Q4 2019 Earnings Call
Okay and welcome to the fans shakes fourth quarter 2019 earnings conference call.
This conference is being recorded after today's presentation, there will be an opportunity to ask questions.
If he would like to ask a question. You May proceed starts didn't one on your telephone keypad to withdraw your question. Please press Star then too I.
I would now like to turn the conference over to Mr., Adam Chris. Please go ahead Sir.
Thank you Britney good morning, and welcome to advance fixes fourth quarter 2019 earnings Conference call.
With me here today, our president and CEO earn Kane and senior Vice President and CFO Michael Preston.
This call and web cast, including any non-GAAP reconciliations are available on our web site at investors Dot Advansix Dot com.
Note that elements of this presentation contain forward looking statements that are based on our best feel the world and of our business as we see it today.
Those elements can change any actual results results could differ materially from those projected and we ask that you consider them in that light.
We refer you to the forward looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our actually see filings, including our annual report on form 10-K.
This morning, we will review our financial results for the fourth quarter 2019 and share with you our outlook for our key product lines in end markets. Finally, we'll leave time for your questions at the end so with that I'll turn the call over to Advansix as President and CEO Aaron can.
Thank you Adam and good morning, everyone. Thank you for joining us and for your continued interest in advance.
As you saw in our press release advances continued to navigate a difficult end market environment exiting the year.
Despite the global slowdown in demand, we continue to benefit from our low cost position and remain focused on executing against our strategic priorities.
Mike will detail the results of the quarter in a moment, but I'd like to take the opportunity to highlight some of the great work that has been accomplished across the organization over the past year.
As we've highlighted 2019, so several strategic investments that position the company for long term success.
Personal it's we continue to drive safe stable and sustainable operations.
We achieved robust near record output in 2019 across our caprolactam in ammonia production units, which are key operations within our integrated asset base.
Hopefully utilization was roughly 95% a testament to the multiyear focus to drive stability maturing mechanical integrity programs and mitigate risk.
Its utilization rate is up from a pre span 2013 to 2016 three year average of approximately 89%.
Hi, or less variable utilization rates drive efficiency and build a foundation for higher returns.
As you likely saw this past quarter, we announced the appointment of Wimbledon Buck as Vice President integrated supply chain when comes to us selling more than two decades, Exxon Mobil and has the responsibility for stays stable and sustainable operations across our integrated manufacturing footprint as.
While advancing our strategic priorities with operational excellence and improving and robust safety performance.
We were also recently awarded a 2020 gold rating for corporate social responsibility from Eagle Lattus and independent CSR Assessment agency. The gold rating is an acknowledgment of our commitment to corporate social responsibility and the Great Foundation, we have built as an organization to continuously improve our sustainability performance.
We have also allocated capital for long term value creation.
Capex was approximately $150 million in 2019, which was elevated to find key investments, including our natural gas boilers caprolactam de bottlenecking and our R&D lab relocation projects. These projects as part of our longer term high return project pipeline further bolster our underlying earnings potential.
We expect to open our new R&D lab at our Chesterfield facility in the coming weeks, which will enable unimproved configuration to drive productivity increase connectivity with our resin manufacturing and a lot more effective collaboration with customers.
In addition, we continued our returned to shareholders by repurchasing approximately $62 million of shares during the year.
We are continuing to stay the course, you what has been a persistently challenging end market environment, we let successfully anti dumping petitions against acetone imports into the United States, which will further discuss later in the call and we continue to build out long term growth capabilities to our differentiated product portfolio.
Well, we need to drive that's possible outcomes as we performed through end market dynamics and address transient near term factors, we are well positioned on the cost curve and remain focused on driving levers within our control for long term value creation.
With that I'll turn it over to Mike to discuss the details of the quarter. Okay. Thanks, Karen and good morning, everyone. I'm now on slide four World I'll review, the fourth quarter financial results.
Sales for the quarter were 327 million and that's down 16% compared to last year.
So the overall was down by about 12%, primarily due to an 8% unfavorable impact from raw material pass through pricing.
Market based pricing was unfavorable by approximately 4% compared to the prior year predominantly driven by our nylon and caprolactam product lines.
Volume overall was down about 4%, primarily due to unfavorable mix across our nylon and ammonium sulfate product lines and the larger planned plant turnaround in the corner.
EBITDA was 13 million in the quarter down about 30 million versus the prior year.
Decrease primarily reflects at approximately 25 million net unfavorable year over year impact of planned plant turnarounds as well as the unfavorable impact of niland market based pricing and lower volume.
