Earnings Call: Q2 2021

Jul 30, 2021

Greetings, and welcome to the Huntsman Corporation Second Quarter 2021 Earnings Conference Call. At this time, all participants are in a listen only mode. A brief question and answer session will follow the formal presentation. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ivan Marcruzza, Vice President of Investor Relations. Thank you, sir. You may begin. Thank you, Christine, and good morning, everyone. Welcome to Huntsman's Second Quarter 2021 Earnings Call. Joining us on the call today are Peter Huntsman, Chairman, CEO and President Phil Lister, Executive Vice President and CFO and Tony Hakins, President of Polyurethanes. This morning before market opened, we released our earnings The Q2 of 2021 via press release and posted to our website, huntsman.com. We also posted a set of slides on our website, which we will use on the call this morning while presenting our results. During this call, we may make statements about our projections or expectations for the future. All such statements are forward looking Statements and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these Objections or expectations. We do not plan on publicly updating or revising any forward looking statements during the quarter. We also refer to non GAAP financial measures such as diluted Adjusted EBITDA, adjusted net income or loss and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures In our earnings release, which has been posted to our website, huntsman.com. I will now turn the call over to Peter Huntsman, our Chairman, CEO and President. Thank you, Ivan. Good morning, everybody. Thank you for taking the time to join us this morning. Let's start out on Slide number 3. Adjusted EBITDA for our polyurethanes division in the 2nd quarter was $208,000,000 versus $31,000,000 a year ago. Our polyurethanes division continued to improve, posting 13% year on year volume growth and 18% adjusted EBITDA margins. Our differentiated volume, which includes our spray insulation, automotive and elastomers businesses grew by 22%. As a reminder, during the Q2, we conducted a major turnaround at our MDI facility in Rotterdam, the Netherlands. This turnaround occurs once every 4 years with many third party supply facilities carrying out turnarounds at the same time. Downtime associated with the turnaround negatively impacted volumes and adjusted EBITDA by approximately $35,000,000 in the quarter. This was $10,000,000 more than we communicated to you last quarter as several third party issues delayed our startup and forced The plan to run at lower rates for an extended period in May June. The good news is that this turnaround is behind us and operations at Rotterdam have returned to normal. Excluding the impact of the Rotterdam turnaround, our total volumes We continue to see a strong recovery in our Americas and Asian regions with MDI volumes growing 15% 13% respectively versus the Q1. Significantly, higher margins also drove year over year adjusted EBITDA growth in the quarter. Higher average selling prices offset higher raw material costs and unplanned outages. We believe that longer Term supply and demand fundamentals in the MDI industry will remain balanced and margins will remain at a Fairly healthy level for the foreseeable future. Growth in our core construction markets including insulation, adhesives and coatings Continue to lead the recovery in Urethanes. All these sectors saw growth on a quarter over quarter basis even in Europe, Where we have both planned and unplanned disruptions associated with the Rotterdam turnaround. North American Insulation Businesses, Including spray foam and our composite wood products business remain solid as we see residential construction spending remaining robust And commercial construction spending picking up. Our order book for spray foam has never been stronger and we're implementing price increases to help to offset higher raw material pricing and logistical costs. Elastomers, which Included our global footwear business is another core growth platform for polyurethanes and it continues to see strong recovery trends Globally, demand in both residential excuse me, demand in both industrial and consumer markets within the lastomers remain strong. Results would have been even better this past quarter had it not been for shortages and some key raw materials and higher logistical costs. We expect our business to keep up the momentum for the remainder of 2021. Our global automotive business significantly increased year over year due to favorable comparisons. However, volumes were down mid single digits compared to the Q1 due to the ongoing chip shortages, which have resulted in lower production rates industry wide. Having said that, global demand in our markets is strong And we were able to redirect volumes originally intended for the automotive market into markets utilizing similar chemistries. Our polyurethane strategy is to upgrade the quality of our portfolio. We will continue to redirect more of our plant output To our differentiated businesses and bottom slice lower margin component business, we will invest In our downstream businesses organically and where it makes sense through bolt on acquisitions, where we can generate higher and more stable in Geismar, Louisiana is consistent with this strategy. Once completed, the new splitter will allow us to produce more Higher value MDI molecules while maintaining the same total plant output. This investment is progressing very well. We're seeing strong demand for materials that are the output of this project and we're moving aggressively to complete project as soon as possible to take advantage of these conditions. We now expect to complete construction at the end of the Q1 2022 earlier than originally planned. Once fully operational, we expect this project to contribute $30,000,000 in incremental EBITDA on an annual basis and expect to see stronger margins next year as a result of our earlier than planned completion. Our POMTV joint venture with Sinopec in China, where we own a 49% interest, continues To benefit from very strong margins and it's driving above average equity earnings, we do see our equity earnings associated with this joint venture being lower in the second half of the year when compared to the first half of twenty twenty one. Overall, we remain very positive about the