Q1 2021 Huntsman Corp Earnings Call
And in the first quarter was $207 million versus the $84 million of a year ago.
This improvement versus the prior year was largely driven by improved margin due to higher prices, primarily and the component and of our business, which more than offset the approximate $10 million EBITDA impact related to winter storm here that we experienced in February.
Our MDI volumes declined approximately 7% versus the prior year's first quarter, primarily due to a fourth quarter 2020, P&I and our Geismar, Louisiana, and which we deferred to this year's first quarter some impact related to winter storm here and our plan.
Need to build inventory ahead of our scheduled Rotterdam turnaround.
However, improved margins more than offset the decline in volumes, we will note that our differentiated MDI volumes.
<unk> include our automotive the last summers and spray foam businesses were up 4% for the quarter.
Demand trends and our core markets of construction and automotive have led to solid underlying growth and the quarter when excluding the impact from storms and turnarounds.
Our installation businesses, including spray foam and our composite wood products business remains solid and its markets such as North American residential construction and renovation remains strong.
Many have inquired as to the impact the reported ongoing chip shortage in the automotive industry is having on our polyurethane business.
By the end of the first quarter, we haven't seen any impact to our customers is our automotive business was up 12% globally compared to the previous year.
And we believe this has been the result of are the more European centric and supplying a market segment that is more skewed towards luxury automotive.
So far on the second quarter, we are seeing a 2% to 3% drop in volume due to chip related slowdowns.
Reallocated this volume of MDI to other areas and expect to earn similar margin.
We're also pleased to see a strong recovery and our global elastomers business largely comprised of footwear, along with other specialty and use and industrial related markets. The.
The improvement and footwear is being helped by the gradual reopening of economies, which is having a positive effect on the retail markets. The industrial side of our elastomers business correlates somewhat with global PMI, which have continued to expand around the world.
The short term and long term fundamentals of our polyurethane business remains positive.
And we're benefiting from some level of inventory restock and.
And our own inventory levels remained below normal levels for this time of year on.
And we're keeping an eye on the evolving we occurrences of COVID-19.
Pandemics.
And various regions of the world overall demand reflected within our order book remains solid.
Our margin within the first quarter benefited more than we had anticipated from ongoing tight conditions within the industry.
In addition to various planned turnarounds within the industry unscheduled outages compounded the situation.
We were fortunate that our Geismar, Louisiana facility was able to continue largely uninterrupted while others were forced to declare force majeure due to damage just the spend by winter storm Euro per.
Previously mentioned, we estimate the negative impact from Euro on polyurethane was approximately $10 million was largely a result of supply chain and raw material constraints.
As a testament to the team and we have and our Geismar, Louisiana facility and their ability to work through these conditions and the safe manner to keep it running currently.
Currently and the Americans, we believe most of the industry capacity is and the process of returning back to full operating rates.
Business conditions, and China remains solid on margins in the first quarter exceeded our expectations give.
Given the completion of local turnarounds and some announced capacity additions within China, we've seen margins recently receipt of bit, though theyre generally firm.
Within our <unk> joint venture with Sinopec in China, where we owned 49% we benefited from very strong margins largely the result of the industry outages and stronger than expected demand and the quarter.
As of the current moment and once and every four year a once in every four year multi facility turnaround at our Rotterdam MDI plant is nearing completion.
Highly dependent on many other chemical companies conducting turnarounds and everyone meeting a pre agreed synchronized timeline to restart.
Due to some delays with the third party supplier our startup is delays as the result of the total estimated EBITDA impact from this turnaround is now estimated to be around $25 million versus the initial $15 million estimate. We gave you last quarter, our facilities about ready to start back up.
We're hopeful but we do not experience any further delays from outflows that are outside our control.
Putting it altogether, we remain very positive about the trends that we're seeing and polyurethane globally demand is good the industry's balance substitution will continue and areas driven by sustainable solutions, such as energy efficiency for expected to follow the trends, who will have a very positive impact on the business for the foreseeable future.
Sure.
Looking into the second quarter, we see seasonal strength being partially offset by turnaround costs and potentially lower MDI margins and Asia.
And we would expect the second quarter adjusted EBITDA to be around 5% stronger and the first quarter dependent upon the Rotterdam, P&I, which would be up.
Up significantly versus the year ago period.
Let's turn to slide number for.
The performance products segment reported adjusted EBITDA of $63 million compared to $58 million and last year's first quarter, we saw growth and our Asia business and strong demand and margins for most of our divisions products.
This combined with lower fixed costs more than offset the approximate $14 million of headwind that resulted in the winter storm here.
Total volume for the division declined 3% due largely to the storm and due to the recent discontinuation of certain tolling arrangements associated with the chemical intermediates business. We sold this past year.
On a pro forma basis, we estimate that our underlying volumes were actually up 6% year over year.
Leading the way with strong demand and our performance amines portfolio, largely and our sustainability related products such as the means that are sold and do boc, three polyurethane catalysts and into the wind market.
Growth and the construction markets have also benefited our remains the go into coatings and adhesives as well as the <unk> and hydride business.
That serves the PR markets volumes increased 6% year over year within our Malaysia and hydride business.
Raw material costs have been rising, but we've been successful and passing through price increases to offset higher costs.
