Q4 2019 Earnings Call
Ladies and gentlemen, such as the operator today's conference is scheduled to begin momentarily.
[music].
Welcome we welcome the trend field management team, Frank Mosaic, President and CEO, David Stacy exactly executive Vice President and CFO and.
80, Myers director of Investor Relations.
Today's conference call, what we could brief remarks by management.
By the management team followed by a question answer session.
The company distributed its press release, along with its presentation slides at close of market yesterday. These documents are posted on the company's investor relations website and furnished on form 8-K.
Filed with the Securities Exchange Commission.
If anyone should require operator assistance during the call. Please press Star then Gerry on your telephone I'll now hand, the call over to Andy Myers.
Thank you Julie and good morning, everyone. At this time all participants are in listen only mode.
After a brief remarks instructions will follow.
Moving to participate in a question and answer session.
Our disclosure rules and cautionary note on forward looking statements or 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.
Actual results could differ materially from what is disgusting described or implied in these statements factors that could cause actual results to differ include but are not limited to.
Factors set forth in our annual report on form 10-K under item one a risk factors.
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 corresponding GAAP measures.
Provided in our earnings release and in the appendix before 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.
Now I would like to turn the call over to Frank postage.
Thanks, Andy and welcome to Trinseos fourth quarter 2019 financial results.
This conference call.
As I look back at my first year with Trinseos I'd like to start todays call by sharing some of my thoughts and observations.
First I'm very optimistic about the future trends here for several reasons first and most importantly, we have a great culture I.
I believe our cultural strength.
Shows up in her leadership that we demonstrated and safety and sustainability.
I'll share more on this later in the call, but it's one of the reasons that we were named as one of the 100, most responsible companies in newsweek's ranking of top years public companies.
Another reason for my optimism is our ability.
To generate positive cash flow.
Even in relatively weak market conditions like we saw in Q4, we've been able to generate significant positive cash flow.
In spite of large onetime capital expenditures.
Another reason is our ability to identify and deliver on productivity initiatives.
In 2019 for example, we delivered on Christmas excellence opportunities that more than offset fix cost inflation.
And our opportunity landscape will grow in the future.
Lastly, we have some very exciting organic growth applications. The performed very well in 29 team and we'll continue to provide.
By faster blends and higher margin opportunities for us in the future.
Now, we'd like to discuss some members of our specific cheap in spring 2019.
First and foremost I want to highlight wouldn't exemplary Europe was in terms of safety.
We're very proud that trinseos overall safety rating.
In 2019 was one of her best ever.
With an osha recordable rate of 0.11, which puts us at the top decile of the chemical industry.
Of course, when it comes to safety. Our goal is always zero incidents. So with the ended the year, we've recognized those locations with.
Room injuries service bills and zero process safety incidents for the calendar here with our Triple Zero Award.
Happy to say, the 24 of our manufacturing and R&D sites, which represents more than half of our locations achieved from service.
In the area.
Sustainability, we announced in December that we are entering into a joint development agreement with two leading packaging companies to develop high quality polystyrene containing recycled material that will be tested in a wide range of packaging applications.
These collaborations will.
Help demonstrate to the market. The polystyrene is uniquely suited to circularity and offers the potential for close to recycling.
Circular polystyrene is particularly advantaged as a diverts waste material away from landfills and can be produced with lower energy.
And a lower greenhouse gas.
Footprint than traditional resins.
We're also excited to launch or pulse Echo series of recycled containing resins for the automotive market next month.
These grades of PC ABS contain up to 50% recycled content and our specifically tailored for.
Of interior applications.
This series will deliver the same quality and consistency our auto customers are asking for but 40% lower energy consumption than Virgin resins.
I'm also pleased to say that the non automotive grades of post consumer waste containing resins.
Actually in 2019, with an 88% year over year volume growth.
Finally, CDP or formerly the carbon disclosure program.