This was partially offset by lower raw material costs, including natural gas and sulfur and an approximately 6 million dollar charge to bad debt expense in the prior year period.
Fourth quarter 2019 results also include and approximately 6 million unfavorable impact from increased raw material and logistics cost related to the P.S. supplier plant disruption and shutdown as previously highlighted and within expectations.
Earnings per share decreased 76 cents versus the prior year to a loss of eight cents in the quarter driven by the factors just mentioned.
And lastly, cash flow from operations reached 20 million in the quarter.
That's down about 26 million compared to last year, primarily due to lower net income.
Capex of 44 million was up roughly 7 million year over year due to the execution of high return growth in cost savings projects underway and an increase in maintenance capex associated with the timing of 2020 planned plant turnarounds.
Now, let me turn the call back over there.
Thank you Mike I'm now on slide five to discuss our nylon product line, which includes our caprolactam resin and films products and represented about 46% of herself in the fourth quarter.
As you can see from the chart on the right hand side of the page nine one industry spreads globally continue to declined sharply in the fourth quarter.
The declines reflect a weak demand environment across most major nylon end uses and what is already an oversupplied industry globally [noise].
As you'll recall, we began to see a sequential step down in industry spreads really take hold in June which were then sustained for the ended the year.
The Asia benzene to capital I cant industry spread averaged just below $700 proton in the fourth quarter with this summer averaging closer to $500 per ton and dropping below the trough. Most recently seen in 2016 [noise].
These levels indicate industry spreads the low cash cost and in some cases below variable cost for a portion of the global caprolactam cost curves.
As you look at an island environment overall, we've seen decelerating growth in uncertain market sentiment continue to weigh on pricing in spreads from an end use application perspective, we've seen persistent weakness in North America carpet soft auto end markets across multiple regions and a slowdown in textile demand growth out of Asia.
Carpet, which is the largest domestic niland end use has been under pressure due to shifts in customer preferences mixed construction growth in some level of destocking, particularly into yearend.
Our own robust hope all operating performance and find demand across seas, and he says had resulted in a shift towards export opportunities, which we do expect to continue in the near term.
We continue to actively work on upgrading our nylon resin mixed into higher value applications and adapt to changes in light of these softer end market conditions.
That's an example, we increased our sales volume into engineered plastics end markets by nearly 30% in 2019.
Now 2020 has been off to a slow start from an industry perspective as well on the heels on an extended lunar new year holiday in China, and the global implications of the current a virus the supply and demand in the industry has been affected.
Logistics across the value chain is also a consideration in the region given restrictions on transportation were monitoring these impacts in our current expectation is for the challenging supply and demand environment to continue in the near term.
Let's turn to slide six.
In ammonium sulfate, which represented about 23% of our total sales in the quarter. We successfully completed both our fall fill in fourth quarter Prebuy programs to close out 2019.
Overall in nitrogen industry pricing has been subdued calling a week fall application season in U.S. as well as lower global energy prices.
Some third party data, we've seen more modest ammonium sulfate industry price movement as compared to recent overall nitrogen pricing as a reminder, urea is the largest nitrogen fertilizer by total consumption and tends to have an underlying influence on all other nitrogen nutrient products.
Over the course of 2019, the AG environment was characterized by weather delayed plantings and industry logistics disruptions.
As we move towards the heart of the domestic planting season in 2020, we expect to see fertilizer demand and planted acres strengthened seasonally crop prices, most notably corn and an expected return to more traditional planting conditions in North America continue to support an increase in fertilizer demand into the spring.
We continue to monitor several factors impacting the overall global fertilizer environment, including farmer profitability, China utilization exports or any changes in expectations for planted acres.
Typically for ammonium sulfate, we do expect to see a continuation of increased competitive pressure in light of recent north American granular ask capacity expansion and European imports.
Now as a leader in this space remains focused on delivering to the value proposition of suffer any attrition for our customers globally.
We believe software demand is growing at roughly 3% per year. In fact, one area that currently has us excited its soybeans.
So these are the largest our second largest crop planted by acreage in our two largest markets U.S. in Brazil.
Historically farmers haven't used a lot of fertilizer in general and sulfur nitrogen specifically when growing being.
However, recent independent studies grower feedback and promising trials, we conducted with universities indicate that farmers are likely to get a good return on investment by adding sulfur and supplemental nitrogen to their nutritional plans for soybeans and that ammonium sulfate would be one of the best fertilizer options.
We continue to conduct trials and work to educate our customers and the grower community on the potential value I suffer nutrition, and we'll share more on this opportunity overtime.
