Q2 2021 Huntsman Corp Earnings Call
Greetings and welcome to the Huntsman Corporation second quarter 2.
And 'twenty 1 earnings conference call.
At this time all participants are in a listen only mode.
And question and answer session will follow the formal presentation.
For anyone should require operator assistance during the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded.
It is now my pleasure to introduce your host Ivan Marcuse, Vice President of Investor Relations. Thank you Sir you may begin.
Thank you Christine and good morning, everyone and welcome to the Huntsman and second quarter 2021 earnings call joining us on the call today are Peter Huntsman, Chairman and CEO and President, Phil Lester Executive Vice President and CFO.
2000, and <unk> President and polyurethane.
This morning before market opened we released our earnings for the second quarter of 2021 via press release and posted to our website Huntsman Com. We also posted a set of slides on our website, which we will use on the call. This morning, while presenting our results. During this call we may make statements about our projections or expectations.
<unk> for the future all such statements are forward looking statements and while they reflect our current expectations. They involve risks and uncertainties and are not guarantees of future performance you should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations, we do not plan on publicly updating or revising.
And any forward looking statements during the quarter, we also refer to non-GAAP financial measures such as diluted.
Adjusted EBITDA and adjusted net income or loss and free cash flow you can find reconciliations to the most directly comparable GAAP financial measures and our earnings release earnings release, which has been posted to our website Huntsman dotcom and.
Rising and turn the call over to Peter Huntsman, our chairman and CEO and President.
Thank you Ivan good morning, everybody and thank you for taking the time to join US This morning.
Let's start out on slide number 3 and.
Adjusted EBITDA for our polyurethane division and the second quarter was $208 million versus $31 million a year ago.
And our polyurethane division continued to improve posting 13% year on year volume growth and 18% adjusted EBITDA margin.
Our differentiated volume, which includes our spray insulation automotive and the last tumors businesses grew by 22%.
As a reminder during.
During the second quarter, we conducted a major turnaround at our MDI facility in Rotterdam and the Netherlands. This turnaround occurs once every 4 years with many third party supply facilities carrying out turnarounds at the same time.
Downtime associated with the turnaround negatively impacted volume.
And adjusted EBITDA by approximately $35 million and the quarter.
This was $10 million more than we communicated to you last quarter as several third party issues delayed our startup and force the plant to run at lower rates for an extended period and May and June the.
The good news is that this turnaround is behind us and operations at Rotterdam have returned to normal.
Excluding the impact of the Rotterdam turnaround, our total volumes would've grown at 22% year on year as we were essentially sold out on our MDI units worldwide.
<unk> continued to see a strong recovery and our Americas, and Asia and regions with MDI volumes growing 15, and 13% respectively versus the first quarter.
Significantly higher margins also drove year over year, adjusted EBITDA growth and the quarter.
Higher average selling prices offset.
We buy our raw material costs and unplanned outages.
We believe that longer term supply and demand fundamentals and the MDI industry will remain balanced and margins will remain at a fairly healthy level for the foreseeable future.
Growth and our core construction markets, including installation that.
<unk> and coatings continue to lead the recovery in Europe, and all of these sectors saw growth on a quarter over quarter basis, even in Europe, where we had both planned and unplanned disruptions associated with the Rotterdam turnaround and <unk>.
North American installation businesses, including spray foam and our composite wood.
Wood products business remains solid as we see residential construction spending remaining robust and commercial construction spending picking up our order book for spray foam has never been stronger and we're implementing price increases to help to offset higher raw material pricing and logistical costs.
Elastomers, which included our global footwear business is another core growth platforms for polyurethane and.
And it continues to see strong recovery trends globally.
And in both residential and excuse me demand and both industrial and consumer markets within the last tumors remained strong.
Adults would've been even better this past quarter had it not been for shortages and some.
Key raw materials and higher logistical costs, we expect our business to keep up the momentum for the remainder of 2021.
Our global automotive business significantly increased year over year due to favorable.
Bruce.
Our board volumes were down mid single digits compared to the first quarter due to the ongoing chip shortages, which have resulted in lower production rates industry wide, having said that global demand for and.
And our market is strong and we weren't able to redirect volumes originally intended.
For the automotive market into markets utilizing similar chemistries.
Our polyurethane strategy is to upgrade the quality of our portfolio.
And we will continue to redirect more of our plant output to our differentiated businesses and bottom slice lower margin component net business.
We will.
Invest and our downstream businesses organically and where it makes sense through bolt on acquisitions where are we.
We can generate higher and more stable margins through long term contracts and our components business we.
We are doing so.
Our splitter and investment in Geismar, Louisiana is consistent with this strategy once completed.
And new splitter will allow us to produce more higher value MDI molecules, while maintaining the same total plant output. This investment is progressing very well, we're seeing strong demand for materials that are the output of this project and we're moving aggressively to complete this project as soon.
For it to take advantage of these conditions.
We now expect to complete construction at the end of the first quarter 2022 earlier than originally planned once fully operational and we expect this project to contribute $30 million and incremental adjusted EBITDA on an annual basis and.
And as part C stronger margins next year as a result of our earlier than planned completion.
Our MTBE joint venture with Sinopec, and China, where we own a 49% interest continues to benefit from very strong margins and is driving above average equity earnings.
Expect that we do see our equity earnings associated with this joint venture being lower in the second half for the year when compared to the first half of 2021.
Overall, we remain very positive about the trends that we're seeing and polyurethane globally demand is solid and the industry's toggling between balanced and.