As the Premier emissions reporting platform and rating provider related to climate change.
They recently.
Pre star rating from B minus to be for 2019, reflecting our efforts greenhouse gas reduction and climate change initiatives.
Our continued work in progress in corporate social responsibility was one of the reasons that Newsweek magazine named trends you're when its inaugural.
Top 100 of America's most responsible companies.
This high level of performance in safety and sustainability is what I and our executive team have come to expect from our company and we should all look forward to further progress in these areas in the future.
One of the first things I implemented after joining.
The company was a business excellence process, which is a framework for optimizing business processes and driving productivity and efficiency improvements.
As part of this we established for business Excellence committees, which focus on commercial supply chain operational and functional excellence.
The business excellence process is already producing positive results for example in 2019 polystyrene delivered its highest EBITDA since 2013.
Largely to an increased commercial focus on strategic pricing and customer segmentation.
On the cost side, we were able.
To deliver cost reductions equal to 150% over total company fixed cost inflation.
In supply chain, we've reduced overall inventory levels on a volume basis by 5% in 2019.
Which contributed to another strong Europe cash generation.
Over the last two years, we've generated $689 million on cash from operations.
At $457 million of free cash flow.
And returned $394 million to shareholders via dividends and share repurchases.
Even in the fourth quarter.
Quarter 2019, with an adjusted EBITDA of $59 million, we generated positive free cash flow, despite spending $34 million on our plant automation automation upgrades and system separation projects, both of which we view is nonrecurring.
This ability to generate cash even in a generally weak macroeconomic environment speaks to the strength of our portfolio and the health of our balance sheet.
In the fourth quarter of 2019, we announced changes to our executive leadership team, which has no builds on a global functional structure.
This new structure will increase organizational effectiveness through business process optimization.
This effort will accelerate in the future as we achieve system is that systems independence from Dow when the first half of your the.
The control of our systems business processes will be a rich area of opportunity for.
Productivity in the future.
This new structure will also enable the organization to better focus its efforts and investments on product offerings, serving three application areas, which we believe are less cyclical and offer higher growth and higher margins.
The first is coatings.
The G Sibs, sealants and elastomer support case within the latex binders segments.
These applications, which we serve with our styrene Buda dine in styrene acrylic technologies.
Expected to grow at GDP GDP plus rates over the next five years.
Our sales volume into these.
These applications increased 14% in 2019 and his margins more than two times the segment average.
The second group of applications, our consumer electronics medical and thermoplastic elastomers or Tpds within performance plastics segment.
Which we're calling engineered materials applications.
The specialty compounds, we sell into these applications, which comprise approximately 17% the performance plastics segment revenue.
Have margins more than two times the performance plastics segment average.
As I mentioned earlier.
Here are post consumer waste containing resins being offered into these applications are particularly exciting as they are growing rapidly and offer much higher margins than our standard grades.
The third is high performance tires within synthetic rubber segment.
Since we serve which we serve with SSP.
Our produced at our sculpt Germany site.
Hi performance tire demand has grown three times the growth rate standard tires over the last five years and we believe the electrification of vehicles and fuel efficiency standards will accelerate this trend in the future.
SSP are comprised 65.
Percent of total synthetic rubber segment revenue in 2019 and its margins are typically two to three times those spear.
Now we'd like to briefly discuss the fourth quarter and described for you. The market dynamics were currently and how we see them impacting our.
Our full year 2020 results.
Our fourth quarter results are reflective of similar business conditions to what we experienced in Q3.
But with your rent de stocking.
Customer Destocking and polystyrene was more pronounced than usual due to rapidly falling feedstock prices.
In our automotive markets, we saw customer shutting down production at the end of the euro earlier than usual this contributed to lower styrene margins as well.
Before I move onto the 2020 outlook I'd like to take a moment to discuss the Corona virus and how we see it impacting our business in Q1.
First and foremost I'm pleased to say that our employees are safe and we've had no infections among our workforce.