Let's turn to size Sutton for an update on chemical intermediates.
Our chemical intermediates product line represented just over 30% of our total sales in the quarter.
The chart on the right hand side of the page again shows refinery grade propylene costs and U.S. acetone prices based on third party data.
The industry realized acetone price ever raws continue to see pressure through year end, despite imports into the U.S. moderating global acetone remains an oversupplied position on the back a soft demand downstream.
As a result, we saw pressure on spot market spreads and a continued dry for deeper discounts into the large buyer market.
From an acetone demand perspective, nothing attacker later and then a industry conditions have remained weak overall on a global basis. However, we've seen steadily improving M&A demand following downtime in delayed restarts earlier in 2019, which over time, we expect to further improve the acetone supply and demand down [laughter].
I would also like to take the opportunity to provide an update on the ongoing acetone anti dumping petition.
As a reminder, the U.S. department of Commerce had issued preliminary anti dumping duties on five countries during the third quarter of 2019.
Following final duty determination by the do you see in October the International Trade Commission on November 14th issued final injury determination on the first two countries, Singapore in Spain, confirming duties in excess of over 100%.
As for the other three countries, Belgium, South Africa in South Korea. The DRC issued final duties on February 7th of this year, confirming the preliminary rates and significantly increasing the duty rates on South Africa, and South Korea.
We're now waiting the last up in the process, which is where the ITC to make its final injury determination and that is expected by the end of the first quarter of 2020.
Assuming affirmative rulings that duties imposed with the in place for five years.
And another positive sign we saw no imports of acetone into the U.S. in January which will continue to help improve the supply demand balance while stabilizing industry pricing.
As we look to the rest of the intermediate portfolio phenol demand remains subdued globally be seen weakness across key end uses such as bisphenol a into polycarbonate and epoxy resin and of course nylon as we've discussed.
Across the remainder of our chemical enemies portfolio, though we have seen stable net demand, albeit off a smaller base with continued favorable growth trends associated with our oximeter another derivatives.
Let's turn to slide eight.
And Advansix environmental social and economic sustainability is essential it is critical to our business and our relationships with key stakeholders, including customer suppliers employees shareholders and the communities in which we operate.
I wanted to spend a moment to highlight some of the recent accomplishments we've seen across the organization.
As I mentioned in my opening remarks, Advansix was awarded a gold rating for CSR by IEC about us the assessment evaluates corporate sustainability performance in the areas of environment labor in human rights ethics and sustainable procurement.
This is the first time that we participated in the assessment and were ranked among the top 4% of chemical industry peers.
We continue to reduce or impact on the environment throughout our operations. As an example, we've seen a 42% reduction and criteria pollutant emissions since 2014.
The result of a multiyear investment of more than $100 million, which we completed falling or spin off to reduce our nox emissions at our hope all facility.
And lastly be shared last quarter, our noon natural gas boys had been fully onstream since mid year and are delivering immediate productivity benefits above our expectations and we wanted to share. This with you all.
In total we spend roughly $40 million.
And capital nine expense with a current estimated IR at approximately 34% representing a three year payback, we anticipate an approximately $19 million annual EBITDA contribution from this project and expect to 9 million dollar incremental year over year benefit in 2020.
This is a terrific wind project for sustainability as well by converting from coal fire steam supply to natural gas fired boilers. This project also delivers a roughly 45% expected reduction in greenhouse gas emissions. So let me turn the call back to Mike.
Thanks, Aaron and I'm now on slide nine to discuss our cash flow expectations.
As Aaron mentioned earlier 2019 was a strategic investment year that will position the company for stronger performance over the long term.
Moving into 2020, we have a number of tailwinds from a cash flow perspective, particularly as we progressed through the year and expect stronger cash flow generation in the second half compared to the first half.
Due to our realignment to spring timing for a larger planned maintenance turnarounds, we expect the more significant impact in 2020 to be in the second quarter, roughly $25 million to $30 million in line with previous expectations. This follows our large planned turnaround of 25 million just executed in the fourth quarter of 2019.
As a reminder, or large planned turnarounds are typically a year apart.
In addition, we expect Capex will remain relatively high in the first half driven by the spring 2020 turnaround as well as the completion of our key growth projects full will then saw ramping down as the year progresses.
In total we now expect full full year 2020, capex in the range of $90 million to $100 million and that's down about $50 million to $60 million on a year over year basis.
Given the challenging end market environment, we're targeting the low into the range and continue to be disciplined around reinvestment in the business approximately 14% of our 2020 Capex will still be on high return projects as we continue to mature off long term pipeline of opportunities.