trends that we are seeing in polyurethanes globally. Demand is solid The industry is toggling between balanced and tight at this point in time. Substitution will continue to help drive MDI growth and our sustainable solutions products which deliver increased energy efficiency are expected to follow trends that will have a very Positive impact on MDI demand for the foreseeable future. Looking into the Q3, we see general demand fundamentals Remaining solid or better and lower turnaround costs are already impacting the bottom line of the business in a positive manner. Even with typical seasonality and lower joint venture earnings, equity earnings, we would expect Our polyurethanes 3rd quarter adjusted EBITDA to be between $240,000,000 $260,000,000 Turning to slide number 4, to talk about our Performance Products segment, which reported an adjustment an adjusted EBITDA $88,000,000 compared to $29,000,000 in last year's Q2. The improvement in this division It was partially due to a strong finish in the Q1 with sales migrating into the Q2. The vision also benefited from stronger pricing Margins due to tighter markets, competitor outages and better pricing discipline. Accordingly, our amines and MELEIG portfolio Has recovered quicker and performed better than we expected at the beginning of the year, delivering over 20% adjusted EBITDA margins in the 2nd quarter. Performance Products' strong financial results, not just in the second quarter, but increasingly across the last several quarters reflect A refresh of the business strategy implemented after the sale of our chemical intermediates and surfactants businesses. This division is focused on targeted growth in our specialty amines, carbonates and catalysts, while driving commercial excellence across the Our segment, including our maleic and hydride business. These changes are already bearing fruit and are expected to have a meaningful Positive impact on earnings moving forward. Volumes in our Performance Products segments were up 25% versus favorable comparisons in last year's Q2 and importantly are now at or above 2019 demand levels Most of the division's core markets. Leading the way are amines used in polyurethane catalysts, construction and composite markets. Construction demand is also having a favorable impact on maleic and hydride volumes Sold into UPR. Opportunities to make bolt on acquisitions in this segment tend to be more limited and in some cases Do not exist as we are building new markets. As such, Performance Products remains focused on driving growth primarily through high return, low capital organic investments. These investments include projects to develop catalysts Serving the VOC free polyurethanes market, ultra pure carbonates into lithium batteries and high purity amines used in semiconductor manufacturing. We expect these investments will begin contributing in a meaningful way in the next 2 to 3 years. We see overall demand for Performance Products offerings remaining solid for the foreseeable future. In the Q3, while there will be some typical seasonality planned turnarounds And more balanced amine markets, we still expect Q3 adjusted EBITDA to be between $75,000,000 $80,000,000 Let's Turn to slide number 5. Advanced Materials reported adjusted EBITDA of $58,000,000 in the quarter, A significant improvement year over year driven primarily by the continuing recovery of our core industrial businesses and improving contributions from our recent acquisitions. Excluding the acquisition of Gabriel Performance Products, Sales revenue in Advanced Materials increased 42% compared to the Q2 of 2020, generating adjusted EBITDA margins of 19 Aerospace results were flat in the quarter versus the prior year, although we saw another Quarter of sequential improvement, which we expect to see again in the Q3. We still think a full recovery to pre pandemic levels in this segment We'll take another year or 2, given our exposure to the wide body planes used more in international travel, But we're encouraged that the recovery is tracking better than we had anticipated earlier this year. Excluding Aerospace, sales And our other core specialty businesses experienced growth year over year and are now slightly above 2019 levels. Additionally, the integration of CDC ThermoSet Specialties and Gabriel Performance Products continues on plan. We remain confident that we will achieve the total run rate synergies of $23,000,000 we communicated at the time each of these respective transactions Overall, our Advanced Materials division is tracking well in our Aerospace and as Aerospace recovers, We expect this division to consistently generate adjusted EBITDA margins in excess of 20%. We'll continue to grow this division organically and through targeted bolt on acquisitions. 3rd quarter adjusted EBITDA for Mass materials should look similar quarter over quarter subject to typical seasonality and be between $50,000,000 $55,000,000 Moving to slide number 6. Our Textile Effects division reported an adjusted EBITDA of $28,000,000 for the Q2. The recovery in earnings has been driven by higher sales, which more than doubled compared to the Q2 a year ago and demand has returned to pre pandemic levels In our key markets, we saw volume improvements across every product category when compared to the prior year generated 14% adjusted EBITDA margins in the 2nd quarter. Consumer sentiment in the U. S. And Europe continues To improve end retail store traffic and sales in each region are showing positive signs. Sustainability within the retail channel remains a focus for our customers and for us. This macro trend favors our leading technologies While we are watching these dynamics closely, we still see adjusted EBITDA in the 3rd quarter to be well above pre pandemic levels. Before sharing some concluding thoughts, I'd like to turn a few minutes over to Phil Lester, our Chief Financial Officer. Thank you, Peter. Turning to Slide 7. We were pleased to see the continuation of a strong recovery across the portfolio. Adjusted EBITDA increased by $280,000,000 year over year and by $45,000,000 or 16% quarter over quarter. The improvement in EBITDA from the prior quarter is in spite of an approximate $35,000,000 impact from the extended turnaround at our Rotterdam MDI facility. In particular, we were pleased with the performance of both the Advanced Materials and the