Earnings at this point and time substitution will continue to help drive MDI growth and our sustainable solutions products, which deliver increased energy efficiency are expected to followed trends that will have a very positive impact on MDI demand for the foreseeable future.
Looking.
Into the third quarter, we see general demand fundamentals remaining solid or better and lower turnaround costs are already impact and the bottom line for the business and a positive manner.
Even with typical seasonality and lower joint venture earnings equity earnings we would expect our.
And tire things third quarter, adjusted EBITDA to be between 240 and $260 million.
Turning to slide number for us to talk about our performance products segment, which reported and adjustment and adjusted EBITDA of $88 million compared to $29 million and last year's.
<unk> quarter.
The improvement in this division was partially due to a strong finish and the first quarter with sales migrating into the second quarter debt.
<unk> also benefited from stronger pricing and margins due to tighter markets competitor outages and better pricing discipline.
Accordingly.
Second a means and Malaysia portfolio has recovered quicker and performed better than we expected at the beginning of the year delivering over 20% adjusted EBITDA margins in the second quarter.
Performance products strong financial results not just in the second quarter, but increasingly across the last several quarters reflect.
A refresh of the business strategy implemented after the sale of our chemical intermediates and surfactants businesses. This division is focused on targeted growth and our specialty amines carbonate and catalyst.
And while driving commercial excellence across the entire segment, including our Malaysia and hydride business.
A least changes are already bearing fruit and are expected to have a meaningful positive impact on earnings moving forward.
Volumes and our performance products segments were up 25% versus favorable comparisons and last year's second quarter and importantly are now agile.
For above 2019 demand levels and most of the division's core markets.
Leading the way, our amines used and polyurethane catalyst construction and composite markets.
Construction demand is also having a favorable impact on <unk> and hydride unmet Blake and hydride volumes sold into.
<unk>.
Opportunities to make bolt on acquisitions and this segment tend to be more limited and in some cases do not exist as we are building new markets as such performance products remains focused on driving growth primarily through high return low capital organic investments.
These investments.
<unk> projects to develop catalysts, serving the COC free polyurethane market ultra pure carbonate into lithium batteries and high purity and means used and semiconductor manufacturing. We expect these investments will begin contributing in a meaningful way and the next 2.
And for years.
We see overall demand for performance products offerings.
<unk> solid for the foreseeable future.
And the third quarter, while there will be some typical seasonality planned turnarounds and more balanced amine markets, we still expect third quarter adjusted EBITDA to be between.
75 and $80 million.
Let's turn to slide number 5 and.
Advanced materials reported adjusted EBITDA of $58 million for the quarter, a significant improvement year over year, driven primarily by the continuing recovery of our core industrial businesses and improving.
Contributions from our recent acquisitions.
Excluding the acquisition of Gabriel performance products sales revenue and advanced materials increased 42% compared to the second quarter of 2020 and.
Generating adjusted EBITDA margins of 19%.
Aerospace results were flat.
And in the quarter versus the prior year, although we saw another quarter of sequential improvement, which we expect to see again and the third quarter.
We still think a full recovery to pre pandemic levels and this segment will take another year or 2 given our exposure to the wide body planes used more and international.
Travel.
But we're encouraged that the recovery is tracking better than we had anticipated earlier this year excluding.
Excluding aerospace sales and our.
And our other core specialty businesses experienced growth year over year and are now slightly above 2019 levels. Additionally, the integration of CVC.
National Terminal set specialties and Gabriel performance products continues on plan, we remain confident that we will achieve the total run rate synergies of $23 million we.
<unk> at the time each of these respective transactions were announced.
Overall, our advanced materials divisions track.
<unk>, well and our aerospace.
And as aerospace recovers, we expect this division to consistently generate adjusted EBITDA margins in excess of 20%. We will continue to grow this division organically and through targeted bolt on acquisitions.
Third quarter adjusted EBITDA for advanced materials.
Tracking should look similar.
Quarter over quarter subject to typical seasonality and be between 50% and $55 million.
Moving to slide number 6.
Our textile effects division reported and adjusted EBITDA of $28 million for the second quarter the recovery.
<unk> has been given has been driven by higher sales, which more than doubled compared to the second quarter, a year ago and demand has returned to pre pandemic levels and our key markets.
Saw volume improvements across every product category when compared to the prior year and generated 14% adjusted.
Adjusted EBITDA margins and the second quarter.
Sumer sentiment in the U S and Europe continues to improve and retail store traffic and sales in each region are showing positive signs.
Stay and ability within the retail channel remains a focus for our customers and for us. This.
And and earn with trend favors our leading technologies that are environmentally friendly and areas such as water reduction which continues to gain share.
Some of our Asian customers were adversely affected by the renewed restrictions associated with the return of higher numbers of Covid cases, and certain regions towards the end of the quarter.
Mac, while we are watching these dynamics closely we still see adjusted EBITDA and the third quarter to be well abroad to be well above pre pandemic levels for.
<unk> sharing some concluding thoughts I'd like to turn and a few minutes over to spill lessor.
And our Chief Financial Officer.
Thank you Peter turning to slide 7.
We're pleased to see the continuation of a strong recovery across the portfolio.
Adjusted EBITDA increased by $280 million year over year, and by $45 million or 16% quarter over quarter.
The improvement and EBITDA from the prior quarter is in spite of an approximate 35.
$5 million impact from the extended turnaround at our Rotterdam MDI facility.
In particular, we were pleased with the performance of both the advanced materials and performance products divisions, both of which achieved strong adjusted EBITDA margins in the quarter and where we are investing inorganic.