No as you saw in our filings. This morning, we announced an amendment to our existing credit facility due primarily to timing considerations, which will provide flexibility as we navigate through the current dynamic.
As mentioned Capex will be heavier in the first half of the year before ramping down later on the year, which will drive negative cash flows in the first half another timing consideration is the impact of two large planned turnarounds within six months six months of each other on EBITDA.
In the second and third quarter 2020, the trailing 12 months EBITDA will have approximately double the typical impact from turnarounds.
The credit Amendment accommodates for these timing considerations, which will have the effect of increasing leverage ratios in the first half before reversing in the second half. So overall, the timing consideration and we remain confident in our cash flow generation and cash deployment opportunities.
As a reminder, one all the consideration forecast for a little bit linearity is our annual ammonium sulfate pre pre buy cash advances program.
This occurs in the fourth quarter typically for the spring sales in the following year. So some timing differences between sales in cash.
That given the puts and takes across the portfolio, we expect free cash flow to remain negative through the first half of the year. However, second have free cash flow is expected to be positive commensurate with what we've previously demonstrated and more than offset the headwinds in the early part of the year.
So overall, we expect positive free cash flow for the full year of 2020.
Now, let's turn to slide 10 to discuss our outlook for 2020 before turning to Tonight.
Similar to what we presented last quarter, we've highlighted our expected trend for each of the key drivers of our performance with the Red circle, representing a headwind in 2020, yellow circle neutral and green representing a tailwind.
From a product line perspective, the end market environment has remained challenging exiting 2019 and over the first two months in 2020.
We continue to face unfavorable industry conditions in nylon space as Aaron mentioned earlier, the nylon demand environment has remained weak across most major end uses and we expect industry over supplied to continue.
So while we're cautiously optimistic about or neutral view on a multi him sulfate and chemical intermediates given the nylon challenges. We continue to expect total market pricing to be a headwind overall in 2020 on a year over year basis.
So unexpected operational performance. We also anticipate improved volume overall in 2020 and remain focused on value pricing or more differentiated products based on their performance characteristics in higher value applications to help mitigate the broader macro softness.
Operationally no change to our planned turnaround schedule for 2020, which remains at a $33 million to $30 million pre tax income impact and will be heavily weighted towards the second quarter of this year.
We expect continued improvement in performance across our integrated asset base supported by a proactive maintenance and reliability programs.
I highlighted our expectation for Capex spend on the previous slide we continue to expect full year benefits from a new natural gas boilers that Hopewell and expect our capital like 10 quality and Debottlenecking project to be fully online sometime in the second quarter of this year.
Lastly, as we continue to expect and unfavorable impact a pretax income in 2020 from the P.S. supplier disruption and shutdown in the range of $10 million to $15 million. This represents a flat to 5 million dollar increase year over year over the medium to long term, we see Q mean supply and demand dynamics supportive of sufficient.
They'll ability and continue to assess our long term optionality. So.
So overall will continue monitoring developments or end markets, well driving strong operational performance enhancing our long term growth capabilities, and making smart and disciplined investments in the business to drive higher returns now with that Adam let's move to Tonight.
Thanks, Mike Britney Please open the line for Tonight.
We will now begin the question and answer session to ask a question. You May proceed Star then one on your telephone keypad, if you're using a speakerphone. Please pick up your headset before pursing the keys to withdraw your question. Please press Star then too.
At this time, we will pause momentarily to assemble our roster.
Our first question comes from David Silver with C.L. King.
Yeah, Hi, good morning more name on it.
Okay. So he's a few questions.
The first one.
I'd like to maybe just touch on a your year end balance sheet.
So in particular.
The inventory level I think is at an all time high at least for.
A wall you've been a public company and I guess that kind of moving in the opposite direction of.
Quarterly sales trends recently so.
What is it that the either strategically or tactically that's going on there that that has led to the pretty significant inventory buildup.
The last a couple of quarters, including you know the fourth quarter. Thank you Shirley.
Sure. They have all a I'll take that one as you point out the inventory at the end of the year came in at a 172 million that is that is the highest level of the year, but that's that's driven by a few factors that.
Cover cover here first of all raw material inventory was also the highest level that we saw all year and that's really driven by the Tommy of Q mean deliveries, a they're actually became more spot purchases or spot accumulate available for purchase here in the fourth quarter and we took advantage of that to a really.
Add to our buffer inventory is a you're familiar with the P.S.
Shut down here and we felt that was good opportunistic time to increase.