In addition, our operations in greater China had no interruptions and the supply of our raw materials have not been effective.
However, based on input from our customers we are anticipating.
Hitting lower first quarter demand from the automotive consumer electronics and corporate markets due to the postpone startup of their operations following the Chinese new year.
We estimate the first quarter impact to be $5 million to $10 million.
So please note this is a preliminary estimate for.
Q1, only and to be sure. This is a dynamic situation that we will continue to monitor closely.
Turning to 2020, you're guiding to a net income range of 95 million to $112 million and adjusted EBITDA of 325 million.
The $350 million.
These ranges are based on an assumption of similar economic conditions to what we observed in the second half of 2019 and include the first quarter impact from the kroner virus that I mentioned.
So far this year, we're seeing positive signals in several segments.
Mints outside of China. This includes restocking in polystyrene and better order patterns and synthetic rubber.
While European styrene margins decline through the second half of last year, they've been essentially flat since December which we believe is an economic response to the margin levels that have dropped to near cash.
Cash breakeven for most on purpose styrene producers.
For example, we estimate that 13% of global styrene production has voluntarily been taken offline in the last two months due to these conditions.
In addition, we're already aware that one large hiring styrene project in China.
Has been delayed indefinitely.
We believe that styrene margins have reached a fundamental threshold were further decline is not sustainable over the long run.
In addition, we are seeing similar dynamics and polycarbonate with signs that prices are increasing and many applications.
And.
First half of this year.
Complete the transition of iced tea and other administrative services from the Dow Chemical company a project that we started about two years ago.
The first your cost of these services will be higher than they were last year, but this will decrease over time through productivity and efficiency efforts.
We expect to largely offset lower styrene margins and higher administrative costs with cost savings from our restructuring program and business excellence initiatives as well as growth in SBR latex binders, the case applications as well as specialty compounds to engineered materials.
Yes.
So close we're entering 2020 with a full year outlook, reflecting similar conditions to what we experienced in the second half of 2019.
But with some added uncertainty due to the kroner virus outbreak.
However January demand was stronger than.
Q4 levels across all of our segments, which we view as a positive sign for improving economic conditions in our markets will continue to monitor the situation in China as it develops and adjust as appropriate as always we're taking appropriate measures to improve our cost structure reduce working capital.
And allocate resources toward resilient faster growing markets that are complementary to our capabilities.
Before we turn to Q1, a I'd like to share that yesterday evening, we received a letter from Invenergy investment management, our largest shareholder they informed us they intend to file a 13 de wit.
The FCC and then tend to engage the company in discussions on various topics, but with a focus on governance we.
We look forward to these discussions and are always willing to consider the views of our shareholders now Julianne can you open the line for questions.
Certainly thank bill if you would like to ask a question.
Please press star followed by the number one on your telephone keypad.
Our first question comes from David Begleiter from Deutsche Bank. Your line is open.
Hi, David Good morning.
Thank you Frank just on the site and capacity offline right now what's embedded in your expectations relative.
If your guidance as to how does how this capacity comes back on stream. If it does over the course of the year.
David what we believe is at these levels that the industry will moderate its output to sustain.
To sustain the margins support to operate.
At a level that is.
Economically.
Feasible. So we don't see them trying to chase volume or trying to place that capacity, rather we see the industry moderating and we would also say that those operations that are at the right hand side of.
The industry cost curve.
Will likely be evaluating their their future and we could see some structural changes going forward.
Very good and Frank just on the krona virus impact.
Lower high end, what's the.
Duration of these planned shutdowns.
Post the new your holiday is it through the end of the month ended the quarter at the higher end the Ranger.
Can you help there will be presented so what we've been told right now and the information that we base the of the outlook that we provided is that the extended the.
Chinese new year holidays for a week.
So they would be back on line on February 10, So thats the information that we based that forecast on and again, it's a dynamic situation and we'll have to see.