Chemically and organically to grow these 2 divisions.
The increase in volumes year on year is primarily attributed to strong growth since the depths of the global pandemic across the majority of our portfolio and businesses.
Variable margins significantly improved leading.
Adjusted EBITDA margins moving into the high teens at 17%.
Sales price increases exceeded some rapid increases in raw materials, which have occurred since the beginning of the year.
Turning to slide 8.
We continue to make good progress with the integration of.
2 agenda acquisitions, a reminder, that our huntsman and building solutions target synergies have been exceeded and our advanced materials acquisitions of Gabriel and CVC remain on track to deliver $23 million of synergies and.
In addition, our cost optimization plans also.
And our risk on track with our program and performance products fully completed.
In total we expect to achieve full year acquisition synergies and cost optimization of approximately $90 million and 2021 with a target of approximately $110 million and 2000.
Remaining 2.
Turning to slide 9 we.
We had a use of free cash flow from continuing operations of $83 million and the second quarter as a result of the extended turnaround at our Rotterdam MDI facility.
The Rotterdam MDI turnaround is now behind us for.
And for years, and we anticipate significant free cash flow generation and the second half of the year.
Consistent with remarks made on our last earnings call, we anticipate a free cash flow conversion rate to adjusted EBITDA of approximately 25% for the full year.
For another Peter indicated our MDI splitter project is now scheduled to come online earlier than previously anticipated.
As a result due to the acceleration of this project capital expenditures for 2021 will now be $355 million to $360 million approximately.
And a $25 million to $30 million higher and previously indicated.
This acceleration of spend in 2021, along with increased adjusted EBITDA from the earlier startup. This startup of the splitter will contribute to a targeted free cash flow conversion of approximately 40.
And 40% in 2022 share.
Presently and demand trends continue we see no reason why we should not be targeting and meeting or exceeding our 40% free cash flow conversion. After this year.
During the second quarter, we received a $28 million earn out related.
Summit with sale of our India, DIY business, bringing gross proceeds for $285 million and a multiple of approximately 15 times 2019, adjusted EBITDA on the sale of the business.
Our balance sheet remains strong with a walk with $1.9 billion of.
Liquidity and a net debt to adjusted EBITDA leverage of 1 time at the end of quarter 2.
During the quarter, we completed an offering of $400 million and.
And 295% senior notes due in 2031 and used for net proceeds and cash on hand to redeem.
Dean and full $400 million.
5.1 and 2.5% senior notes due in 2022.
Combined these transactions will save approximately $9 million and annual cash interest.
Finally addressing capital allocation.
Following the divestment.
Approximately 1 fifth of Huntsman and portfolio to <unk> and early 2020, we have focused on building our core platforms through targeted bolt on acquisitions.
And where it makes sense from a valuation perspective. This M&A strategy will continue as we intend to grow our core platforms, particularly.
And of our currently and our specialty and downstream businesses.
As a reminder, we increased our dividend by approximately 15% earlier this year and we currently have an approximate 3% dividend dividend yield on our equity.
In addition, we have and existing share repurchase plan authorized.
<unk> by our board of up to $1 billion of which we had bought back $580 million prior to the global pandemic we.
We have placed share buybacks on hold during the pandemic.
Taking account of market conditions, and an appropriate return on capital and we anticipate resuming some.
Typical of share repurchases and the second half of the year Peter back to you.
Thank you Phil.
I think the results for this past quarter marked a significant milestone and a recovery from the recent calamitous results over the past 5 quarters due to a global pandemic.
For the last time, we had a quarter of this.
<unk> EBITDA was in 2017.2018 during a time when our polyurethane business was enjoying unusually strong market conditions at that time MDI made up as much as 74% of our EBITDA.
I think it is worth pausing and asking what is different today and what more.
This will obviously are yet to come.
This past quarter polyurethane made up 54% of our adjusted EBITDA as we see as we see the result of a stronger performance products are recovering and advanced materials and textile effects business that is likewise and seeing a return to normality.
And I hardly see.
More second quarters being peak results as.
And as I look at the coming quarters.
We will see the effects of the completion of our Geismar, Louisiana, MDI splitter that will start generating EBITDA and the second quarter of next year.
We will also see the benefit of an additional $20 million and cost.
Savings as we streamline our polyurethane business.
And our polyurethane spray foam business has been constrained due to raw materials supply issues that will be solved and the second half of this year.
MDI remains well balanced however, during the second half for this year just over 10% of the.
See the capacity of MDI will be lost due to announced closures for needed maintenance work.
This will be taking place at a time when our facilities ought to be operating at design rates and sold out.
And our performance products Division, we saw strong margins and some 1 time benefits, but the core of this business.
Global <unk> fundamentally change, we've expanded our customer portfolio controlled cost and exercise better pricing discipline. We've initiated projects that will continue to change. This division as we expand production of our urethane catalysts capacity our products feeding the semiconductor business and.
Business and urbanites that will make us 1 of the largest sources of battery grade carbonate and the Americas. These projects will be completed by 2023.
Advanced materials Division has gone through a meaningful change this past year as we've purchased and integrated our recent acquisitions of CVC and Gabriel.
We will.
And corporate cost optimization and.
And commercial synergies in excess of $13 million by 2023 building upon the $10 million, we will achieve this year.
We will also see the return of our aerospace business that will further enhance our EBITDA by an additional $40.
And to $50 million when it's fully recover.
And our textile effects business will not only see the continued recovery of its retail customer base, but the completion of our Bangladesh expansion that will deliver $10 million annually and short and the coming quarters. The groundwork is being laid for over $150 million of additional.