We believe that some of the lost sales and the first quarter due to the winter storm will be captured and the second quarter. This combined with some of the seasonal strength and improved margin should translate into EBITDA growth and the second quarter over the first quarter of about 5% to 10% for performance products.
Turn to slide number five.
Our advanced materials business reported adjusted EBITDA of $44 million down 8% versus the prior year the <unk>.
First quarter last year still experienced solid aerospace results before the global pandemic started significantly impacting the commercial aerospace industry and.
As a result, our aerospace sales were down approximately 40% year over year is the primary reason that our adjusted EBITDA declined year over year.
And so we've previously stated we believe our aerospace business bottomed in the fourth quarter of 2020, while.
While we still anticipate full recovery of pre pandemic levels will take at least a couple of years, we did see a sequential improvement and our aerospace sales and we are encouraged that recovery is a bit better and we had anticipated.
When excluding aerospace the underlying volumes of our other core specialty business has experienced growth year over year from improved trends as well as positive contribution from our recent acquisition of CTC thermostat specialties and Gabriel performance products.
Our non aerospace business EBITDA.
<unk> grew eight 5% over last year while.
While our non aerospace EBITDA, including our recent acquisitions and divestitures grew at 28% the.
The integration of both acquisitions remain on track and we are confident that we will achieve the run rate synergies that we communicated at the time each respective transaction was announced.
We believe that overall fundamental demand is improving and our core businesses.
Looking toward the second half of 2021 with improving fundamentals as well as contributions from the recent acquisitions, we expect adjusted EBITDA for our advanced materials divisions will be about 10% better than the first quarter.
Moving to slide number six.
Our textile effects division reported and adjusted EBITDA of $25 million for the first quarter, which is 25% above the comparable prior year period.
Volumes in the quarter grew 10%, we saw an improvement and volumes across nearly every product category, including formal apparel, which has lagged since the onset of the pandemic when consumers began working from home tired and swipes and old leisure suits, we believe that the broad based recovery and volumes reflect.
Pent up demand from consumers and staff with the reopening of economies as mobility restrictions are lifted consumer sentiment and the U S and Europe has increased as well as retail store sales and this region, we believe inventories and the retail channel are still below.
The historical levels.
Supporting a very strong order book.
And the ability within this channel also remains a focus for our customers.
This macro trend continues to favor our leading technologies that are environmentally friendly and areas such as water reduction which continues to gain share.
Our textile effects division has come to the two challenging years, including facing trade Wars and 2019, followed by the global pandemic of 2020, we believe that this business is quickly returning back to near it was where it was in 2018 and that should be reflected in our second quarter results as well.
Move throughout the rest of the year.
Before sharing some concluding thoughts I'd like to turn a few minutes over to Sean Douglas Our Chief Financial Officer.
Thank you Peter turning now to slide settled.
And we're pleased to see a continuation of the strong recovery and the first quarter of 2021 and <unk>.
Adjusted EBITDA increased by $124 million year over year and by $49 million quarter over quarter.
This is in spite of approximately $25 million of negative impact to EBITDA and the first quarter of this year from winter storm jewelry, the slammed the Gulf Coast and February.
The overall decrease in volumes year over year is primarily attributed to our aerospace business, where sales of the prior year period was strong before the pandemic.
Peter has commented aerospace revenues were down approximately 40% versus the prior year. However, they have bottomed and we saw meaningful improvement and the first quarter of this year versus the fourth quarter of the prior year.
Variable margin significantly improved year over year and quarter over quarter as demand for our products has steadily improved and increases on our sales prices have exceeded increases and our raw material prices, allowing the overall adjusted EBITDA margins to recover to net teams.
Turning to slide eight.
Regarding synergies from recent acquisitions, we have now exceeded the $20 million target, we set facilitated by combining our polyurethane spray foam businesses and create and our Huntsville and building solutions platform with respect to the CVC Pharmasset acquisition, we estimate having already achieved.
Current annualized run rate of approximately $9 million of synergies and are on target to achieve the $15 million near the end of 2021.
We're also on target to achieve the Gabriel synergies of $8 million by early 2023.
With respect to our <unk>.
Cost realignment of the optimization efforts, we remain on target to deliver as previously shared of the.
$40 million polyurethane target, we estimate having achieved an annualized run rate of approximately $15 million to date.
And within advanced materials, having of $10 million target savings, we have achieved an annualized run rate of approximately $7 million to date.
During 2021, we estimate a total net cash spend related to all of these combined initiatives of approximately $70 million of which approximately $15 million is capex related.
Now turning to slide nine.
We ended the quarter with approximately $2 $1 billion of liquidity during the first quarter, we regained and for our 2020 one euro notes at par.
The U S dollar equivalent of $541 million.
We also completed the acquisition of Gateway performance products for approximately $250 million.
Our net leverage ratio as of March 31, 2021 based on an LTM adjusted EBITDA is approximately one two times.
We expect to spend approximately $340 million and capital expenditures. This year. This includes an estimated $80 million of spend on our Geismar splitter.
And is expected to be completed mid next year. This on.
Also includes a current year income local spend of approximately $30 million on high return growth projects commenced this year and.
Our core downstream platforms.
As a reminder, we announced on our prior call that we had collected approximately $73 million from the sale of property and Switzerland, which we are in effect reinvesting and these growth projects.
We built working capital and the first quarter, although to a lesser degree than originally expected given the impact of winter storm here Howie.