Performance Products divisions, both of which achieved strong adjusted EBITDA margins in the quarter and where we are investing inorganically and organically to grow these two divisions. The increase in volumes year on year is primarily attributed to strong growth Since the depths of the global pandemic across the majority of our portfolio and businesses, Variable margins significantly improved, leading to adjusted EBITDA margins moving into the high teens at 17%. Sales price increases exceeded some rapid increases in raw materials, which have occurred since the beginning of the year. Turning to slide 8. We continue to make good progress with the integration of our recent acquisitions. A reminder that our Huntsman Building Solutions target synergies have been exceeded and our Advanced Materials acquisitions Gabriel and CVC remain on track to deliver $23,000,000 of synergies. In addition, our cost optimization plans Also remain on track with our program and performance products fully completed. In total, we expect to achieve Full year acquisition synergies and cost optimization of approximately $90,000,000 in 2021 with a target of approximately $110,000,000 in 2022. Turning to Slide 9. We had a use of free cash flow from continuing operations of $83,000,000 in the second quarter as a result of the extended turnaround at our Rotterdam MDI facility. The Rotterdam MDI turnaround is now behind us for another 4 years and we anticipate significant free cash flow generation in the second half of the year. Consistent with remarks made On our last earnings call, we anticipate a free cash flow conversion rate to adjusted EBITDA of approximately 25% for the full year. As Peter indicated, our MDI splitter project is now scheduled to come online earlier than previously anticipated. As a result, due to the acceleration of this project, capital expenditures for 2021 will now be $355,000,000 to $360,000,000 approximately $25,000,000 to $30,000,000 higher than previously indicated. This acceleration of spend in 2021 along with increased adjusted EBITDA from the earlier Start up of the splitter will contribute to a targeted free cash flow conversion of approximately 40% in 2022. Free cash flow conversion after this year. During the Q2, we received a $28,000,000 earn out Related to the sale of our India DIY business, bringing gross proceeds to $285,000,000 and a multiple of approximately 15 times 2019 adjusted EBITDA on the sale of the business. Our balance sheet remains strong With $1,900,000,000 of liquidity and a net debt to adjusted EBITDA leverage of one time at the end of quarter 2. During the quarter, we completed an offering of $400,000,000 in 2.95 percent senior notes due in 2,031 And use the net proceeds and cash on hand to redeem in full $400,000,000 of 5.125 percent Senior notes due in 2022. Combined, these transactions will save approximately $9,000,000 in annual cash interest. Finally, addressing capital allocation. Following the divestment of approximately 1 5th Of Huntsman's portfolio to Indorama in early 2020, we have focused on building our core platforms through targeted bolt on acquisitions. Where it makes sense from a valuation perspective, this M and A strategy will continue as we intend to grow our core platforms, particularly In our Specialty and Downstream businesses. As a reminder, we increased our dividend by approximately 15% earlier this year We currently have an approximate 3% dividend yield on our equity. In addition, We have an existing share repurchase plan authorized by our Board of up to $1,000,000,000 of which we had bought back 5 $180,000,000 prior to the global pandemic. We have placed share buybacks on hold during the pandemic. Taking account of market conditions and an appropriate return on capital, we anticipate resuming some level of share repurchases in the second half of the year. Peter, back to you. Thank you, Phil. I think the results of this past quarter mark a significant milestone in our recovery 2017, 2018 during a time when our polyurethane business was enjoying unusually strong market conditions. At that time, MDI made up as much as 74% of our EBITDA. I think it is worth Pausing and asking what is different today and what more is there yet to come. This past quarter, polyurethanes made up 54% of our adjusted EBITDA as we see the results of a stronger performance products, a recovery in advanced materials And the textile effects business that is likewise seeing a return to normalcy. I hardly see the 2nd quarter as being peak results. As I look at the coming quarters, we will see the effects of the completion of our Geismar, Louisiana MDI splitter That will start generating EBITDA in the Q2 of next year. We will also see the benefits of an additional $20,000,000 of cost savings as we streamline our polyurethanes business. Our polyurethanes spray foam business has been constrained due to raw material supply issues That will be solved in the second half of this year. MDI remains well balanced. However, during the second half of this year, Just over 10% of the global capacity of MDI will be lost due to announced closures for needed maintenance work. This will be taking place at a time when our facilities ought to be operating at designed rates and sold out. In our Performance Products division, we saw strong margins and some one time benefits, but the core of this business has fundamentally changed. We've expanded our customer portfolio, controlled cost and exercise better pricing discipline. We've initiated projects that will continue to change this division as we expand production Of our urethanes catalyst capacity, our products feeding the semiconductor business and carbonates that will make us one of the largest source This is a battery grade carbonate in the Americas. These projects will be completed by 2023. Our Advanced Materials division has gone through a meaningful change This past year as we've purchased and integrated our recent acquisitions of CDC and Gabriel, we'll see further cost optimization And commercial synergies in excess of $13,000,000 by 2023, building upon The $10,000,000 we will achieve this year. We will also see the return of our Aerospace business That will further enhance our EBITDA by an additional $40,000,000 to $50,000,000 when it's fully recovered. Our textile effects business We'll not only see the continued recovery