See for EBITDA that will take place across our businesses side from aerospace. This assumes no further recovery and the markets.
Additionally, we have a very strong balance sheet that affords us to aggressively pursue M&A opportunities. This will be done where we have true synergies growth opportunities and the ability to stabilize.
Our earnings having said that I am surprised with some of the multiples that have been seen and some of the recent transactions and this industry as I have said before we will be disciplined.
The quality of our earnings will continue to be of Paramount importance. This past quarter, notwithstanding when we experienced a.
<unk>, our storm of third party outages unplanned inventory build and associated lost sales most of which will be recovered and the second half of this year. We are confident of our ability to deliver greater than 25% free cash flow to EBITDA. This year.
Present market conditions prevail.
We will see this.
Perfect and image of free cash flow to EBITDA increased to 40%. This next year.
Finally, as Phil mentioned in his comments, we continue to pay a competitive dividend and we'll be reviewing our purchase of <unk>.
Huntsman shares these share purchases will be determined by alternative.
And the uses of capital as well as the return on any such capital employed and short we hardly see these market conditions as anything, but a normalized level plenty more opportunity yet to come.
Operator at this time.
And we'll turn it over to.
Any questions.
And our view.
We will now be conducting a question and answer session. If you would like to ask a question. Please press star 1 on your telephone keypad.
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Handset before pressing the star keys, 1 moment, please while we poll for questions.
Thank you. Our first question comes from the line of Frank Mitsch with Fermium Research. Please proceed with your question.
Good morning, and congrats.
Congrats for a long.
Im being named CFO.
Peter.
You know working through the numbers it looks like Youre expecting third quarter to be better than the second quarter in.
In terms of EBITDA and that typically is not the case with Huntsman and I think you have to go back several years.
And you find something like that so.
And that given that youre not anticipating to see you know kind of that typical seasonality.
<unk> or there's other factors at work in terms of inventories et cetera. What is your what is your early read on fourth quarter suggests that is.
You know typically you see even greater seasonality in the fourth quarter is this an anomalous year, how should we be thinking about.
Does the seasonality impact on Huntsman.
Well I think that as we look into.
The third quarter, we will see a little bit of seasonality for the third quarter and we're also going to see the reversal of the <unk>.
C&I or the down time that we saw in Rotterdam, and when we back that out as well as some of the cost reductions that continue to flow through and the pricing initiatives that we have.
I think that we're going to see you're right our strongest third quarter.
And certainly than our second quarter, and we'll see our corporate expenses and at that time, and the third quarter and probably about the same and the fourth quarter and about $50 million per quarter.
Reminding you that there is some LIFO charges and that number and also.
Our recovery and.
Our business travel and expenses and so forth just associated with running the business. So as we look at that third quarter, we feel very confident about it.
Again at this time barring a major pandemic closure of.
The economy or anything.
And I would think that our fourth quarter.
<unk>.
It's going to continue to be.
It's going to continue to be strong and I think our second half of the year.
Again from where I sit right now should be a stronger half than the first half of the year and.
And again, that's looking at the present demand trends and so forth still.
Still very early.
Early in the third quarter, but.
Got.
We've got quite a bit of confidence.
<unk> mentioned that were looking at about a 10%, losing about 10% of the capacity.
And the third quarter that will also be about 10% of the industry capacity for MDI and the fourth quarter as well as we see a number.
Number of plants that are coming down for maintenance.
And some of those have been postponed since earlier in the year.
To the second half of this year and I don't see a lot of movement from from that and scheduling.
Further delays if you will so I think the second half of this year.
And see some pretty good pretty good demand and.
Probably some constrained capacity.
Our next question comes from the line of Angel Castillo with Morgan Stanley. Please proceed with your question.
Alright, Thanks for taking my question and congrats on the strong quarter and Phil welcome as well just a quick question on the and MBIA Im curious you talked about.
And the differentiated volumes being stronger in the quarter than kind of the overall segment.
And just as you look at those end markets and kind of the mix between kind of the more commodity versus the differentiator volumes curious if you could give us more color what are you seeing beyond those volumes kind of going forward.
And what does that mean for your margins.
As well in terms of <unk>.
Our track MDI spreads but in.
In terms of the mix debt that could benefit.
Well I'm going to have.
Tony Hankins is our divisional president.
<unk> comment on some of the macro trends that we're seeing.
Yes.
We're seeing regionally, but as we as we look at it globally again, we're looking at an environment, where we're trying to take as much as our more commoditized.
Tonnage and moving that into further downstream again, I just want to remind the market there will be some times when people might be scratching their heads, saying why.
Benefiting as much during.
Some of the cyclical upside.
Did you see on some of the more commoditized grades and some of these times of outages and so forth.
I think we're trying to look at it and MDI business that delivers more reliable margins has a better consistent cash.
<unk> flow and isn't so dependent on on.
And on spot pricing, so Tony any comments that you have about some of the regional impacts we're seeing yes. Thank you Peter good morning Angel.
We're seeing we're seeing very strong demand right now and 2 of the 3 corp downstream franchises that huntsman.
Huntsman building solutions, which is spray foam and that Alaska, and this business, particularly the footwear business and the industrial assets business, where we see very strong double digit growth.
Right through the second half of the year out and we sold out we've got an 8 and 8 week for the fact log and hbf and the good news and that business is commercial construction.
Starting to.
And to pick up when we seeing spray foam moving into that much more strongly than in the past and addition to the residential construction area, which has been very strong as you know with with new home builds.