However, our inventory levels, particularly within our polyurethane business, where we're just coming out of our quad 20 of clustered <unk> on a lot of debt remain tight.
Our free cash flow for the first quarter of 2021, what's loss of negative that we had anticipated largely because of lower working capital levels and higher adjusted EBITDA debt of which than originally expected given the strong recovery.
On our prior earnings call. We had shared that we expect that our free cash flow conversion for this year to be somewhere near 20%.
Given our current outlook on this year, we would estimate this to be more around 25% on a pro forma basis, considering the incremental spend on growth projects synergy and cost optimization initiatives.
Our estimated cash conversion is more towards 40%.
In light of our strong balance sheet and confidence and maintained strong free cash flow, we announced yesterday that our board of directors had approved a <unk> 10 per share per annum increase in our dividend. This is a 15% increase Pete.
Peter has repeatedly commented that we would maintain a competitive dividend.
We remain committed to maintaining a strong balance sheet and strong free cash flow.
While we continue to build our downstream businesses realign our costs and return value to shareholders Peter back to you. Thanks.
Thanks, Sean.
Let's turn to slide number 10 and <unk>.
Topic of increased focus for our investors and analysts is how much huntsman of Huntsman business is quote unquote sustainable the most obvious and surface level answer to this point.
And through our large and growing businesses that address markets, such as energy efficiency lightweight and alternative energy and water reduction.
But the fact of the matter is that in my opinion, nearly all of our business address the sustainability in a very real way and <unk>.
And we continue to look for ways to do more with less helping to bring real and sensible solutions to our customers just for the record of the U S. Chemical industry is responsible for only about 3% to 4% of the total U S greenhouse gases and huntsman emissions are significantly lower than our peer group.
With the recent divestitures emissions and Huntsman has gone through a significant step change for the better.
We'll be reporting these numbers and addition to how well we're tracking and order to achieve our horizon 2025 targets within our upcoming sustainability report.
We have been issuing this annual report since 2010.
Sustainability is nothing new of Huntsman, we continue to look for ways to improve on our operations and reduce our emissions.
While we are open to looking at opportunities such as the electrifying our facilities and utilizing other alternative energy sources. The adoption of many of these technologies for decades away and in some cases do not even exist today.
And Huntsman and view the best way to reduce carbon emissions is the bring solutions to our customers and help them reduce their emission footprint.
Examples of the S&P our installation business include the spray foam, which is also able to utilize our total palio and that use feedstock made up from up to 60% recycled waste other.
Other examples are in the light weighting of airplanes and other forms of transportation we're on.
Also helping to improve battery through our ultra pure <unk> carbonate portfolio I could go on naming many other examples that help reduce emissions and.
And we've maintained that huntsman has actually carbon negative as we provide the means and solutions to help our customers and end users reduce their emissions well beyond the emissions that we.
And we're actually generating and our best sustainability stories are and some of our biggest and most profitable businesses.
We're very excited about where our company is heading and we're looking toward forward to increased energy standard and the trillions of stimulus dollars that are flowing globally towards the construction and manufacturing and transportation sectors. Our business is sustainability.
And we expect to benefit significantly from such global trends and measures that are being taken.
And other often ask question from investors is where we are relative to our current view of normalized EBITDA.
With the exception of our of Chinese and European MDI component polymeric sales.
And have been temporarily that have been temporarily experiencing above average margin the remaining businesses within our portfolio are approaching or already at historical normalized levels, having said that we're still a far cry from all cylinders running.
And when our new Geismar splitter is completed and fully integrated it will contribute around $30 million of additional EBITDA we.
We have yet for fully capture all synergies and our newly acquired advanced material assets, which will add another $15 million of annual EBITDA per year. We also have yet to capture of approximately $40 million of annualized cost savings per year from our cost optimization plan.
And on each of these EBITDA enhancements, we are on target to deliver our committed. Furthermore.
We're still running greater than $50 million per year shy on aerospace, which we fully expect to recover over the next few years with.
And with the exception of commercial aerospace, which we expect will eventually fully recover our portfolio is stronger and better than it was pre COVID-19.
And we made good strategic decisions during COVID-19, the build out our core businesses.
Spending additional capital on high return projects that will bolster these businesses and complement.
The continued M&A opportunities these capital projects provide excellent growth opportunities in areas, such as batteries semiconductors and other mega trends.
On our last call I mentioned that if that we felt optimistic about rebounding back to a normalized level of about $1 $1 billion of adjusted EBITDA.
And I will give the results of our first quarter combined with the number of self help projects and which we are now engaged I feel we should see a year in total and that may be very near the 2018 levels.
Finally, I'm pleased to announce because of our strong and reliable balance sheet and confidence and generating consistent strong free cash flow, we are increasing our annualized dividend amount by <unk> 10 per share from <unk> 65 to 75.
Presents of 15% increase.
We continue to look at Approx appropriate M&A opportunities that fit our core platforms for growth offering significant synergies.
And our margin and free cash flow conversion.
And as we've said consistently we are committed to our investment grade balance sheet, we will be disciplined and consistently applying prudent financial criteria each of these acquisitions and.
The short I feel that we're off to a very good start this year now on a personal note we announced earlier this month and our CFO, Sean Douglas is resigning to accept the calling the serve and the senior leadership of this church.
And for the past four years, Sean has been at my side its been wonderful CFO of.
