect sort of a trough cycle or potential difficulty that trough earnings, but the other regions are performing better.
Understood. Very helpful. As a follow-up, again, actually two sort of divergent things. One on the sale of the Styrenics business. I mean, obviously you guys cited, you know, high European prices, as well as the rising rate environment. You know, both of those things seem to be sort of, you know, the new normal, right? So do you foresee a situation, you know, where obviously high European gas prices sort of linger on, you know, obviously rates keep going up, that you guys sit there, turn around and say, "Look, we're not gonna divest this business."
That's the first part. Just on the allocation of capital side of things, I mean, you guys bought back 1 million shares in Q2. You know, I mean, the share price seems very deflated. You know, should we expect, you know, even in a trough environment with your cash flow looking as good as it is, for you guys to get more aggressive with buybacks going forward?
Let me take the second, you know. Dave and I will take the second question first. It's fairly simple. We have authorization to buy back $200 million worth of shares, and we will do that. When that authorization expires, we go back to the board and we'll have a discussion with them for whatever decision or reauthorization or new authorization we agree to with the board of directors. As it relates to the first question, I think Rising interest rates, it was not the issue necessarily with the valuation. It was the closure of the debt financing markets and the inability or the challenge to use traditional leverage financing to effect transaction that affected our process.
The thing about this business is even in the free cash flow coverage of the leverage that someone would have to have at a fair valuation is significant. The business can justify a cycle and the sale can be justified through a cycle of higher interest rates. That's not an issue. They have to have the ability to get leverage finance. I'm not worried about our ability to do it's just the leverage finance markets or traditional debt markets need to reopen for the buyers.
Very helpful, kindly. Thank you so much.
Your next question comes from the line of Angel Castillo with Morgan Stanley. Your line is open.
Hi, thanks so much for taking my question. I just wanted to follow up on that conversation prior regarding the trough. Maybe from a normal perspective, I kind of, you know, I guess remember $750 million is kind of normalized EBITDA, you know, kind of through the cycle. Is that still the right way to think about it or have any aspects of the business changed? Particularly if you could add more color on engineered materials, which I believe was kind of viewed as a greater than $60 million EBITDA per quarter type business. That'd be helpful. Thank you.
Yeah. Let me start with engineered materials. Engineered materials actually in Q2 showed, you know, the underlying normalized performance was actually better than Q1. We saw good demand, solid demand, and we saw our ability to sustain margins. We had some out of period expenses that depressed it, you know, somewhat. We feel we're in a good position to get to $50+ million per quarter of EBITDA contribution from EM, when the markets normalize. When I say markets, it's automotive unconstrained demand back at the, let's say, 2019 levels.
We also see the building and construction markets, you know, get back to where they were, you know, where we're not depressed in, for example, tubs and bath and spa. Those two factors really are depressing the demand. Then with the synergy capture that we'll be getting, I think, you know, I'm pretty comfortable when the market demand is there, we have the structure to be able to get that business to perform like we anticipated.
I guess is it fair to assume then that $750 million typical normalized EBITDA is still the right way to think about it then?
Yes, I think that's fair, you know, but in splitting Styrenics at about $215 or through the cycle and the legacy RemainCo of Trinseo at $500. Yes.
Got it. For the second half range, I was wondering if you could give us a little bit more color as to maybe what would be required in order to come in closer to the higher end versus perhaps the lower end of that second half of that full year guidance.
I think the higher end of the guidance would mean a faster recovery in China recovery accelerating with the ending of COVID lockdowns. It would also mean that the more, as Dave described in his answer earlier to Frank about, the recovery from destocking, if it's more of a V-shaped recovery from the destocking, then I could see that getting us to, as opposed to an L-shaped recovery of the destocking that would help. The other thing, I think, and this is a really important point, if China demand accelerates in many of their capital goods markets, et cetera, we believe that will tighten the polycarbonate market supply-demand balance up a bit. Right now, as background, China consumes about 70% of the world's polycarbonate.
With China slow, Europe somewhat slow, and but Europe having extremely high energy costs, the, you know, there's been oversupply situation, and the market prices have not allowed European producers to recover the energy increase. If China tightens up, and we see strong demand there, and that will improve the supply-demand balance, we could imagine a scenario where, you know, that pricing of the market prices allow us to pass on the polycarbonate price. You know, that's an upside. We don't know, you know, again, that would be an upside to the back half of the year forecast that we've got.
Helpful. Thank you.
Your next question is from the line of Matthew Blair with Tudor, Pickering, Holt & Co. Your line is open.
Hey, good morning. I was hoping you could talk a little bit more about the outlook in polystyrene. The volumes came down quite a bit quarter-over-quarter. What was the driver of that? You know, is there any hope of getting this segment back up to the $50 million EBITDA level per quarter that we saw a year ago?