Those inventory levels. So that's that's one factor.
That we saw here in the quarter or the other factor is around finished goods and wip inventory a those inventories were up 115 million.
At the end of the quarter.
And when you know we've highlighted over the past number a quarter or some of the challenges around.
Nylon and what we saw it is higher resin inventory.
And we've been seeing a as as we've discussed a lot of changing demand dynamics in that business. You know we operate six different lines of Chesterfield, where we make the resin and we're adapting our operation. So those are those changing demand conditions and as a result, we have a bit of a different mix here and higher resin inventory.
We expect those inventories will go down throughout the year and by the end of the year gets a more normalized a balanced for a more normalized level or the other factor on finished goods and with inventory is ammonium sulfate.
Inventory levels, which were a little bit higher than what the what we would normally expect.
Some of that is really being driven by greater mix of standard grade production relative to granular production of ammonium sulfate and the sales timing.
So see it with that and we expect ammonium sulfate inventories in Q1, two or to come down to more normalized levels and I would say overall in Q1 inventory will.
Anticipated to come down so.
So that's really what's driving.
The inventory levels.
Okay. Thank you for that and just one more quick one or.
One more on the balance sheet, but in current liabilities you know there's the deferred.
Income item I guess, a $19 million.
And I see it includes customer advances so I just want to clarify it in your prepared remarks, you touched on the pre buying.
For spring fertilizers is that what you know is that and then third quarter to quarter bump is.
Related to.
Yes, and it is as you point out the balance at the end of the year was 19.7 million.
That is predominantly related to our ammonium sulfate <unk> pre buy program as we typically see in the fourth quarter and what you'll see during the years that balance declines in the first half the year as we sell the ammonium sulfate through the season and those advances come down.
Typically get to a low point right around the June and July timeframe.
Before building back up in the fourth quarter.
From a modeling perspective, you know it isn't important consideration as you think about the linearity of cash flow during the year.
And we expect the same factors to come into play as we look at free cash flow and cash flow generation in 2020.
Sure the that make sense, but thanks for clarifying.
I'm now going to have good kinda, the China Corona virus and another kind of issues question would [noise].
I think for your company as a little bit more multi layer and then.
And then for somebody other companies like follow but you know the nylon business both on the supply and demand side has been driven by Chinese you know factors auto production and new capacity for the past several years and now there's kind of.
A certain amount of uncertainty or a injected in I guess in both of those areas.
I I know, it's early days, but at this point you know how how does your company.
Prepare or you know.
What's your thinking about your ability or or what are you seeing in the market or extra opportunistic exports bleeding outdoor.
You know, what's your market intelligence tell you that to the Chinese nylon industries.
Well they are reacting here and you know I guess I'm wondering about how this.
What challenges it did my present, you did to maintain that high Hopewell utilization rate that you.
Ah cited earlier in.
The various benefits that.
Maintaining the how utilization provides.
Thank you.
So when we can certainly take that a in a few different steps here, David and maybe just to say calibrate us all just from that.
Kind of plays and all of our end markets.
Because as you point out sales into China, and really only wrapping up about 1% of our total sales on closer to about 3% of our you know caprolactam and nylons sale to small from a standpoint of our track participation, but obviously as you point out.
More significant from sort of how how China impacts you know the broader the broader consideration of these are these industries and that's because when you look at China. They represent 50% of the total nylon supply and demand I'm on a female acetone perspective, there are 20% of if you know asked on supply and 25% of global.
Demand.
I'm now on ammonium sulfate or nearly 40% of the total as supply, but only 13% of ass demand globally. So did you say, it's early days, but we could see you know both.
You know second and third owner consequences or you know impacts here potentially playing I'm playing forward I mean from our intelligence we're certainly.
We're certainly seeing that prolong demand weakness has played for I believe that the last weeks utilization rates from our intelligence puts trying to utilization about 54% right. So certainly that's you know lower than where they have been [noise] been driving were also hearing about the potential mismatch between.
Production and consumption rate as a transportation logistics in various points of days, you know sort of multi step integrated chains.
Play out that that is causing you know challenges you know again that has to play forward a little bit.
Well, we're really watching now as you say for the impact on trade flows between China to the rest of the world and then between other regions that could create either challenge or opportunity you know for for demand and pricing and you know from our standpoint relative to our positioning the reach that we have.
You know for us where.
We continue to stay focused on.
During that time, our reach allows us to place product into the most opportunistic and that's geographies and application mix that's available to us so and that remains our focus you know both here in the U.S. as well as you know into into the export markets and then again looking to where there could be.