One of the past 30 years, Sean is also serve the broader interest of this company and our foundations.
And Sean tenure, we have transformed this company from of polystyrene plastics producer of laden with five to eight times debt to the investment grade and market leader and differentiated and specialty chemicals.
Sean you lead this company our foundation and the culture, we embraced today far better and how you found it and of that my friend is a true legend.
For you.
Operator of this time, we'll take any questions that.
Our ready to go.
Thank you if you'd like to ask a question. Please press star one on your telephone keypad and confirmation tone will indicate your line is and the question. Kim You May press star two and if you'd like to remove your question from the queue for participants using speaker equipment and may be necessary to pick up your handset before pressing the star keys.
Allow for as many questions as possible. This morning, we ask that you each keep to one question.
Our first question comes from the line of Bob <unk> with Goldman Sachs. Please proceed with your question.
Thank you good morning.
Peter I guess, one comment I consistently hear from shareholders.
Maybe a desire for some return of capital via repurchased rather than dividend.
And it sounds like Youre pretty optimistic about the floor and that.
Talks about maybe the M&A markets get a little trough to it so when wait and do you expect you guys to start deploying some of that capital towards share repurchase resumption.
Well, Bob very good very good to hear from you.
Yes that is something that we're continuously looking at and as something that.
I think I publicly have stated that our number one priority with our cash as.
And the deploy that capital and into investment opportunities M&A opportunities and beyond that we're going to be very carefully looking at share repurchases and dividends and we obviously made the decision on dividends here on our last board meeting.
Meeting that took place two days ago, but I think that thats something on an ongoing basis.
My preference would be.
To see us deploy our capital smartly and M&A opportunities, where we've got a good fit where we've got.
Some some built in.
The synergies and opportunities.
And to expand our product portfolio and technology.
I think thats, probably the fastest way to create shareholder value, though having said that just because we have it doesn't mean, we're going to be forced to spend it. So I think that will continue to be prudent and and we continue to look for those opportunities and and.
The share buybacks will continue to be part of that evaluation going forward.
Thank you. Our next question comes from the line of Alex Yao from Ralph with Keybanc Capital markets. Please proceed with your question.
Thank you growing everyone and Sean and congratulations on moving on to two new adventures.
Peter could you talk about component MDI market in China, it's been soft lately, what do you think is going on there.
And when do you do you have an idea of where we could see stability or maybe of an improvement in China market.
Well I think.
We did see some tightness that really started in the fourth quarter, where we saw a component prices the more commoditized and of our business.
And that we saw really over about a two week period, we saw component prices rise about 20%.
And again, Thats, a 20% and prices over two week period.
And this was this was largely driven.
<unk> of outages and because there is very strong economic demand taking places China recovers its economy on the post COVID-19 sort of the world.
I'd say that and the.
The fourth and first quarter.
We probably would have somewhere around $40 million or so.
And of over earn.
That $40 million ish, or so of over and and that might be $40 million to $45 million on a quarter on core basis, I'd say that about one third of that was European and two thirds of that with China.
We have a lot of our more commoditized component businesses in North America for more dependent on formula pricing and so we don't see the fly up in North America like we do the rest of the rule of nor do we see the sudden drops and North America like we do the rest of the world as we look into the second quarter.
I think that we'll probably see that over earn and on the similar sort of ratio is probably around 20 ish.
Million.
Give or take a couple of million for I would say, though that as we look at pricing over the course of the last couple of weeks.
It is stable I don't see it falling at the present time and.
I think that debt.
And I'm, hoping the throughout the rest of the second quarter and so forth that we are and we ought to see.
And some stability of that pricing.
I will just noted from the public notifications that had been discussed and China as well we have some very significant turnarounds will be taking place and the third and fourth quarter and the industry, not and huntsman, but and the industry.
It'll be hitting China later in the year as well so.
As I've said on past calls I think the as we look at the overall MDI capacity utilization, we're probably globally right now running pretty close to 90% and so you see a large disruption of closure take place around the world.
Youll see the impact of that I think reverberate pretty quickly.
Okay.
Thank you. Our next question comes from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your question.
Good morning, Peter I was wondering if you could update us on your view of supply chain inventory and polyurethane and we hear a lot about tightness and both isocyanate says well as polyol school and into urethane and <unk>.
What did your volumes run at Hbf and what is your outlook for the next few quarters.
These dynamics start to normalize.
Well I think that is.
I talked about the vision that we have in the orders and so forth, you're probably looking on a month or two.
And of the future. So I certainly don't want to sound is on speaking for the rest of the year, but the trends that we're seeing.
And our inventories are quite low.
I think we probably could be moving even more products through hbf. If we have it now of course, we can cut off customers, but we do have some customer commitments and contracts and so forth and we're going to fulfill and.
We're doing that right now, but we are seeing I think much stronger than normal growth, taking place and and our hps business and and I think that sort of growth is twofold.
New houses that are being built and it's also I mean can you imagine being a sales representative for selling installations and the state of Texas after the devastating free.
So I think that it's really goes along.
The long and Empire spectrum, there and I think that those of the sort of trends and energy conservation as you see the possibility of of <unk>.
Tax.
Credits and so forth being given the people that are of our.
Re insulating their homes and using better products and what's traditionally been used and so forth.
I think that we're going to continue to see and market share gains.