Thank you very much.
Your next question comes from.
Frank Mitsch from Birmingham Research Your line is open.
Terrific. Thank you and just a follow up on that so that's.
Your expectations on Corona virus or really more volume related assuming things come back on February 10, now since.
Since that's happened I mean, we've had styrene margins I'm, sorry, styrene monomer pricing.
Really plunge in Asia is any of that negativity also embedded in a in kind of that five to 10 million dollar numbers and the expectation that we're going to see reversal there.
Yes, the current margin levels are reflected in our outlook.
Alright terrific. Thank you and if I could just follow up.
On slide 12.
If I'm looking at.
If I'm looking at your adjusted EBITDA for 2020, and then I look at some of the calls on cash.
I mean, they don't with implies that your free cash flow might be 50 million or lower how are you thinking about free cash flow.
In 2000.
Morning.
Frank This is Dave I think I'll I'll try and take a stab at that frankly that if needed.
I think the point I would point out as 2020 is somewhat of an unusual year for cash generation for us.
For a couple of reasons. One is is the second the two 2019 2000.
20.
For the peak spending years for our.
Multiyear control room refresh project that Frank talked about earlier spending for that which is in capex is about $30 million.
In 2020 and that drops to 15 million in 2021 and that drops further after that.
We also have $15 million of spend.
As we wrap up the transition from Dow services project in 2000 in 2020.
Now obviously go to zero.
In 2021.
The other kind of broad category I'd point out for 2020.
He is turnarounds.
We have about $30 million of spending that will do and this is not in capex. It shows up in the cash flow statement, obviously, but $30 million on turnaround spending in 2020.
Which is about three times our average our average is more like $10 million a.
A year.
And the reason for that is we are they.
Turnaround that we typically do once every eight to 10 years at a styrene plant in turn news in.
Which is a very large projects several months long, including replacing the catalyst. So all of that is that's $30 million and then.
Also amps die has a large turnaround.
That's where the replay actually replacing reactor and that's right that turnarounds on once every 30 years.
So amps dies capex looks considerably higher in 2020 also so kind of all of those things contribute to.
Some of it somewhat of an anomaly I would say for.
Cash outflows in 2020.
The other thing I'd like to highlight the Frank its you can see it the bridge we gave on slide 12.
One thing, we Didnt mentioned was working capital.
In 2019, we to big release of working capital as about a $125 million.
And a lot of that.
I was just due to price declines feedstocks through the course of the year, but we also had reduced our inventories on a volume basis by 5% in 2019, thats through our supply chain excellence process.
We've got a similar target for in fact, even a larger target for 2020 for reducing.
Centuris and we've already identified 50 to 75 million.
Of incremental inventory reduction that we're going to be able to do in 2020 God's not in these numbers now just light of also just keep in mind, Frank as feedstock prices changes in feedstock prices.
Kind of Overwatch anything here.
On the volume side and inventory, but.
Feedstock prices are flat.
Pretty stable through the course of the year, we would expect to have a working capital reduction in the year of 50 to 75 million.
In 2020.
If we have feedstocks flat, we're going to get a 50 to 75 million benefit on.
Working cap.
Correct so target.
Alright terrific.
Thank you. So my maybe just to just to add one last point to that no you clearly have worked.
Raw material prices, increasing feedstock prices increase we would have.
A portion it.
Our drawn working capital, but that would come with a sick.
Economic improvements or business improvements that would drive that feedstock improvement. So we would see that is beneficial.
Gotcha alright, thank you so much.
Sure.
Your next question comes from Laurence Alexander.
Under from Jefferies. Your line is open.
Good morning, two questions first can you give a feel for how you're thinking about the longer term productivity opportunity.
After the.
Separation from down.
Completed.
And.
Can you frame it in terms.
With the potential outlays you might do in the return hurdles you have to those productivity investments.
And then secondly for the targeted growth areas.