And with very very upbeat about that automotive is it's been off about 10% this quarter because of the chip shortage I think that's going to ease up a bit towards.
Was the end of the year was clearly constraining automotive, but we move those products into.
And to other Chemistries as Peter said on the call and those of the Chemistries and things like flexible flow into memory foam mattresses, and pillows, where we've seen 35% quarter over quarter growth and those areas. So we're very very optimistic and very upbeat.
<unk> growth.
Growth going forward and the second half and our downstream differentiated businesses and will be more.
Moving molecules from a components side of the business into those downstream markets. So that's the whole strategy of valuing moving from components to specialty where the margins and higher weather, yet and sustainable and where we're seeing real benefit.
And particularly from the infrastructure build and the climate change investments and what you're going to be made and not just the coming quarters for the coming year. So so very very upbeat about these downstream businesses that we serve.
Our next question comes from the line of Bob Corp, with Goldman Sachs.
About and proceed with your question.
Thank you very much.
Peter I was curious you made.
And note that youre going to start maybe buying back some stock and.
And also suggested that maybe multiples and the marketplace there.
Elevated.
You guys have been very exceptional at selling assets is there any.
<unk>, maybe to monetize some more assets and take advantage of those bids.
And what will be the.
Sort of hurdle are limited and gate factor on how much or at what price do you buy back stock would you think.
Well.
Very good question and we.
And we're going to be looking to add on.
And a really on a case by case basis as we.
Wave your alternative uses of capital.
And frankly, I'd, rather see cash going into and the business expansion and M&A and share buyback, but again, it's a pretty simple equation is when we balance that return on capital employed.
Scope and share buybacks versus versus M&A.
So I think it needs to be a measured.
Our approach and something that we're going to be looking at carefully throughout the second half.
And it's part of a balanced approach and we have as we've done in the past just remind the market here.
And that we bought and nearly $5 billion of our own shares over the last.
2.2 and a half years with the proceeds coming from <unk> and just cash coming from.
The operations for the business I see that continuing.
Right.
As we look at possible.
<unk> asset sales as I've said in past calls we continue to look at our overall portfolio and.
As we find opportunities.
Were those.
Looking at our business.
Put a higher value on certain assets that perhaps and we may have internally.
And we'll certainly entertain that and.
As I've said and the path again.
We certainly are not at a point, where and who are I'd say.
And there's nothing for sale.
And the company, so again thats not to say that we're all trying to.
Sell off divisions or anything but again.
And it is to say that I think that any company has got to be able to look at where they can refresh and how they can refresh their portfolio.
Our next question comes from the line of Hassan Ahmed with Alembic Global. Please proceed with your question.
Good morning, Peter and Phil.
Peter just wanted to focus.
On the.
The Q3 guidance, you've given specifically for the polyurethane business I mean, if I adjust for lost earnings from the Rotterdam turnaround. It seems that you guys are guiding to flat to slightly up EBITDA Q2 to Q3.
And then if I sort of triangulate that with some of the comments that I heard it seems that probably volumes are going to be up and this is all obviously adjusted for for the Rotterdam turnaround and it seems volumes will be up in Q3 sequentially.
And you guys have pricing initiatives in place.
So what am I missing here.
From the sounds of it it seems Q2 to Q3.
And segment EBITDA should be up nicely.
<unk> being relatively conservative with that guidance.
I would never accuse Mr Hank and.
Sure.
Sandbagging numbers here.
What.
I would put a couple of things and mined on the positive side well, let me start with the negative amendment.
The 2 areas of concern that I have looking into the third quarter.
1 of those is going to be.
Lower member and that polyurethane numbers, we have our joint venture.
And from our <unk> joint venture for the equity earnings coming out of that and China.
And the second quarter, I think that we had better quite a bit better than average earnings and the second quarter coming for Matt and I see that cooling and the third quarter.
Which is selling propylene oxide and.
MTBE as those markets come into better balance I think that those earnings probably will be slowing a bit and the third quarter.
Third quarter also we're going to be seeing the effects of higher raw materials.
Particularly benzene now we're seeing benzene.
Coming off of a recent 4 to $5 higher.
This past quarter and.
And dropping down into the <unk>.
And $3 and change area, but remember that our our time of buying the benzene transporting the benzene and converting it to nitrobenzene aniline crude MDI working it through our system typically.
<unk> is about a quarter impact and so what we saw and raw material increases and the second quarter will be hitting us in the third and so on the negative side I would say again.
Some pressures on the earnings on the MTBE side, and also having to deal with higher raw material costs and benzene that we know will be coming.
And its way through the system on the positive side, yes. The P&I is behind US we have greater volumes and we are going to be pushing for price increases.
And that will be price increases across the board and it will be price increases that we are presently working with as I made mention in my comments.
With those contracts that we those longer term contracts.
We have particularly in the Americas, where we have long term agreements and kind of pass throughs sort of agreements.
Many of those are coming due at this time and.
And as Tony articulated our objective and the Americas.
Cause us to take our polymeric our commodity businesses and move those further downstream, we're going to do that in 2 ways, we're going to do that by putting it to the splitter and moving those into new markets. Those molecules that today are being sold at commodity pricing and.
The same pounds that also get moved.
<unk> into the spray foam business that we see growing at double digit rates. So our percentage of polymeric commodity base MDI, particularly in North America is going to be it is going to continue to be a shrinking market for us and we have an opportunity to.
The remaining customer base and we have to evaluate.
And those customers the service that we're giving the value that we're creating for them and look at that pricing as well so sorry long winded.