And our hps business and and in those sectors of downstream MDI that we want to be focused on the <unk>.
Right now I'd say that again.
And just summarize your question and.
Inventories I think on on both.
From what we see from our and from our business quite well and that entire supply chain.
Thank you. Our next question comes from the line of Mike Sison with Wells Fargo. Please proceed with your question.
Hey, guys nice start to the year and congrats again and Sean on this year.
Peter when you think about polyurethane and it looks like just kind of have a record year and 21.
And now it's a little bit early but when you think about growth and 'twenty two and beyond can you maybe walk us through one of them.
One of the variables there in terms of continuing to grow.
A grow that business, how does the split or affected.
And I know Youre more differentiated now and then and then maybe acquisitions potentially over the next couple of years.
And where can that EBITDA potentially go.
Well I think that we have a great opportunity of great question I think we have a great opportunity to increase our margins and I've said in the past that I'm not sure that our polyurethane business necessarily needs needs more tonnage, though again I want to be very clear, we are going to be operating our facilities and debottlenecking, our facilities and try and get a return.
Out of our facility the.
Very best we can but I think that we need to be focused on how do we maximize the margin on a per ton basis and as we look at that going forward I think it's going to be opportunities for us to align ourselves with customers that are further downstream.
Customers that are taking a a of.
A higher blend of products that are coming out of our our MDI splitters.
We continue to invest and grow our downstream businesses like Hbf, we're going to continue to be looking at acquisition and opportunities.
And not just and spray foam, but in other areas, where we can consume particularly the lower margin more commoditized.
<unk> of our MDI and consume those internally and upgrade those internally.
And again I think the we've got.
A great.
The portfolio of volume within our business, we've got a great opportunity I think the continued to look for ways, where we can expand.
Incrementally on that volume.
I think what.
I think we'll continue to be mostly focused on is how do we bottom price and how do we take the lowest margin segments of that business and and continue to upgrade that and that's why we've invested and and our splitter. We provide the continued to invest and cost reduction we will align our R&D around those customers and those applications that we kind of as the most.
The money and when we think longer term sustainability is going to continue to be very important for us.
So and again I think from a macro basis when I look at the overall industry.
I just don't see a lot of new capacity over the next couple of years, it's going to be coming into a market.
And that is today operating probably somewhere in the very high 80% to 90% capacity utilization.
Thank you. Our next question comes from the line of Frank Mitsch with for any research. Please proceed with your.
Hey, good morning, and Sean It it has been a pleasure to work with you. So obviously wishing you all of the best and if I could also wish you and early happy birthday.
Thank you very much of an old manner to Frank Thank you very much much appreciate it.
Yes.
The reason why I knew as Peter work and for me as to what he was planning on getting you and you are going to be sort of surprised that's fantastic.
And Mike will be the more surprise.
And.
Hey, Peter if I'm and I'm trying to level set here the second quarter, I mean, I'm doing a lot of puts and takes in terms of the.
The guidance et cetera, and it's coming on coming up around $320 million of EBITDA and.
And if I figure of $25 million net and that includes the $25 million negative impact from the turnarounds every for your turnaround however, you're over earning your over earning by about $20 million. You. Just said so that kind of gets us back to that 320 level. If that's right.
Indicated that normalized EBITDA of people or turnaround the the number of $1 $1 billion. It doesn't seem like we're that far off from that level.
Is my math quasi right and.
And the ballpark here.
And frankly pardon me and one of the few times you've ever heard somebody tell you. This for I think of your math is probably pretty close now the fact that a dyslexic likely of telling you that out of worry you.
I think.
Look within our own guidance and our own expectations of what I'm presenting to our board of directors.
We're singularly.
The $2 million of part one way or the other.
So again.
I think the from what we have and the second quarter and from what our vision is of the rest of the year.
I would concur with what Youre, saying.
Thank you. Our next question comes from the line of Hassan Ahmed with Alembic Global Advisors. Please proceed with your question.
And Peter Good morning, Sean.
Good morning, Sean was great working with you best of luck and my friend.
Yes.
Peter question just wanted to revisit.
MDI pricing in China, particularly with sort of focus on the second half of the.
And I know.
The first half has been sort of and then.
And then sort of tricky.
Obviously, some incremental capacity coming on line there.
And there was chatter of.
Call it some inventory rebuild.
The leading into Chinese new year.
So obviously with all of these puts and takes in mind and something that you mentioned about sort of incremental the turnaround in the back half of the year could we be in a situation.
If the right now in H, two in China, where supply demand fundamentals are actually tighter and we may actually see.
Potentially in other run up and pricing.
I think the right now, we're probably looking at a pretty stable and that's what we'd like to say I talked earlier about that run up of.
Or kind of 20% and a week or two I see prices have kind of gone back to that that free Chinese holiday sort of of time period.
And I feel like they've kind of stabilized in this area.
And I think that with the number of the facilities that are back online in China, and the economic growth that they have.
<unk> been experiencing slowing just a little bit but still seeing.
And significant growth.
And I think we're probably looking at hopefully stability between now and the end of the year.
Now, having said that there have been some some very large.
C&I from maintenance work that includes.
Over 1 million tons of capacity, that's been pushed off for the second half of the year, but.
But usually I mean, unless there's a problem with that usually those projects will buildup of inventory beforehand and and and.