of its retail customer base, but the completion of our Bangladeshi expansion that will deliver $10,000,000 annually. In short, in the coming quarters, the groundwork is being laid for over $150,000,000 of additional EBITDA that Take place across our businesses. Aside from aerospace, this assumes no further recovery in the market. Additionally, we have a very strong balance sheet that affords us to aggressively pursue M and A opportunities. This will be done where we have true synergies, growth opportunities and the ability to stabilize our earnings. Having said that, I am surprised at some of the multiples It has been seen in some of the recent transactions in this industry. As I have said before, we will be disciplined. The quality of our earnings will continue to be of paramount importance. This past quarter notwithstanding, when we experienced a perfect storm of 3rd Party outages, unplanned inventory build and associated lost sales, most of which will be recovered in the second half of this year, We are confident of our ability to deliver greater than 25% free cash flow to EBITDA this year. Should present market conditions prevail, we will see this percentage of free cash flow to EBITDA increase to 40% This next year. Finally, as Phil mentioned in his comments, we continue to pay a competitive dividend and will be reviewing our purchase of Huntsman shares. These share purchases will be determined by alternative uses of capital as well as the return on any such capital employed. In short, we hardly see these market conditions as anything but a normalized level with plenty more opportunity yet to come. Operator, at this time, we will turn over to any questions that are in line. Thank you. We will now be conducting a question and answer session. A confirmation tone will indicate your lines in the question Our first question comes from the line of Frank Mitsch with Fermium Research. Please proceed with your question. Good morning and congrats Phil on I'm being named CFO. Peter, working through the numbers, it looks like you're expecting Q3 to be better than the Q2 In terms of EBITDA, and that typically is not the case with Huntsman. I think you have to go back several years when you find something like that. So Given that you're not anticipating to see kind of that typical seasonality or there's other factors that work in terms of inventories, etcetera, What is your early read on 4th quarter suggests? That is typically you see even greater seasonality in the Q4. Is this an anomalous year? How should we be thinking about The seasonality impact on Huntsman? Well, I think that as we look into the Q3, we will A little bit of seasonality frame in the Q3. We're also going to see the reversal of the C and I or the downtime that we saw in Rotterdam. And when we back that out, as well as some of the cost reductions that continue to flow through and the pricing initiatives that we have, I think that we're going to see, you're right, a stronger Q3 certainly than our Q2. And we'll see our corporate expenses at that time in the Q3 and probably about the same in the Q4, about $50,000,000 a quarter. Remind you that there is some LIFO charges in that number and also we're seeing a recovery in our business travel And so forth just associated with running the business. So as we look at that Q3, we feel very confident about it. Again, at this time, barring a major pandemic closure of the economy or anything. I would think that our Q4 is going to continue to be It's going to continue to be strong. And I think our second half of the year, again, from where I sit right now, should be a stronger half Then the first half of the year and again that's looking at the present demand trends and so forth, still very early in the Q3. But I've got quite a bit of confidence. I did mention that we're looking at about a 10% losing about 10% of the capacity In the Q3, that will also be about 10% of the industry capacity for MDI in the 4th quarter as well As we see a number of plants that are coming down for maintenance and some of those have been postponed since earlier in the year To the second half of this year and I don't see a lot of movement from that scheduling or further delays if you will. So I think the second half of this year, we're going to see some pretty good demand and probably some constrained capacity. Our next question comes from the line of Angel Castillo with Morgan Stanley. Please proceed with your question. Hi. Thanks for taking my question and congrats on the strong quarter. And Phil, welcome as well. Just a quick question on MDI. I'm curious, You talked about the differentiated volumes being stronger in the quarter than kind of the overall segment. And just as you look at those end markets And kind of the mix between kind of the more commodity versus the differentiated volumes. Curious if you could give us more color, what are Beyond those volumes kind of going forward and what does that mean for your margins as well in terms of we all track MDI spreads, but In terms of the mix that could benefit? Well, I'm going to have Tony Hankins, who's our Divisional President, Perhaps comment on some of the macro trends that we're seeing regionally. But as we look at it globally, again, We're looking at an environment where we're trying to take as much as our more commoditized tonnage and moving that into further downstream. Again, I just want to remind the market that there will be some times when people might be scratching their heads saying why aren't we benefiting as much during some of the cyclical side that you see on some of the more commoditized grades in some of these times of outages and so forth. But I think we're trying to look at an MDI business that delivers more reliable margins, has a better consistent cash flow and isn't so dependent on spot pricing. So Tony any comments that you have about some of the regional impacts Yes. Thank you, Peter. Good morning, Angel. We're seeing a very strong demand right now in 2 of our 3 core downstream franchises that Huntsman Building Solutions, which is spray foam and our elastomers business, particularly the footwear Business and the Industrial Ascenters business where we're seeing very strong double digit growth there right through the second half We sold out. We got an 8 week order backlog in HBS. The good news in that business is commercial