Where do you see opportunities how much can you accelerate penetration in those markets without pursuing M&A.
And what would your M&A.
I'm curious.
Okay. So let me take the first question.
When we look at the.
Opportunity landscape for our productivity going forward, we would see it in the tens of millions of dollars range.
And that would include both.
Operational benefits that we would get in supply chain through better control of our ordered a cash and purchased a paid processes as well as actually functional spending reductions that would come for example in Ti. So.
To capture those.
We will have to spend some money and have to scope out.
Some.
T systems improvements to migrate away from the systems that were.
We will separate with from Dow, but those would have.
Very quick and strong payback. So we're excited about there was.
Ladies and like I said during the tens of millions of dollars of range.
The.
As it relates to the can you repeat the second question the organic operating growth opportunities like this is so the growth opportunities that you highlighted because the role.
Smaller.
So.
Different segments.
Do you think about the levers to accelerate the growth through those is M&A a component. If you did do M&A, what the criteria might be just trying to get a fuel for where the what that could look like in five years.
So.
Let me just first characterize.
Each of those the deck group of three application areas. They are.
We find them attractive because they offer much higher margins greater than GDP growth rates and they tend to be more resilient less cyclical than our other.
Than other markets and so we we.
I think we have very good traction right now on organic growth opportunities and we're funding goes through increases and reallocation of our commercial and R&D resources and so.
Our position, we're well positioned in the market and if we expand geographically.
Our presence.
Commercially in with technical resources for example, we announced that we would put up a prototyping line and Hsinchu and Thailand related to engineered materials that will help grow those organic growth opportunities.
Now again.
M&A as a tactic is a tool that you.
To support that so if the right opportunities came along we would consider those but.
Again, we would have to consider those.
You know against the opportunity the market segments et cetera.
I couldn't tell you right now what specific hurdle rates, we would put on those would be.
Thank you.
Your next question comes from Bob Cork from Goldman Sachs. Your line is open.
Good morning. This is Don Campbell on for Bob quick questionnaire follow up on Corona Byron.
$5 million to $10 million impact.
It sounds like you guys are baking and activity levels.
Start to return following February 10th.
Sure that last longer what would be that kind of sensitivity.
EBITDA I'd say every week or so that that could be extended.
Yes.
I think thats really difficult to say because.
It depends on.
Which customer segments, it is and what part of the.
Of the geography and that.
That it's it's going to.
Maybe stepping back I like to characterize our business in China for you a bit.
We produce and we take material raw materials from our suppliers, who are generally in the coastal reach northern coastal regions of China and these areas have not yet been affected port and it's unknown, whether they will be affected significantly by the corona buyers, if I characterize where.
We ship to win our customer locations those those customers are largely in the northern and eastern coastal region of China also.
So.
We've gotten feedback that customers are coming back to work there.
Asking.
You don't.
And already plants are restarting.
So again very difficult and dynamic situation other than what we know today with specific feedback from customers.
To give you any more specifics on that but I would say in general.
The signals, we're getting is that the customer.
Plants are restarting our plant continue to plan to restart on schedule or the revised schedule they've given us.
That's helpful.
Just to add one other thing that at the five to 10 million estimate that.
That we talked about what that assumes is a phase to return.
Not in other words not.
Return on February 10th at 100% demand, it's more of a phased approach.
Got it that's helpful. Thank you and on free cash flow.
Less than 59, notwithstanding the working capital benefits for 2020.
Seems to undershoot.
Last year's dividend.
I mean.
Can you talk a little bit about kind of what your capital deployment priorities are.
In 2020, considering lower free cash flow and I guess talk a little bit about your ability to repurchase shares.
And what to do that similar pace in 2019.
Well, maybe I'll talk about our capital.
Expenditure.
Hi, Ortiz first the.
In given that we have significant one time spending related to the.
Dcs conversions and also our systems migration.
That's a top priority and so what weve.