There are some unforeseen problem with restarts or something of that nature.
Hopefully, we'll see stability throughout the rest of the year.
Thank you. Our next question comes from the line of Jon Roberts with UBS. Please proceed with your question.
Thank you best wishes as well Sean.
Thank you Peter another another company and the <unk> market is targeting 30% EBITDA margins do you think huntsman has a better or worse mix and the competition and any thoughts on that kind of target.
Well I think our mix is far far better than the competition, but I am slightly biased and saying that so yes.
And without knowing who you are talking about or anything it look.
If we're able to two.
And if we're able to earn it and we're going to earn it and and I think we've got a great batch of customers and so for US I think that again.
We are probably a bit different than our competition and the amount of of.
Volume that we're moving in to the aerospace industry.
That might seem like a bit of a frustrating position for us to be and right now, but I think over the past decade and over the decade to come that position is going to serve us extremely well and it's been a very.
And a very reliable earner for us and with margins that are on the high end of our of our spectrum of customers that we have globally. So.
I think of it in the area like Epocrates.
And I really don't compare us with our competition, because we really don't compete a great deal with the the more widely.
Recognized upon the producers around the world.
Our biggest competitors, we have and that business really are smaller blenders and and.
Formulated that are downstream.
And those of the people that we probably are competing more and more aggressively.
GAAP so and.
Again.
Adam.
And I'd say that tongue and cheek about us being far securities and our competition.
I really just don't see us competing head to head with the with a lot of them.
Thank you. Our next question comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.
Good morning, everyone. Thanks for taking my question.
Congrats to you Sean I had a question about Huntsman EBITDA exposure could you just generally talk about.
How much product you would place on the on an EV versus the traditional ice vehicles.
Yeah, and Matthew I Hope you recognize your question from last quarter and.
The dividend so.
You haven't of profound influence on our thinking.
The company and so thank you very much.
Yeah look on on an EV vehicle really the.
Biggest difference that youre going to see between.
Between and ice vehicle internal combustion engine and ice vehicle and EV is going to be.
The motor and.
And and probably the weight.
And as you think about that we don't really supply of whole lot into the motor and to the drivetrain and so forth.
So we're not going to lose anything on that.
And of the spectrum on the battery side, we have a number of formulations and the number of projects that we're presently looking at particularly with the.
And the battery industry. The billions of dollars that are coming hundreds of billions of dollars I would say that are coming with the electrification the battery R&D the battery manufacturers and it's coming to the United States as well as of the great State of Texas and those projects are underway right. Now we think that there is significant opportunity for this company.
And it could be getting into carbonates and then two other chemistry.
That will be supplying and and we hope to be in a position, where we're able to announce some of those joint ventures and.
And the near future with Huntsman by working with the battery manufacturers, so and the EV side from the powertrain side I would see debt that is a plus for huntsman, we actually would be selling more into that area now the other category between the and ice and the Navy.
I see us.
As overall weight and most of these EV since they are really new vehicles, and I'll, just and I'll, just taking and older vehicle and using the same frame and just putting batteries on but the redesigning the entire car and most cars today theyre going to be completely redesigned from the ground up for from the frame up for going to be.
The very conscious about weight and when you think about light weighting and when you think about.
Using.
The composite materials, rather than metal you think about adhesion and instead of world.
That is certainly going to be an advantage to huntsman as well when you think about lightweight and but I also think that light weighting is going to be on both EPS and none of the third area. When you think about comfort and you think about.
When you think about the the found installation.
Within the car itself on polyurethane, if you're driving the car, where you can drive for hours on and and not have a sore back not feel cramped and you're probably sitting on and MDI produce seed.
If you are getting out of the car after an hour so driving your store and <unk> and Grouchy youll, probably sitting on a non and be IC. So as these cars are being redesigned and refocused and so forth. We hope that they are moving towards more comfortable seating and but that's going to take place both within <unk> and within the VA.
So I really I think that if you were to take my preference I would I would think that we're going to be advantaged more buy and EV.
Then we are on and ice vehicle.
Thank you. Our next question comes from the line of Angel Castillo with Morgan Stanley. Please proceed with your question.
Alright, Thanks for taking my question just wanted to.
That's a way for I guess, a little bit more on performance products. So we're very sorry of quarters and the margins for EBITDA looks to be above 20%. So.
<unk> also very strong just curious as we think about that margin percentage of what you've done historically and that segment.
And I believe in the past you've talked about this and this businesses and the other way you could improve and then continue on.
And now that you can focus on on a little bit more specifically continue to drive better value. There. So how do we think about margin sort of longer term and just how do we think about kind of the progression from <unk> to on the back half of the year for our clients' products.
Yes, so on the back half of the of one of the advantages. We do have on the first half of the year is going to be the reliability consistent.
Distancing of reliability and manufacturing, but we've had the second half the year, we're going to be having a number of smaller <unk>.
Turnaround.
And these are the facilities are by and large don't come down every couple of years, they usually come down for.
For a week or two every year and and we're going to see some of those and the second half. So if were a bit muted and the second half of it's not because and those.
And those are going to probably impact the quarterly numbers and were $5 million to $10 million ish.
Now, having said that from the manufacturing point of view when we last saw EBITDA performance on a quarterly basis, where we are today.
Essentially and note that the the vast majority.
<unk> of the profitability and the business.