Answer here, but as we look into the third quarter and I think many of those things that we'll be implementing and the third quarter will spillover into the fourth quarter, even though we will see seasonality and the fourth quarter I think many.
Many of the positive attributes will spill and the fourth quarter.
Which gives me.
As I mentioned earlier, a lot of optimism not just the second half of this year, but going into 2022.
Our next question comes from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your question.
<unk>.
Good morning, this is corey on for Kevin.
And <unk>.
Looking at the performance products segment.
We've heard debt.
<unk> is out with a price increase of 8 cents per pound from <unk> anhydride and the third quarter.
And sorry, if effective August 1.
Can you talk about.
Maybe some of the price drivers for mosaic and maybe the sustainability of those drivers as you see it through the second half and into next year and.
And maybe could you break that down by region.
I think we've seen a little bit of weakening in Europe versus the U S and China. Thank you.
Yes, when we look at our.
Businesses bear in mind that 1 of the 1 of the 2 major drivers there as there is with most products raw materials and the second quarter, we saw an average raw material.
Cost for the business across the board just under a dollar a gallon and we see a current price of around.
<unk> 30, a gallon so 30.
M'lady something percent increase and raw material prices, which are going to necessitate.
<unk> higher.
Selling prices for our Malaysia to offset that we're also seeing very strong demand and the malaise, particularly in North America and in Asia.
I think that were seeing decent demand in Europe.
Not as strong as we are in North America and in Asia, but.
And I continue to be quite bullish on the Malaysia business I think the fundamentals of it.
<unk>, we're a global leader and the capacity and and the economics and and the technology to produce <unk> and.
And I continue to believe it's.
And it's going to be.
It's going to continue to be a business that delivers very strong results for us.
Our next question comes from the line of Mike <unk> with Barclays. Please proceed with your question.
Great. Thanks, Good morning, guys.
Question, just on the raw material front I think outside.
Outside of benzene and the company has a fairly decent sized buyer of chlorine and <unk> and if you look at those products. There has been not only a fair amount of supply disruptions lately.
But the largest U S producer of both products has been pretty vocal that price is only going to go upward moving forward. So just curious how you think about your security of supply there and your.
Our ability to get pricing to offset that.
And.
Well look it's.
And as a time when we see the recovery.
All of the global economy, the demand Thats being pulled on the global economy that we're going to see.
Raw material pressure.
Probably across the board I will just.
So that is we are looking into the third quarter into the fourth quarter. We are starting to see prices diminish on the raw material front benzene seemingly has peaked.
And the second quarter going into the third quarter.
And typically going into the winter months gasoline slate and.
And lot of what refineries produce.
We will also.
You'll start seeing a diminishment and some of those values as well.
Yes.
<unk>.
<unk>.
And our epichlorohydrin and chlorine and so forth I'm not going to comment on particular buying strategies and so forth, but and.
No, particularly of epichlorohydrin, there have been some disruptions.
And from the supply.
And particularly from Asia.
Things will be worked through and what we've been we've been buyers or producers of epichlorohydrin.
For many years and this is a global commodity.
It's going to move with with supply and demand and.
Yes, that's just that's just the way it is.
I think and many commodities and this industry.
And you, sometimes get and those positions where you think prices are.
He is going to stay high and prices will never diminish and economic reality.
<unk>.
We'll hit she is particularly in commodities when you've got global competition, So I think longer term.
Spite of people trying to lock in long term price quote forever.
The vicissitudes of the market will continue to be the same I don't see any fundamental change and that.
And you look and.
And also and you look and in China, our large MDI plant, we have hcl recycling there that we recycle our flooring, we're looking at the possibilities and the economic.
Models of doing that more widespread throughout the company and I think as you start looking at technologies.
And.
More and more our technologies not only will be for.
From an environmental point of view, but how do we reduce how do we recycle and how do we capitalize on technologies.
That allow us to have better reliability.
Less less materials coming into our facilities and and.
And utilized.
Technology too.
Basically make more with less and I think that's a trend that we're going to continue to see across the board.
Our next question comes from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
Thank you Peter just some polyurethane and you mentioned that.
54 per cent for EBITDA today is from that segment you talked about how much debt is now downstream and differentiated EBITDA for commodity EBITDA and has a compare to a number of years ago.
Well I think Jon as we look at that that commodity versus downstream I mean, I think it's a little bit.
I'm a bit I'm a bit hesitant to give an exact number on that because not everything fits exactly and those 2 buckets.
But I would look to Tony Hankins here and say, we're probably looking at somewhere between 2 thirds to probably closer to 3 quarters of our EBITDA is.
Being earned by our differentiated products, Tony you see that.
And that's obviously right Peter I think with.
Very differentiated and Europe, let's say to annuities is higher than that and I think in America.
The Americas is 70 to 75 and the Patriots split for investments, where they going to help us move there.
Even further downstream and then in Sean.
About 50, 50, and Sean and we've got to do more work and to really start converting more of that component, where we see the spikes and the fly ups and some more downstream stable stable and Gs So yeah overall, Peter about 70% to 75%.
Thank you.
And.
Our next question comes from the line of John.
Robert with UBS. Please proceed with your question.
Thank you back to the performance products segment and Peter.
Vegetable oil is also used and unsaturated polyester sort of a different.
Chemical routes and some of the products is the surge in vegetable oil contributing to the supportive pricing there and Malaysia.
No not that we're saying that the vegetable is the product and we follow very closely and we look at the alternative technologies and usage and those areas and so but I don't see it having any impact at this time.
And then you talked about some constraints and <unk> foam for.