And we've also made a priority end of life in the Hs capital as always and so where weve mob moderated our view is on growth capital and.
What projects that we would fund from a growth capital standpoint, and also on productivity capital and so we've prioritized.
Hi, guys those productivity capital.
Related projects that offer very quick returns so thats, how we would set the priority and thats, how we get to the $100 million.
As it relates to our program going forward in returning value to shareholders were going to continue to take a balanced approach.
Action use the tools as dividends and share repurchase two to do that.
Your next question comes from Hassan Ahmed from Alembic Global Your line is open.
Morning, Frank.
Frank that chart that you guys.
So to shared with us about curtailments.
In styrene sort of production very helpful.
You know my question is about some of the new supply that's coming online in the near term.
Particularly in China, some of the sort of Greenfield styrene supply that's coming on line. What do you guys hearing about that should we expect.
Thanks, some delays over to keeping in mind the way the economics.
And then for the OTI is I mean are you sort of hearing anything in terms of maybe even some of the out year projects being canceled.
So I'll answer the last question first and so we have heard that one.
One projects scheduled for 2024 inch and don't has been put on hold indefinitely.
We would see that the newer projects are the projects that were already scheduled to come on stream in 2020 in 2021 that they will and.
And again.
Those are generally worldscale plants that have very favorable economics.
What more favorable economics than certainly the Chinese non integrated producers and I guess I refer back to our slide 11, where you look at the industry cost curve.
If.
If you look at the right side of the industry cost curve theirs, and we brought this up before.
There is a significant portion of the industry in in China with those non integrated producers that in this environment will be significantly disadvantaged.
And again I think.
Yes, we believe even the integrated producers in the middle of the cost curve.
We'll be evaluating their long term viability and there given.
At these economics, so without increased demand at these levels, we would anticipate.
A little changes as it relates to the industry with capacity being rationalized.
That would logically into expect.
Understood very helpful and as a follow up.
Just seems still many moving parts gilead that they did this sort of recently announced.
Chinese sort of plastic that the you know adds as soon as you look at that and as it pertains to trinseo.
I mean, what impact would you guys expect.
And again very cognizant of the fact that not too many details are available but.
I mean, how you guys thinking.
About that.
So in general we see that is having a minor impact on our business and.
We look at our Asian Polystyrene Asians polystyrene.
Volume only 10% to 15% of that goes into packaging applications.
Asians, but only even a fraction of that go into the targeted single use areas that the Chinese regulation is targeting which is plastic bags straws.
Hotels single use items. So again, if you think about what our product mix in our and use.
As it's largely appliance.
Applications.
Bridge Raiders white goods up et cetera. So we see that is having a minimal impact on where we serve our markets.
I guess, maybe just stepping backing making a more general.
Statement about it.
Yes.
There are.
Our belief is that even in the affected applications. It will take time for technically buyable substitutes to emerge that would.
Reduce the demand on those applications and I've heard.
Limits.
[music].
Several years before technically buyable substitutes emerged that would be widespread in the industry. So again, we see very little impact in our end uses and.
And where it is impactful.
Take time.
Very helpful. Thanks, so much.
Sure.
Your next question comes from Vincent Andrews from Morgan Stanley. Your line is open.
Hi, This is Andrew.
From myself.
A quick question Frank just on around the cost curve you discussed.
And the high end producers are the highest high cost producers just.
As to how trade Ambacs, then dynamic who goes offline in terms of.
Prices are at today.
China is a net importer, how does that kind of I.
I guess kind of factored into all of this.
Yes.
Well I think everybody will be.
In a reduced demand environment the industry will be looking at their landed cost or the landed revenue.
[music].
As they supply and.
In general we think they'll factor in those economics, and Thats why that world class plants that are.
Being launched in China will be viable over the long term and why we believed that the non integrated's in China will be particularly disadvantaged and it gets I'm going to add one other point that I that is interesting.
About the non Chinese non integrated producers there.