Matthew, good morning. This is Dave. I'll go ahead and take that one. I think it's helpful. I think there's two answers to your question. First is the largest single end market for our polystyrene business is appliances. It's about 40% of our end market demand, and specifically appliances in Europe and Asia. That is probably the single, you know, that is probably the market where we've seen the single largest, you know, destocking across the whole portfolio. I think the combination of that as well as record high styrene prices that we saw in June.
If you look back in history at our polystyrene demand and, you know, by quarter, and if you track that against styrene prices, you'll see that, you know, the market acts pretty efficiently and, you know, really reduces their purchases when we go through these periods of times where we have spikes in styrene prices. You know, on the one hand, we've got appliances, you know, end market demand and destocking. On the other hand, we've got styrene prices at record highs in June, coming down in July, probably coming, you know, certainly coming down more in August. We've got people delaying purchases because of, you know, because of that and because they know styrene prices are coming down further. I don't think there's really anything more to the story than that.
Obviously in North America, Matthew, you know, we Trinseo don't participate in the polystyrene market. Our JV Americas Styrenics does. Their polystyrene business had a fantastic quarter. They're having a very good year actually. The appliance market, I would say in North America is quite a bit healthier than it is in Europe and Asia right now.
Got it. That's helpful. I guess just digging into engineered materials a little bit more. Could you talk about the performance of some of your recent acquisitions, whether it's Aristech or PMMA? Are those performing up to your expectations, or was that part of the softness in the quarter?
We see the potential for those business in normal demand environment to generate over $50 million a year, quarter in EBITDA contribution before we layer in some of the synergy capture that we're going to be getting. The demand or the markets that are negatively affecting the business now and in Q2 are, you know, there's destocking in the bath and tub market, I would say generally. You have the Asian market for export market for bath and tub and construction products has basically been shut down for two quarters because of the very high cost of freight to move those products out of Asia into other markets. We're seeing some destocking in the building and construction and consumer products end markets from the PMMA business.
From a market standpoint, you know, there is a destocking effect and a temporary issue with the end market demand that we see in bath and tubs. PMMA in auto is very stable. You know, the applications that we're in fact, you know, in lighting is very robust, is stable, and in some of the new applications, that we're working on in paint replacement, we're actually seeing growth. Great. Thank you very much.
Your final question comes from the line of Eric Petrie with Citi. Your line is open.
Hi, good morning, Frank and Dave.
Morning.
Could you go over your mix of purchase versus produced styrene monomer? If those natural gas curtailment contingency plans go into play, you know, how does that shift?
Terneuzen has a nameplate capacity of approximately 500 KMT, and Böhlen has a nameplate capacity of approximately 300 KMT. You know, in a good demand environment, we would typically supplement that with periodic external purchases, you know, but significantly less than Böhlen production. By far, you know, we're a small cap merchant buyer of styrene monomer. In the event of a gas curtailment that would affect the market, what we would envision doing is running Terneuzen much harder. We would idle Böhlen, and then we would supplement with market purchases. What we would envision happening is styrene monomer coming from North America to supplement any shortfall that you saw in the European market.
That's the scenario of a gas curtailment in Europe. Let me just point out, our Terneuzen asset is largely insulated from the, you know, from the impacts of Russian natural gas because the Netherlands has, by memory, only 14% of the Netherlands' energy supply comes from Russia. Our feedstocks are coming from Dow's cracker in Terneuzen, which is largely insulated. That's. They're cracking LPG. You know, we're very confident Terneuzen will run and that we can get the supplies we need from imports.
Okay. Helpful color. Secondly, if I could move into the end markets of PMMA. Did PLEXIGLAS® see a bump up in demand during COVID? Have you lapped that or seen reduction there? Just in terms of auto exposure, are you growing in line below or above kinda end market, which is, you know, global auto builds versus 2019 levels?
Yeah. Great question. Thanks. To be clear, there was a COVID tailwind in the sheet part of the PMMA business. The whole market for protective sheeting, which isn't necessarily very good margin, but utilizes assets, grew quite significantly as everybody during the COVID period. Now, that offset a decline in auto, 'cause as you'll remember, there were quite a few auto plants that were shut down. You know, during that COVID period, during 2020, the business performed fairly well from a volume standpoint. What we've seen, though, is that protective sheet market, the COVID-related protective sheet market, has declined. Automotive is constrained by the chip shortages. I would also say that in Europe, they've been constrained by the Ukraine supply chain issues, for example, cable harnesses.
Since then, we've sort of gone to normal sheet, a normalized sheet business, but constrained demand in automotive based on cable harnesses and chips. Building and construction has been growing, I would say, generally up until Q2.
Thank you, Frank.
Ladies and gentlemen, thank you for your participation. This concludes today's conference call. You may now disconnect.