construction is starting To pick up and we're seeing spray foam moving into that much more stronger than the past in addition to the residential construction area, which has been very strong as you know with New home builds. So we're very, very upbeat about that. Automotive has been off about 10% this quarter because of the chip shortage. I think that's going to ease up a bit towards the end of the year, but it's clearly constraining automotive. But we move those products into other chemistries, as Peter said on the call. Those are the chemistries that Flexible foam into memory foam mattresses and pillows where we've seen 35% quarter on quarter growth in those areas. So we're very, very optimistic and very upbeat about growth going forward in the second half in our downstream differentiated businesses. And we're moving molecules from our component side of the business into those downstream markets. That's the whole strategy of valuing moving from components Specialty where the margins are higher, where the earnings are sustainable and where we're seeing real benefit, particularly from The infrastructure build and the climate change investments, which are going to be made in not just the coming quarters, but the coming years. So very, very upbeat about these downstream Our next question comes from the line of Bob Koort with Goldman Sachs. Peter, I was curious, you made a note that you're going to start maybe buying back Stock and also suggested that maybe multiples in the marketplace are a little elevated. You guys have been very exceptional at selling assets. Is there any scope maybe to monetize some more assets and take advantage of those bids? And what will be the Sort of hurdle or limiting gate factor on how much or at what price you buy back stock would you think? Well, Bob, very good question. And we're going to be looking at on a really on a case by case basis as We weigh the alternative uses of capital. Frankly, I'd rather see cash going into business expansion Capital employed and share buybacks versus M and A. So I think it needs to be a measured Approach and something that we're going to be looking at carefully throughout the second half. And it's part of a balanced We've done in the past. Just remind the market here that we've bought in nearly $500,000,000 of our own shares over Last two, two and a half years with the proceeds coming from Indorama and just cash coming from the operations of the I see that continuing. Yes, as we look at possible asset sales, as I've said in past calls, We continue to look at our overall portfolio and as we find opportunities Where those looking at our business will put a higher value on certain assets Perhaps than we may have internally, we'll certainly entertain that. And as I've said in the past, again, We certainly are not at a point where I'd say that there's nothing for sale within the company. So Again, that's not to say that we're out trying to sell off divisions or anything. But again, it is to say that I think that Any company has got to be able to look at where they can refresh and how they can refresh their portfolio. Our next question comes from the line of Hassan Ahmed with Alembic Global. Please proceed with your question. Good morning, Peter and Phil. Peter, just wanted to focus on the Q3 guidance you've given specifically for the polyurethanes business. I mean, if I adjust for lost earnings from the Rotterdam turnaround, it seems that you guys are guiding to Flat to slightly up EBITDA Q2 to Q3. And then if I sort of triangulate that with some of the comments that I heard, It seems that probably volumes are going to be up and this is all obviously adjusted for the Rotterdam turnaround. It seems volumes will be up in Q3 sequentially. You guys have pricing initiatives in place. So what am I missing here? From the sounds of it, it seems Q2 to Q3, polyurethanes segment EBITDA should be up nicely. So are you guys being relatively conservative with that guidance? Well, I would never accuse Mr. Hankins Sandbagging numbers, Sasan. I would put a couple of things in mind. On the positive side, well, let One of those is going to be the lower number in that polyurethane numbers. We have our joint venture From our POMTP joint venture, the equity earnings coming out of that in China. In the second quarter, I think that we had better, That of which is selling propylene oxide and MTBE. As those markets come into better balance, I think Those earnings probably will be slowing a bit in the Q3. In the Q3 also, we're going to be seeing the effects of higher raw materials, Particularly Benzene. Now we're seeing Benzene coming off of a recent $4 to $5 high this past quarter And dropping down into the $3 and change area. But remember that our time of buying the benzene, transporting the benzene, converting it to nitrobenzene, aniline, crude MDI, Working it through our system typically is about a quarter impact. And so what we saw in raw material increases in the 2nd quarter will be hitting us in the 3rd. So on the negative I see again some pressures on the earnings on the PLMTV side and also having to deal with Higher raw material costs in benzene that we know will be coming working its way through the system. On the positive side, yes, The T and I is behind us. We have greater volumes and we are going to be pushing for price increases. Some of and that will be price increases across the board And it will be price increases that we're presently working with as I made mention in my comments with those Contracts that we those longer term contracts where we have particularly in the Americas where we have long term Agreements, kind of pass through sort of agreements. Many of those are coming due at this time. And As Tony articulated, our objective in the Americas is to take our polymeric, our commodity businesses and move those Further downstream, we're going to do that in 2 ways. We're going to do that by putting it to the splitter and moving those into new markets, those molecules Today are being sold at commodity pricing and those are the same pounds that also get moved into the spray foam business that we see growing at double digit rates. So our percentage of polymeric commodity based MDI, particularly in North America is going to be it is going to continue to be a shrinking market for And we have an opportunity to with the remaining customer base that we have to evaluate those customers, The service that we're giving, the value that we're creating for them and look at that pricing as well. So sorry, long winded Answer here, but as we look into the Q3 and I think many of those things that we'll be implementing in the Q3 will spill over into the Q4. Even though we'll see seasonality in the Q4, I think many of the positive attributes will spill in the Q4, which gives me, As I mentioned earlier, a lot of optimism, not just the second half of this year, but going into 2022. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question. Good morning. This is Corey on for Kevin. Looking at the Performance Products segment, we've heard that Huntsman is out with a price increase of $0.08 per pound for maleic anhydride in the Q3 sorry, effective August 1. Can you talk about maybe some of the price drivers for MELEAIC and maybe the sustainability of those drivers as you See it through the second half and into next year. And maybe could you break that down by region? I think we've seen a little bit of weakening in Europe versus the U. S. And China. Thank you. Yes. When we look at our Malay businesses, bear in mind that one of the Two major drivers there as with most products. Raw materials in the second quarter, we saw an average raw material cost for the business across the board just under $1 a gallon And we see a current price of around $1.30 a gallon. So, 30 something percent increase in raw material which are going to necessitate higher selling prices for our maleic to offset that. We're also seeing very strong demand in the Malaic, particularly in North America and in Asia. I think that we're seeing Decent demand in Europe, not as strong as we are in North America and in Asia, but I continue to be quite bullish on the Malay business. I think Fundamentals of it are strong. We're a global leader in the capacity and in the economics and in the technology to produce Malaix. And I continue to believe it's going to be a it's going to continue to be a business that delivers very strong results for us. Our next question comes from the line of Mike Leithead with Barclays. Please proceed with your question. Great. Thanks. Good morning, guys. Question just on the raw material front. I think outside of benzene, the company is a fairly decent sized buyer of chlorine and epi. And if you look at those products, there's been not only a fair amount of supply disruptions lately, but the largest U. S. Producer of both products has been Pretty vocal that price is only going to go upward moving forward. So just curious how you think about your security of supply there and your ability to get pricing to offset that? Well, look, it is a time when as we see the recovery Of the global economy, the demand that's being pulled on the global economy that we are going to see raw material pressure Probably across the board. I will just note though that as we are looking into the Q3 and into the Q4, We are starting to see prices diminish on the raw material front. Benzene seemingly has peaked In the Q2 going into the Q3, and typically going into the winter months, the a lot of what refineries produce will also you'll start seeing a diminishment in some of those values as well. I'm on our epichlorohydrin and chlorine so forth. I'm not going to comment on particular buying strategies and so forth, but in the area particularly of epichlorohydrin, there have been some disruptions from the supply, Particularly from Asia, those things will be worked through. And what we've been buyers or producers of epichlorohydrin For many years and this is a global commodity. It's going to move with supply and demand and Yes, that's just the way it is. I think in many commodities in this industry, You sometimes get in those positions where you think prices are always going to stay high and prices will never diminish and economic reality We'll hit you, particularly in commodities when you've got global competition. So I think longer term, in spite of people Trying to lock in long term prices quote forever. The vicissitudes of the markets will continue to be the same. I don't see any fundamental change in that. When you look in also and you look in China, Our large MDI plant, we have HCL recycling there, meaning that we recycled our chlorine. We're looking at the possibility in the economic Models of doing that more widespread throughout the company. And I think as you start looking at technologies, more and more our Technologies not only will be for from an environmental point of view, but how do we reduce, how do we recycle and how do we capitalize on technologies That allow us to have better reliability, less materials coming into our facilities And utilize technology to basically make more with less. And I think that's a trend that we're going to continue to see across the board. Our next Question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question. Thank you. Peter, just on polyurethanes, you mentioned that 54 percent of the EBITDA today is from that segment. Can you talk about how much of that is now downstream with differentiated EBITDA versus commodity EBITDA? And Well, I think that as we look at that commodity versus downstream, I mean, I think it's a little bit I'm a bit hesitant to give an exact number on that because Not everything fits exactly in those two buckets, but I would look to Tony Hankins here and say we're probably looking at somewhere between 2 thirds to probably closer to 3 quarters of our EBITDA is being earned by our differentiated products. Tony, you see that? The Patriot splitter investment is really going to help us move that even further downstream. And then in China, it was fifty-fifty in China. And that's the area we've got to do more work in to really start converting more of that component where we see the spikes and the fly ups into more downstream Stable end users. So, yes, overall, Peter, about 70%, 75%. Thank you. Our next question comes from the line of John Roberts with UBS. Please proceed with your question. Thank you. Back to the Performance Products segment, Peter. Vegetable oil is also used in unsaturated polyester sort of a different chemical route to some of the products. Is the surge in vegetable oil contributing to the supportive pricing there on MELEIC? No, not that we're Saying that the vegetable is a product that we