And what's coming from a single application and that was wind largely coming from China and as we look at the wind contribution margin today versus when the and that's that's our amine products that are going into.
The wind.
It's a catalyst when they make the wind blades.
That was 60% higher.
Previously we'd go back to five six years ago.
That was about 60% higher so we've actually seen wind margins fall, which may and say is necessarily.
The bad thing what we've done is we've diversified our customer base more than just being reliant on one products I would also say that when we look back and past years. When we are operating at this level of profitability, we also and our Malaysia and hydride business. We have the number of our competitors that were operating.
So the.
The capacity design, and we had a lot of maintenance problems like multiple facilities that were down at the exact same time, which caused the leg.
Prices to go up and the leg prices right now of strong everybody is running.
<unk> downstream and the.
Everything from Lube additives grew on the lake and hydride for running very well and margins of there because we are of good customer base and because we've got good applications on because.
Customers are down so when I heard of excuse me the competitors are down when I look at the overall margin today and.
And performance products, Yes, I think I think youre right.
The good margin today, and I would hope that that the sort of numbers again barring some.
And some some.
Effect on the maintenance projects that are going to be done later in the year.
This is this is and ought to be of 20% sort of of.
The margin business and.
And I think the long term prospects board are very strong.
Thank you. Our next question comes from the line of P. J <unk> with Citi. Please proceed with your question.
Yes, hi, good morning, Peter.
Good morning.
And good luck of Sean.
Sean Thank you Michelle.
Thank you.
Thanks for your slide on Slide 10 for ESG efforts and my question is youre, taking the recycled PD bottles into total polyol.
You mentioned it can take up to 60% of our pit and.
And one of the peers each month.
And it's doing molecular recycling of P team.
So I guess my question is does the demand for recycled PD goes up and you know Peter is much more.
The recycled and polyethylene and do you think those are of pet prices could go up.
No I don't see that happening anytime soon.
As I look at.
And the sorts of RPT, and we're taking PC board post consumer and post industrial scrap.
There is there is.
I cannot speak for Eastman.
Just for our efforts we are using of what the currency of.
Of the 1 billion and a quarter of 1 billion of half bottles, a year of recycled PT.
That's the small debt we've got a lot more of that we can be doing as an industry. We've got a lot more of that we can be doing I commend companies like Eastman and our efforts the challenge of recycling any plastic is to be able to upgrade the value of it anybody can take of plastic and melted.
The used plastic melted down and make it into.
It may get into of park bench, but youre not going to be able to take ultimately take billions of pounds of of.
And plastics and convert them all into the foreign branches.
<unk> got to be able to take.
The <unk> bottle or a polyethylene and polypropylene and <unk> got to be able to take it and actually recycle it hopefully and does something of equal value or in the case of our polyol something of even greater value and.
And so I think these are the initial steps.
I think they are relatively small and the overall market, but I don't see the post PGP industry.
And the foreseeable future when I say that I mean, the at least the next five years to five to 10 years I don't see there being I wish it was but I don't see there being a shortage I'd love to say that.
We're taking 100% of the world's GDP.
And consumed and we're upgrading all of it but.
It's going to be.
We got we got some more work ahead of us.
Thank you. Our next question comes from the line of Jeff Zekauskas with Jpmorgan. Please proceed with your question.
Alright, thanks, very much of a question on the polyurethane slide.
Your NPI volumes decreased 7% year over year.
Year over year of volumes were flat.
And how fast did the non MTI and volumes grow and the quarter.
What are they and are.
For the margins comparable to MTI.
Yes, I think that as we look of that most of that volume is around <unk> and that is that's what we are.
That's what we're blending with MDI to create specific effects downstream effects, and so forth and HTS and particular and so as we're as we're doing that and Thats something that we certainly want to be doing is blending more polyol with more on MDI, because and doing that we're creating.
We're creating greater differentiated chemistry down below.
So.
And that's an area where we've seen.
<unk> growth.
Thank you. Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you Peter just on aerospace for that market, beginning to bottom mortara and as we speak.
You think you can still get back the entire of I think roughly $80 million EBITDA loss last year or could even do may be better going forward.
So I think that I think will do better going forward. We've got I think the the idea that you're going to be producing.
Youre going to be producing playing.
Planes 510 years from now.
With the with the aluminum content that you had a couple of years back.
And just.
I don't think its going to happen I think when you look at the next generation 320, Airbus The wing of the next generation Triple Southern and <unk>.
The.
The <unk>.
Boeing 787% and so forth and anything these are going to be having more carbon composite materials on a per plane basis. I'd also note that with the recent acquisition of the CDC.
The specialty polymers group we've.
There is additional exposure there been a bit frustrating.
And for US this year, but longer term that additional exposure into the aerospace business.
Is going to be significant and there's going to be something that we're going to be continuing the guard right now.
And make sure of that we're nurturing and for carrying for now because I think longer term, it's going to add two to what would otherwise be of normalized.
EBITDA and the aerospace industry.
Thank you. Our next question comes from the line of Matthew Deyoe with Bank of America. Please proceed with your question.
Good morning, everyone and thank you.
Yes, just to reiterate everyone else the sentiments congrats Sean on the next steps.
Used to be a little bit of the same here for huntsman the CFO. So.
Hi, there.
Peter Thank you touched on this a little bit.
Obviously, we asked and MDI over earning and the short term, but will probably nearing the end of the global capacity build out so.