Disintermediation that provides opportunity as well.
Okay.
You could I know, it's very early days and you know kind of a multi layered kinda situation at this point I'm going to get back in queue. Thank you. Okay. Thank you.
Our next question comes from Vincent Anderson with stifle.
Yeah. Thanks, good morning, everyone.
So I wanted to ask maybe a little bit of the longer one on your R&D initiatives, particularly in nylon so I'll try to be clear three parts.
First when you look at how you're positioned to compete in composites I was curious how broader portfolio is today in terms of fiber sizing and the number of base resins that you're able to optimize for.
And the second is just you introduced an island six product last year with some six six characteristics.
You know tough environment to watch into so any update on progress there and any success you've had getting US back then with Oems and the last one is just simply any strategic priorities you want to share for the open partnership in 2021, and if we can expect any measurable margin improvement from the combination of the Pottsville shutdown in.
In any new film sales.
Charlie can happy to to talk about that I didn't hear so maybe I can start around down really our focus into engineering plastics, and where we sit in the value chain to sort of set a some context right. So.
Our focus is ensuring that you know our customers who really the target here as the independent compound or you know then serving you know Oems whether it be and you know automotive and consumer products industrial electronics.
So that their arms with the best and you know resins two to meet their solution needs. So again for where we sit in the in that chain. Obviously when you come to the number of things that you know those compounders need to solve solutions is as you say I'm a variety of reasons. Both from you know base Homo polymers.
To homeowners with Masterbatch plans, perhaps and then obviously, we have our copolymer capabilities that we have invested in and continue to bring forward.
So I would share that we made great inroads. This past year as I noted in my remarks, you know 30% volume.
Growth into this space I'd say that certainly the focus is we need to get those high volume products into the space first and so that where where there is a partner on and I may have a number of programs that lead us into those more you know bespoke tailored solutions on underway and so we've seen opportunity and growth.
In our wire and cable on sales as.
An example on our copolymers route for.
You know for testing and solution, providing but those are the ones where again, they're gonna be smaller volume you know more tailored solutions. You know we're excited about the products that are in the queue, but those are coming with time and as you say on 2019 wasn't a fabulous year relative to sort of the the demand pull if you will for for projects, but an area that we continue to stay focused.
Don.
You know tours of our site and driving those collaboration.
Again this is long term and we feel confident that we're moving into right direction.
Hi.
Yes, I touched on old and again, if the old then alliance here ways, you're really a win win for US you know relative to the ability to you continue to have great quality films and use.
Currents best in class manufacturing technology to serve our customer base.
We remain on you know committed to that transition and that's moving along and really this year you know keeping their we're looking at as being able to now look at just not our base sounds that using the capabilities around.
You know metalized films as well as other characteristics and opportunities that they have you know working with them on their other film opportunities that they have they also are Oh patent VLP supplier on some more to come there, but I always say, we are well underway and I'm, making good strides relative to.
Are you really are our transition plan and a and alliance focus.
Great. Thank you and.
Some really helpful remarks on acetone, but 29 seems a bit nuts in North America, specifically, so I was hoping you could just give us away of the lands day in North America, including any numbers you could possibly put around may.
Demand in capacity on a year over year basis and then.
No.
Mark It appears to be moving towards more balance state. So what's your impression of the basis for these aggressive large fire bids that you.
Difference.
So the on that basis, therefore, yeah, I know that some it's great and lot of its contextual to into where and when.
You know sort of annual contracts get negotiated and you know there typically you know done at the ended the year. Prior to you know to the start we you know at that time, we still had a fair amount of inventory in the system and so again when you have you know these dislocations and supply demand lengths you know that can lead to.
You know aggressive in sort of frenetic competitor behavior, Oh, we do see the large fire you know volumes moving back we do have.
You know and see their.
Demand profiles picking back up relative to where we were at last year.
Yeah, I'm really our focus here I'm, you know post Steve.
Petition now that we have on some duties in place, but also you know rightsizing to the supply and demand balance right. Our main focus here. It isn't is really to seek to lead and returning onto really what we believe is good fair disciplined pricing in the marketplace and that's our suffer current [noise].
Great. Thanks, just a quick one on the trade case.
Able or willing to share is it.
Council that.
He sees favorable decision in Spain and Singapore.
You know.
But but specifically to damages.
He's very favorably for fighting damages and the remaining trade cases.
Okay question I think we would share that we would expect the same rationale and approach that applied with the first two countries to carry through and read through to the to the final free.
Excellent. Thanks, so much.
Our next question comes from Chris Moore with CJS Securities.