follow very closely and we look at the alternative technologies and usage in those areas. And so it's but I don't see it having any impact at this time. And then you talked about some constraints in PU Foam Volume there, is it your propylene oxide supply from Indorama or was it blowing agents or some other additive that might be constraining the PU foams? Tony, you want to comment on that? Yes, John. I think it's a wide range of raw materials. I mean, polyether polyols have been Constrained, particularly North America this past quarter, but also catalyst blowing agents, Release agents, I mean, right across the board, I think raw materials have been very tight and things like butanediol, which go into the TPU business. We're hopeful that's going to get a lot better in the second half. But yes, it's been particularly in our Huntsman Building Solutions business, it's been very Restrictive our ability to really capitalize on the strong growth. So we're working hard to alleviate that with alternative products and Remixing of chemistry. Peter, MDI prices in China Pretty volatile in 2Q, and I know the U. S. And Europe was a little more stable. But you were able to hit your outlook for polyurethanes. And given the volatility, why do you think that was the case? Have you done enough in that portfolio To be able to manage the volatility in component pricing. And then any thoughts on any new industry capacity coming on in 'twenty Just if you have any insight there. Thanks. Yes. And very quickly, and if I'm rather quick in my answers over the next I'd like to try to get as many questions as possible. On the Chinese polymeric MDI, it remains volatile. I wish we had a crystal ball that could The end of the quarter and see where that price is, but I would remind you that PMDI is only 5% of all of portfolio and it's only 10% of polyurethane. So if we're getting it right, I think it's more that we're getting the other 90% right And maybe that other 10%, I'd like to think we're getting it right. But we try to be as transparent with the market. As soon as we see something, we try to pass that on To the market on capacities coming on MDI site anywhere in the world, I mean, you're looking at 4 to 5 years to be able to build such a site. There isn't any even in its planning and Permitting stage at this point, again, there are some expansions taking place on existing facilities and so forth, but I don't See any significant capacity coming on in MDI for the foreseeable future. When I say foreseeable future, I mean over the course of the next several years. Next question please. Our next question comes from P. J. Juvekar With Citi, please proceed with your question. Hi, Peter. It's Eric Petri on for TJ. If I Annualized First Half Performance Products EBITDA get $300,000,000 versus normalized with $200,000,000 to $225,000,000 that you put out there. So Is that level sustainable or do you see kind of normalization in the composites area? On Performance Products, I see a little bit of seasonality. 3rd quarter is probably going to be down a bit from the 2nd quarter, $5,000,000 $7,000,000 down from the second quarter just because of some of the seasonality and turnaround That we have, but by and large, I see it moving in second half is going to be a little bit weaker Then first half, but not materially, somewhere in that. The next question comes from the line of Arun Viswanathan with RBC. Please proceed with your question. Great. Thanks for taking my question. I just wanted to get your thoughts on reliability. Obviously, we've had Some force majeure is here and production disciplines or disruptions at some of your competitor facilities. I guess, do you view that positively? And I guess, any comment on your own system? Obviously, there's maintenance going on, but Do you expect kind of continued disruptions in the industry going forward? Thanks. I would never wish disruption on any of our competitors. But having said that, I think that When you look at the configuration in this industry of the size of some of these lines that have been built, 400,000 tons Sort of lines. It used to be when a line went down, you were losing 50,000 or 100,000 tons of In lines and MDI line to go down, you need a very, very small amount of contaminants to get into That system to put a line down. And when you see a single line now of 300,000, 400,000, 500,000 metric tons And the line of that magnitude comes down for maintenance or cleaning, you are going to see it impact literally the global balance. So I think that's a fact. And the other factor that I would see is that as you look at most of these MDI plants, I think of our competitors, I think are very, very well built. They're very well operated, they're very well maintained, but they're also dependent on infrastructure that in many cases Around the world is strained. It's older. I look at a lot of the chemical infrastructure here in North America. Much of it, you get these brand new $1,000,000,000 facilities and they're being operated with an infrastructure that's 30 or 40 years old. And so it's not just the facilities themselves, but a lot of it is when you see a storm come through, freeze come through, something of that nature. You're looking a lot at 3rd party issues. And I look at the outage that we suffered in the Q2 due to the Netherlands Was a product pipeline that suffered corrosion that supplied a supplier to a supplier to us. So I mean, you're kind of like 3 times removed of an older pipeline that had some corrosion, unexpected corrosion in it. So I think that as you look at it as more of an interchangeable and an interconnected industry, I think if anything, I'm not sure that really gets better. I think we're just going to have to maintenance is going to have to be, it's going to continue to be paramount. Our next question comes from the line of Alex Zefremov with KeyBanc. Please proceed with your question. Thank you, and good morning, everyone. Peter, do you expect typical seasonality in the Q4 in polyurethanes And Advanced Materials or given the trends you just discussed, could we see maybe flat Q4 versus Q3? Yes, I do see seasonality. I mean, there will be the typical closures. Every year for some reason, we have phenomenon called Thanksgiving and Christmas and New Year's that seemingly slows things down. And so yes, we will see that. I do though think that to offset