And.
Jon Robert is it your propylene oxide supply for them into Rama or was it blowing agents or some other additives that might be constraining Peter.
<unk> phones.
Tony you want to comment on that.
Yes, Jon I think it's a wide range of raw materials, I mean police and <unk> have been constrained.
Constrained, particularly in North America, this past quarter, but also.
Catalyst blowing agents.
Release agents.
Right across the board and I think raw materials have been have been very tight and particularly as like these and tile which go into the CPU business.
We are hopeful that is going to get a lot better and the second half.
But yes, its been particular huntsman and billing solutions businesses.
There is a restrictive ability to really capitalize on the strong growth. So we're working hard to alleviate that with with alternative products and.
Remixing of chemistry.
Our next question comes from the line of Mike Sison with Wells Fargo. Please proceed with your question.
Hey, guys nice quarter.
Peter.
MDI prices in China were pretty volatile and tequila, and and I know you and.
And the U S and Europe was weighted more stable but.
And you were able to hit your outlook for polyurethane.
And then.
And given the volatility why do you think that was the cash.
Have you done enough and that portfolio too to be able to manage the volatility and component pricing and then any thoughts on any new industry capacity coming on and 22, just just just if you have any insight there.
Yes, and very quickly and if I'm, if I'm rather quickly.
Quick and my answers over the next couple of we've still got quite a few questions. I know there is other companies that are have their announced earnings you'll start hearing about 10 minutes. So if I give rather quick answers my apologies.
I'd like to try and get as many questions as possible.
Chinese polymeric MDI it remains volatile.
Cable I wish we had a crystal ball, but could see into the quarter and see where that prices, but I would remind you that <unk> is only 5% of all of Huntsman.
Portfolio and its only 10% of polyurethane so.
And if we're getting it right I think it's more that we're getting the other 90% right and.
And maybe that other 10% I'd like to think we're getting it right but.
But we do we try to be as transparent with the market as soon as we see something we try to pass that on to the market on capacities coming on and look I don't outside of China, and some announcements that have been made I don't see any greenfield and what I'd say.
Greenfield I mean, a brand new.
MDI site anywhere in the world.
Yes, and Youre looking at.
4 to 5 years to be able to build such a site.
And any even.
And its business planning and permitting stages point again, there are some expansions taking place on existing.
Facilities, and so forth, but I don't see any significant capacity coming on and MDI.
For the foreseeable future and when I say foreseeable future I mean over the course of the next several years.
Next question please.
Our next question comes from P. J Jugal, Joe Kovach.
<unk> Citi. Please proceed with your question.
Hi, Peter its Eric Petrie on for P. J.
Annualized first half performance products, EBITDA, and I get $300 million versus and normalize the 200 to 225 that you've put out there. So is that level sustainable or do you see kind of normalization and the composite.
Posits area.
And performance products.
And <unk>.
Still a little bit of seasonality.
Third quarter is probably going to be down a bit from the second quarter.
$5.7 million Bucks down from the second quarter, just because of.
Some of the seasonality and turnaround.
That we have but.
By and large eyes did moving and setting.
And have it can be a little bit weaker than first half, but not not materially.
And that too.
260 to 70 ish sort of number.
My guess I hope there'll be some upside to that.
Our next question comes from the line of Arun Viswanathan with RBC. Please proceed with your question.
Great. Thanks for taking my question I, just wanted to get your thoughts on reliability and obviously, we've had some some force matures here and.
Production disciplines disruptions.
And your competitor.
Facilities, I guess do you view that positively and I guess any any comment on your own system, and obviously theres maintenance going on but and <unk>.
Do you expect kind of continued disruptions and the industry going forward. Thanks.
Yeah.
Would never wish disruption on any of our competitors.
But.
Having said that.
I think that when you look at the configuration and this industry of the size of some of these lines that have been built 400000 tonnes.
Sort of lines it used to be when align went down you were losing 50 or 100000 tons and.
Material and lines and MDI line to go down and you need you need a very very small amount of contaminants to get into that that that system to put a wind down and when you see a single line now of.
3 for 500000 metric tons and align to that magnitude comes down for maintenance or cleaning.
You are going to see it impact literally the global the <unk>.
Global balance.
So.
I think Thats, a fact and the other factor that I would say is that as you look at most of these MDI plants I think of our competitors I think are very very well built theyre very well operated very well maintained.
But they are also dependent on.
And infrastructure that in many cases around the world is strained its older I look at a lot of the chemical infrastructure here and.
In North America much.
Much of it you get these brand new billion dollar facilities and they are being operated with and infrastructure, that's 30 or 40 years old and so.
It's not just the facilities themselves, but a lot of it is when you see a storm come through for <unk> come through something of that nature Youre looking a lot at third party.
Issues and.
Yes.
And the outage that we suffered in the second quarter due to the Netherlands was a product pipeline that suffered.
Suffered corrosion debt supplied a supplier to a supplier to us and so I mean, you kind of like 3 times removed.
And older pipeline that had some corrosion and unexpected corrosion and it.
So I think as you look at it and.
More of an interchangeable and and interconnected industry.
So I think if anything.
I'm not sure that really gets better I think we're just going to have to make.
Maintenance is going to have to be.
And we continue to be Paramount.
Our next question comes from the line of Alex <unk> with Keybanc. Please proceed with your question.
Thank you and.
Good morning, everyone. Peter do you expect typical seasonality and the fourth quarter and polyurethane and advanced materials or given the trends you guys discussed could we see maybe flat Q4 versus Q3.