Hi, guys.
And maybe.
Morning.
Talk a little bit further about you you'd referenced on Q2, three to kind of shifting geographic sales and talked about a little more today.
Maybe can.
Some specifics there and just you know I know its response in near term more conditions, but is it kind of a longer term trend as well.
So well like you're gonna see in their you know as again.
The robust performance comes out of Hopewell, certainly in the current on dynamic and [noise].
In the U.S. that you do they give you should think about that last pound. That's coming off you really is going to have to be an export pound right. That's just where we sit today.
And so that.
You know as we proceed certainly in the near term and that over the last quarter. You know we've seen that Tom influence out. So let me talk about mixing started impacts you know that is that you know Panasonic spot market. You know now is a leading global cost advantage player. That's still a good time for us.
Well, we just wanted to be transparent unclear that that is.
Something that Ah you know is happening and would continue to happen for now as you continue to shift the portfolio and again as we talked about they're moving and offsetting the declines in carpet into engineering classics and and packaging those are growth applications and so we we do believe over time as weak.
Thank you to progressing that nature that yeah, we'll continue to get that mix shift on in the direction that we want for the long term.
Got it that's helpful. That's only had thanks.
Thank you.
Our next question comes from a build to sell them with Titan capital.
Thank you I have a a couple of questions first of all would you. Please repeat the duties to the February 7th the determination on acetone.
Sorry second so.
Belgium has you know for any else has a final dirty duty determination of 28% as you all others exporting from that country in South Africa.
Sasol has moved to 415 roughly per cent with all others moving to around 315% and then in Korea, we have a move against to players come how came in at just shy of 48 LGC came in just around 25 with all all there.
Is that 33.
Great. Thank you and and then you made reference to the soybean market for.
So.
That's very early you said.
I guess two questions first of all.
How many acres are you anticipating.
He'd been playing tidbits here.
Second in insulation business at all or is it still still trillion trial phase.
Then secondarily, how many acres.
These are planted in the United States.
Yeah.
Two core.
Okay, and so we can to be one second here. So we talked about soybeans are really are large focus here bill has been on the U.S. and Brazil. So maybe I can kind of just frame you know how were thinking about that so you think about you know hundred 64 million acres.
I'm kinda combine for those two two regions.
You know in sort of a modest adoption and again so early days, but if the you know we apply that sort of about 20% adoption rate on that could yield right to mid to high single digit present increases and asked them and opportunity. So you know well north of you know a million times, which is you know significant growth opportunity just into regions.
I'm hopeful that puts a little bit of color commentary.
Around that opportunity and then for free yes relative to tick corn or just corn in general I believe the February when do you still I'm is maintaining in and around you know 81 and half acres.
You know for corn and their yield targets around 160 bushel. It's kind of have remained same on for the last a couple of months.
And then for sorry, you're looking at roughly 75 million acres planted here in the U.S. approximately so it's it's little bit below corn.
But still very close to a similar number.
Yeah in general I mean, those two tend to be the.
The the two largest crop planted here yeah.
And.
Is there any indication at this point with the early research that the penetration of.
Ammonium sulfate into.
Sure It seems.
It should be any more or less than corn.
[noise]. So it's obviously all application rates in when you look at AG, our soil dependent so they become regionally independents as well as.
You know tied to it to what the planning is but hopefully just what I shared again early days I'm, just kind of framing what could be a you know a modest adoption Ah you know there's got to be a and strong grow our education program here all the things that you know as a leader in this space. You know this is what we've been doing for for quite some time, we believed.
Differentiated compared to our other A.S. [laughter].
You know competitors here and you know committing to the research you know in driving opportunities for for global demand growth and so we're excited I think we'll be able to share more as time unfolds here.
And then Oh, the first part of the question was a acres that you would expect this year and it. If you think it has an impact at all or weather because I think you answered the question for long term.
Yeah. So anything you know again near term, we're we're out I'm talking with folks today, but again in any adoption cycle on you know I think it becomes you know several fertilizer seasons before you you have the the approach there so I think that.
That's a result was your question on corn acres planted specifically on the outlook for 2020 was that your question.
Oh I'm sorry, it was.
Really was soybeans and whether Oh, god, whether there'd be any material impact this year or whether it was still too early gotcha. Okay.
Okay. Thank you and then my last question is the boiler boiler project.
Well you originally planning for that Ah Ah 30, plus percent IR, ARQ, <unk>, which typically people concerned here it's not.
Frankly be unknowns or was there some things that developed that let the IR to actually be greater than you anticipated.