my only point in saying that I'm optimistic on the 4th quarter is I think that some of that seasonality will be offset By pop, a slowdown in demand and that's just something that will happen. Our next question comes from the line of Matthew Blair with Tudor, Pickering, Holt. Please proceed with your question. Hey, good morning, Peter and Phil. You had a press release during the quarter that highlighted your increasing exposure to EV batteries. I was hoping you could just talk about What is your content per vehicle, I guess, in terms of pounds for a traditional ICE vehicle? And then what would you Target for an EV, how much of a difference do you think there will be? Well, the vast majority of what we're putting in an ICE vehicle today We'll be in the in an EV vehicle going forward. I mean, you think about lightweighting and bolt is of paramount importance. Comfort insulation, you want to make sure that you're driving a car that has MDIC, not TDI that has Yes. No low or no VOCs in this catalyst. I'm just trying to promote Tony's products here. But as you think about what we can be doing here on an EV that does not go into an ICE vehicle, You're going to see areas of the carbonates that go into the batteries themselves. You're going to see even a greater emphasis, I believe, on light weighting, On the heat insulation around batteries, I think that's going to be Huntsman material. And as we look Kind of in that further past the next 2 or 3 years, take a look at the video that we just released on our Miralon product that's on our website and then on social media sites. There's Some really exciting materials that are going to be coming out, not only from Huntsman, but from our industry that will be doing a better job in light weighting, In adhesion, in structural strength and so forth, stuff that isn't even on the market. And I'm not talking 10 or 20 years down the road. I'm talking 2 or 3 years down the road. But I think you're going to revolutionize a lot and will increase not only the battery functionality in an EV, But also in existing ICE vehicles as well. Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question. Just two quick ones. Do you expect your own maintenance costs to go up as a percentage of sales or assets Over the next few years. And have you pulled forward any productivity from 2022 to 2020 I think on both those, Lawrence, We think that the maintenance costs that we have had traditionally over the last 10 years will be consistent over the course of the next couple of years. And we'll be discussing This in more detail as we get into our Investor Day and so forth. But Look, as we sell off more and more of our heavy chemicals and you're maintaining more system houses and our spray foam facilities and so You just don't I mean, we obviously spend, I think, very generously in that area maintenance, but you just don't have the high cost that you do on some of these larger facilities that We used to have. So as we look at our productivities, we look at our maintenance and so forth, I think it's well balanced and I think it's going to continue As it has been over the course of the last decade. We're going to continue to be very disciplined in our CapEx and we're going to be calibrating that CapEx Around our projected EBITDA, we're not going to be cutting any of our maintenance and our requirements in the H and S, But as we look at that 40% threshold is a very important number for us. And there might be some projects that we delay, some expansion business projects that we delayed. So I think hitting that number and maintaining that sort of discipline It's very important to this company. And operator, I see that we're at the top of the hour. Why don't we take one more question here? And again, I want to thank everybody for having taken the time to join us. Thank you. Our final question comes from the line of Mike Harrison with Seaport Research. Please proceed your question. Hi, good morning. Thanks for squeezing me in. Peter, can you maybe give a little more color on the strategic refresh that you referred to in the Performance Products segment. What changes have you made in addition to the $7,000,000 of cost takeout that you completed? And what gives you confidence that you're going to see sustained improvement in that business? Thanks. Well, I think we're spending a lot of money And we have a very good product pipeline in that area. If you were to look at this business 5 years ago, you would have seen a very heavy focus on our Surfactants business, a lot of our crop protection businesses and so forth. And this would have been because Of the business that we sold 2 years ago, coming up on 2 years here, it's Endorama, where that business was We're taking those molecules and I think Moving those into more of a well, a more commoditized market, though that rewarded us for volume over value per pound. And now that those are standalone businesses, we're looking at the molecules, we're looking at the technology and we're looking as to how do we achieve Through less volume, more value. And I think that's going to continue. And as we look at The strength of our maleic and hydride business, not just the integration going into UPR, but in other areas As a fuel additive, lube oil protective agent and so forth, that maleic business is going to continue to be a value to us. As we look in our And we start focusing, as we mentioned earlier, into a whole new area of semiconductors, into Batteries and electricity and into polyurethane catalysts. Again, remember, these are the products That are fueling the growth that we are seeing in the spray foam business on the polyurethane side. This is an inter divisional Supply channels that we have here and we see a tremendous opportunity to help grow that business It's a very strong double digit growth rate here over the course of the next couple of years. So as we see that, I guess my point is we're focused more on value on a per pound basis. We're focused more on where we're going to be having perhaps A little bit smaller nimbler business than where we were a couple of years ago when we were moving mass commoditization through surfactants and so forth. Not those are bad Markets, we're just I think better focused on pricing, technology and execution. And I think that we're starting to see the benefit of that coming through. Thank you very much.