Sourcing ethylene and benzene from the market to operate.
And in an uncertain environment, let's say a prolonged or declining.
Fuel demand environment or petrochemical demand environment in China, the availability and the cost of bins.
Being an ethylene would likely go up and be less available. So we would see this could be a very very challenging environment for those non integrated producers were availability of ethylene.
Because of low output could curtail what they could bring to the market. So we're watching that very closely.
That's very helpful. Thank you and then you noted some restocking and probably styles as well as just some better order patterns and synthetic rubber I was wondering if you could give us a little bit more color on those dynamics out in that you're seeing on the first quarter and perhaps a little bit more colour on the regions as well.
Yes so.
[music].
As it relates to polystyrene destocking, what we saw was a more pronounced destocking.
In Q4 than normal yearend destocking simply because of the sharp drop in the feedstock prices and.
The consumers anticipating lower polystyrene.
Prices coming out of that in the future.
Now I want to remind you into Europe.
In 2027% of the Europeans Polys Europe's polystyrene capacity is actually going to be rationalize. These are the announcements from total and in iOS last year. So in.
Patient of that we took a value over volume approach in Q4 and.
We opted to.
Holdup hold margins rather than try in place a lot of volume and so as that demand drop occurred anticipating there would be less supply.
Early in 2020 and better fundamentals for us So I'm happy to say that what we're seeing so far in Q1 is strong restocking with some good at at good margins. So this tactic that we deployed there in our.
Yes business was was is paying off.
So far as what we see.
[music].
Sorry, so that was polystyrene you asked about was a tire synthetic rubber so you mentioned order patterns.
Yes, so synthetic rubber actually.
Demand for SBR has been very strong in Q1.
Or in January it was very strong.
For run rate so.
We're optimistic that the continued growth in performance tire and the replacement tire market in North American Europe will.
Continue to drive that.
Well thank you.
Hey, Joe This is Dan I would just day I mean, just generally speaking if you look across the whole portfolio.
I think it's safe to say, what we see early in the quarter in January as.
Better order patterns.
Higher demand.
Than we saw Q4 run rate basis across all of our businesses.
Yes.
Notwithstanding the current a virus in China. So I think thats that generally holds true across the whole portfolio, but again, it's very early obviously.
Got it thank you.
Your next question comes from.
Petri from Citi. Your line is open.
Hi, good morning, Frank.
Good morning.
So China is adding ethylene capacity roughly three crackers are starting in 2020 2023, Theres roughly 10 crackers looked at least a million tons capacity. So how does that.
Pack, the ethylene availability and the cost economics that youve non integrated styrene plants.
So.
Again, those crackers and that ethylene is destined for.
Basically polyethylene and the I cannot the economics of a non.
Integrated producer Who's not attached to one of those crackers is particularly disadvantaged because youre going to Sir you have to ship and deliver a compressed.
Gas to that those so inherent disadvantaged versus an integrated producer.
But what I guess the point I was trying.
Turning to make.
Is that if we see lower demand or.
Lower outputs for fuels and petrochemicals in China early this year or in the first half of this year.
The.
The.
And the destination for.
With that ethylene will not be prioritized to non integrated polystyrene styrene producers it'll be prioritized those polyethylene applications. So they could see a very challenging environment with availability of ethylene and that's an that's a situation that we've seen in the past during.
Periods of.
Have slowed down in petrochemical demand.
I don't know if that helps.
Okay. Thank you.
Broader picture, Germany industrial production today fell 3.5% month over month, what are you, saying in terms of broader Europe than then any comments on China demand.
And.
I would just go back to the comments that Dave made one about how we're seeing the start to the year.
In general in the applications that we're serving.
And some of our grow applications, we see that we're starting the year with good.
Fundamentals.
And.
Tire industry, there's probably.
Pent up demand, we believe on replacement tire from Atlanta, So we're seeing strong demand in that area and then Rick.