Even if we do loosen up here, a little bit and the second half how.
How long do you think it takes before we tighten again and.
<unk>.
What do you envision for earnings or at least maybe.
Margins for the industry.
Between 2022, three and for that type of timeframe.
Well I'm not sure where I certainly can't speak for the industry, because I think one of the things that we've seen in the last couple of years, but I think you've seen the real bifurcation of corporate strategies.
And we've certainly of cast our lot into saying that we're going to go further downstream, we're willing to buy those assets were going to buying the system houses and we wanted to deploy our capital further downstream now again, that's not going to be to say that we neglect the upstream of the business but.
But I think I've publicly said that we will not alone on our own use our balance sheet to go out and build the $1 billion MDI.
The capacity grassroots project somewhere around the world and we'd be willing to do it with.
The two partnerships and so forth, we're not stressing our balance sheet over it and that's something that would have to be very appealing to us and to our shareholders, but we will be deploying further capital.
As we look at it on the downstream basis Theres other of our competitors that have said that the priority is going to be focused on the upstream, adding the upstream tonnage and so forth and the.
And look I'm, not saying one's right and what's wrong, we feel very comfortable with where we're going and I would prefer with huntsman that we are trying to move towards a higher margin with greater stability not necessarily greater volume, but just greater stability and we've got that hopefully as we build out that downstream will occur.
<unk>.
And I've also said that in past calls.
If we decided today to go out and build a new facility grassroots facility or even a significant expansion upon our existing facilities. This is a multi year process and if you're really thinking about a grassroots facility that is a new site that doesn't exist today and youre starting with with.
Nitrobenzene and going all the way down through aniline, and MDI and splitting and so forth you are looking at a 1 billion plus dollar of investment to build a minimal world scale capacity and you're probably looking at anywhere from depending on where you're building around the world for anywhere from five to eight years and.
And we've seen some some false starts and stops here and.
And North America and.
I think thats, just the testament as to how difficult. It is to build these facilities. So again I'm not here, saying that we're going to just get tighter and tighter and tighter as an industry, but as you.
And kind of project out a 6% growth.
And you kind of project out what would in my opinion.
Normal incremental expansion of of 2% to 3% growth per year that you just have to greater efficiencies and operations and technology know, how and so forth the.
And the industry does kind of get tighter and tighter over the course of the next couple of years.
And it is the regional industry by and large and.
And so youre going to see some parts of the world that are going to be tighter than other parts, but by and large and I think it's going to be.
And a balanced.
The industry over the course of the next three to five years.
Thank you. Our next question comes from the line of Edlin Rodriguez with Jefferies. Please proceed with your question.
Good morning, guys.
Peter in terms of the impact of the semiconductor shortage on auto production and you've talked about maybe reallocating some of those products for the end markets.
You elaborate on what end markets, you supply and debt have similar or better margin spend than that and what are the markets on the supply before.
Sure.
As announced earlier, we have got Tony Hank and share our divisional president and over.
The polyurethane and sort of timing.
And one of my questions to the why don't we get higher margin than just the automotive margin anyway. Why don't you go ahead and for that.
Thanks, and good morning, Thanks for the question.
Yes, the ease of the automotive products, we manufacture.
The very specialty.
<unk> formulations going into the the high and auto market.
But there are common characteristics of the other markets such as high.
And finish of for example, where we supply.
Elastic rates into the high and furniture, so as a direct comparison, if you will between and.
Safety and highest search and other.
Margin is there.
Good or even better and some cases, then and the ultra market. So there is an opportunity and that market is growing very fast with the low and we.
We sold out into those areas. So this is this is very easy for us to to divert products into into those other high and opportunity that we have.
Operator, I think we'll take one more question.
And we've got aligned Dell who's starting their call I think here at the top of the hour and I would hate the deprived and my friend Bob Patel any of his audience. So I have a couple of good tax questions I, probably could pick up for him, but anyway, let's take one more question operator and we'll.
We'll wrap up the call.
Thank you. Our final question. This morning comes from the line of Arun Viswanathan with RBC capital markets. Please proceed with your question.
Great. Thanks, maybe maybe you can just comment a little bit on the long term, Peter and congrats Sean as well.
But.
You noted $1 1 billion of normal EBITDA, what would you kind of view as peak at this point with the changes that you've made for the portfolio.
Yes.
And I hesitate to use the <unk>.
Word peak, just because I hope that if our portfolio is truly integrated and downstream.
And we might see some times, where our more commoditized products.
And we've pointed out.
And our MDI business.
And our ties and youre going to experience.
The higher than normalized earnings.
For a quarter or two but as I think about peak sort of performance and performance products advanced materials and textile effects.
And the majority of our MDI products.
And polyol and so forth I don't see those products really.
<unk>, if you will I see them.
<unk>.
The other be growing at better than GDP, we ought to be able to expand margins faster than GDP sort of growth and again, depending on the macro economy of which were dependent.
I would hope that we would be able to see a normalized number that continuously improves and equal to the EBITDA improvement is going to be generating.
And that level of cash of around 40% of high $30 40 ish percent that we've been very consistent and being able to generate over the course of the last five or six years.
Thank you.
Ladies and gentlemen, this concludes our question and answer session and thus concludes our call today. We thank you for your interest and participation you may now disconnect your lines.