Yeah. So the a the spend overall when we talk about the 40 million in Capex, which includes most of that or sorry, the $40 million spend most of that being capex is a little bit of expense in there.
That came in line with our expectations, which has an impact obviously on the on the returns and the benefits.
Really it comes down to the performance of the boilers, which are coming in inline or better than what we had anticipated, which we now have some runtime with them after them being up and starting up in the third quarter of last year.
As well as a lower natural gas environment, and we've seen natural gas prices declined.
And that has provided a more of a benefit than what we had anticipated.
I think it's tough to predict exactly where you know the future of now progress prices are going to or going to go. It's in some of its weather dependent supply demand dependent.
Overall, but as you saw natural gas prices have been has been down to have been low and some of that being driven by you know the warm weather conditions, we've seen here.
So when you kind of reset those expectations going forward that doesn't prove the returns on the project.
Thank you both.
Okay. Thank you.
Yes.
Somebody will take our last question from and David to Silver.
With C.L. King.
[noise], Okay, Hi, I'm, just a couple of.
Follow ups.
So first would be on your your Capex.
Programs.
And I believe in Michael's comments, you talked about.
Major project or to being completed in the first half was 2020.
And I was just wondering if you could remind me which.
We can't projects are due to be completed and you know put into service.
And the first two for 2020 is that the caprolactam.
Expansion and upgrade or something else.
Yeah. So when we first really started talking about no these girls and cost savings projects in the pipeline.
Associated with that the 150 to 200 million of you know multiyear pipeline that we have and opportunities that we have it or really the two big projects that we started discussing or the boiler project, which we talked about started up in the third quarter of last year, we're seeing really good benefits from that one and.
The other one is the caprolactam Debottlenecking project, which is set to be completed here and start coming online here in the second quarter.
The one thing I'll say about that project.
Obviously more caprolactam production goes into the nylon space nylon as we've talked about has been a bit more challenging from a supply demand perspective, and we've seen sure you know the at ER.
And the margins compressed a little bit here.
But for US we're still very excited about that project over the long term.
We anticipate it will expand our caprolactam capacity by 2%.
As well as improve our yields at our downstream Chesterfield resin plant.
Which will provide benefits there as well so that project is again anticipated to come on line here.
In the second quarter.
Okay, Great and just last one.
You know when I look at your.
When I looked at slide 10, and I look at your you know read like Green light yellow light lay out I mean, everything kind of seems to me to align with your comments.
Perhaps the.
The exception up the chemical intermediates and.
No you assign data yellow light and [noise].
You know I'm, just wondering but my impression was your acetone business was pretty depressed last year, such that yourselves and.
Other producers you know pursued anti dumping a relief and now that relief seems to be coming in coming into play.
And you know I I don't want to read into it too much but degree if I think on page seven kinda point to maybe a stabilization and asked them pricing even wall underlying propylene cost.
Continued to decline so I'm just I'm, just wondering why why yellow and not green when when you compare full year 2020 to full year.
Any 19, which again I I thought was.
Fairly depressed from a longer term perspective, thank you.
No sure and I. Appreciate then the question the Challenger and you as we look at the year and certainly as Mike pointed out.
Of the of the stoplights on that page and the neutral ratings on on asked in California Me. It's I think those are the two that we remain cautiously optimistic about as we move forward here in into 2020, obviously on the acetone, we'd have a number of great mileposts that are moving in our direction on and we.
Now need to go do the work to you know to to lead pricing back to that fair and disciplined levels that we believe that the market should bear and that's the work. That's underway you know the duty themselves don't snapped back you know the market to to previous state. So works me down there, but again were feel.
Hi, good and we're focused on it but again I think it's the good call and you know certainly one where.
Yeah, we're gonna watching and a and while we were it it really yeah. We started to call the length of the oversupply right. If I think if we go back to where we started on the again good good milepost that we're seeing and Ah. We do have some some cautious optimism here on all not being able to improve throughout the year.
Alright, Thank you very much for that.
I guess.
This concludes our question and answer session I would like to turn the conference back over to Aaron King for closing remarks.
Great. Thank you all again for your time in interest this morning, as they continue to navigate and market dynamics remain focused on successfully executing against our strategic priorities and positioning the company for long term success.
Planning conservatively in the near term, we're confident in our ability to build upon our advantage Foundation and are excited for what we can accomplish for all of our key stakeholders through 2020 and over the long term.
I look forward to speaking with you again next quarter have a great day.
Thank you everyone. This concludes today's teleconference. You may now disconnect.
[noise].