Mentals for us in automotive.
That are somewhat different from the broader automotive market, because it's driven by lightweighting and fuel economy.
Drivers that necessitates the use of of plastics and interior applications, where we serve so again I.
We feel generally pretty good about what we're seeing so far.
This year in the demand side for automotive despite you know the macro automotive market.
Yeah next question comes from people ask them to our paper and called Yeah mine is open.
Ah Good morning, everyone. Frank I was intrigued by some of the comment from the release just regarding the improving trends are seen in the consumer electronics market in Asia could you provide any more details here.
Yeah, So <unk> actually that's exciting and we're.
<unk> really like that were.
We had a <unk> a position historically in consumer electronics with their compounds.
Well, yeah, but it was narrow I would say with are concentrated with a few large clients.
And we've invested in the past several years to broaden our commercial opportunities are commercial activities and technical activities to other consumer electronics suppliers and so we're getting good attraction to broad by broadening who we're <unk> we're going after so we're you know are are.
[noise] clients. If you will are small, becoming a smaller percentage of or overall demand.
So that's what's driving the results that we're seeing and then the other thing I would tell you the the desire for post consumer waste recycled content in your product is really exciting you know for us because the demand is very very.
Strong, especially in consumer electronics, so they those customers are particularly interested in sustainability and you know so that's driving very strong demand and we were quick if you will too you know we were early on the front edge of of.
Offering hi, recycled content resumes and so we're seeing the benefit of that.
Sounds good and then just thinking about the turnaround schedule for the year. So you have m. stay sounds like a 10 million dollar impact in Q1 on the <unk> turnround, what what quarter without roll through and.
That's what that'd be about a 20 million dollar even to impact.
<unk>, it's a that turn around and starting in February and it will last a engine may I believe that several months.
It's already you know the impact that that is already into our guys number.
Sounds good thanks.
Your next question content Duffy Fisher from Barclays. Yeah mine is open.
That's good morning, just one to ask a question about you know the reduction in the economy of plastics, you don't the push from that and just how you think the polystyrene molecule, we'll end up doing let's say versus polypropylene polyethylene. My guess is at the end to this road, we'll find out that the word you know meaningful differences in.
You know how much you can be content, but do you have any preliminary views on how polystyrene littlefair versus the other two major molecules.
Yeah. That's it's a great question and I would tell you we believe the fundamentals for polystyrene demands to.
To be sustained or polystyrene because of its inherent chemicals circularity to be sustained they're very strong relative to the other.
The other plastics that now and this isn't testing any negative aspersions. The other plastics, they're always purpose appropriate for their applications, but polystyrene is unique and the fact that it can be chemically recycled.
Favorable economics back to a Virgin monomer and that's what we've demonstrated through our our joint venture.
<unk> and we think that has that gains traction and that does demand for by the end consumer for circular materials continues to drive we see that being widespread and then collection networks being set up that would.
Feed recycling plants that would bring us.
You know recycled polystyrene that we could turn back into purging monomer. So I I really liked the fundamentals of polystyrene for those reasons and it's simply on its chemical.
It's a chemical engineering basis for my bias there, but the other thing I think that's really important for you for everybody understand is that the end consumers really want this and so if there's very high demand very high interest at a very high level of engagement with our customer base.
Ways to bring a solution and they're talking significantly higher prices, they're willing to spend.
Or materials that have recycled content or could be even it'd be 100% recycle.
So my bottom line and very optimistic and positive about the future poly staring because of those reasons.
Great. Thanks, and then just to clarify your comment that January volumes were stronger than queue for to level set that what would that look like year over year.
Yeah be difficult.
To say I, you know, it's hard to extrapolate that because there's always some seasonality that factors into that but it's materially stronger it demand in january than the queue for runrate, but it would be you know I I couldn't extrapolate that to the full year.
Okay. Thank you.
We have no further questions. They still can clip days conference call. Thank you <unk>.
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