Yes, I do see seasonality I mean, there will be the typical closures.
Every year for some reason we have this phenomenon.
Thanksgiving and Christmas and new year's that seemingly slowed things down and yes, we will see that.
And I do think that debt to offset and my only point and saying that I am optimistic on the fourth quarter is I think that some of that seasonality will be offset by.
Simple possible supply shortages and and price increases and if those things happen and then youll see youll see some of that seasonality will be muted, but yes, there will be a slowdown in demand and.
And that's just.
And that's something that will happen.
Our next.
And part comes from the line of Matthew Blair with Tudor Pickering Holt. Please proceed with your question.
Hey, Good morning, Peter and Bill you had a press release during the quarter that highlighted youre, increasing exposure to EV batteries.
And I was hoping you could just talk about what is your content per vehicle I guess in terms of pounds.
And for a traditional ice vehicle and then what would you target for for and how much of a difference do you think there'll be.
Well the vast majority of what we're putting in and ice vehicle today will be in the and.
And and EV vehicle going forward I mean, if you think about light weighting and bolt is.
Questionnaire amount's importance comfort installation.
You want to make sure that you're driving a car that has MDI seats, not TDI and it has.
No low or no vlccs and this catalyst I'm just trying to promote tonys products here and.
But as you think about.
It can be doing here and EV debt does not go into and ice vehicle.
And to see areas of the <unk>.
Carbonates and go into the batteries themselves youre going to see even a greater emphasis I believe on light weighting on the.
Heat insulation around batteries, I think thats going to be.
Huntsman material and as we look kind of and that further past the next 2 or 3 years.
Take a look at the video that we just released on our marathon product.
And that's on our website and on.
Social media sites and this is there is some some really exciting.
What with cereals that are going to be coming out not only from huntsman and from our industry that will be doing a better job and light weighting and adhesion and structural strength and so forth stuff that isn't even on the market and and I'm not talking 10, or 20 years down the road I'm talking 2 or 3 years down the road.
But I think youre going to revolutionize.
Citing a lot and.
We will increase not only the battery.
Functionality and and EV, but also.
And existing.
Vehicles as well.
Our next question comes from the line of Laurence Alexander.
And Andrew with Jefferies. Please proceed with your question.
And just 2 quick ones do you expect your own and maintenance costs to go up.
As a percentage of sales for assets over the next few years.
And have you pulled forward any productivity.
From 2022, 2023 or should you be able to maintain the same.
Same productivity run rate.
I think on both those Laurence.
We think that the maintenance costs that we have had traditionally over the last 10 years will be consistent over the course of and the next couple of years and.
And we will be discussing this in more detail.
As we.
Get into our Investor day, and so forth right.
As we sell off more and more of our heavy chemicals, and you're maintaining more system houses and our spray foam facilities and so you just don't dive and we obviously spend I think very generously and not only maintenance, but you just don't have the high cost.
And that you do on some of these larger facilities that we used to have so as we look at our productivity as we look at our maintenance and so forth I think it's well balanced and I think it is going to continue.
And as it has been over the course of the last decade.
We're going to continue to be very disciplined and our capex and we're going to be calibrating that capex.
Our projected EBITDA.
We're not going to be cutting.
Any of our maintenance and our requirements and the <unk>, but as we look at that that 40% threshold is a very important number for us and there might be some projects that we delay some.
Round and business projects and what do we delay I think hitting that number and maintaining that discipline.
And is very important to this company and operator I think we're at the top of the hour why don't we take 1 more question here and again I want to thank everybody for having taken the time to join us.
Thank you our final.
And then comes from the line of Mike Harrison with Seaport Research. Please proceed with your question.
Hi, Good morning, Thanks for squeezing me in.
And Peter can you maybe give a little more color on the strategic refresh that you referred to in the performance products segment. What changes have you made in addition to the $7 million.
The question of cost takeout that you completed and what gives you confidence that youre going to see sustained improvement and that business. Thanks.
Well I think we're spending a lot of money and we have a very good product pipeline and that area.
Look at this business.
5 years ago, you would have seen a very heavy.
We focus on our surfactants business a lot of our crop protection businesses and so forth and this would have been because of the.
<unk> of the business that we sold 2 years ago coming up on 2 years here at the end of Rama.
That business was largely integrated with and upstream ethane to ethylene.
Celine ethylene oxide propylene oxide and we're taking those molecules and I think moving those into more of a of a well.
And more commoditized market, though that rewarded us for volume over value per pound and now that those are standalone businesses. We're looking at the molecules were looking at.
The technology and we're looking at how do we achieve through less volume more value and I think that's going to continue and as we look at the.
The strength of our Malaysia, and hydride business not just the integration going into <unk>, but in other areas.
And a fuel additives lube.
Protective agent and so forth.
<unk> business is going to continue to be a value to us as we look in our amines and we start focusing as we mentioned earlier into a whole new area of semiconductors into batteries and <unk>.
Electricity and and.
Into polyurethane catalyst again remember these are the products that are fueling the growth that we're seeing and the spray foam business on the polyurethane side. This is a and inter divisional supply channel that we have here and we see a tremendous opportunity.
To help grow that business.
Yes.
<unk> board of very strong double digit growth rate here over the course of the.
The next couple of years, so as we see that I guess my point is were focused more on value on a per pound basis, we're focused more on where we're going to be having perhaps a little bit smaller nimbler business and where we were a couple of years ago, and we were moving mass commoditizing.
<unk>.
Surfactants and so forth those are bad markets.
We're just I think better focused on pricing technology and execution and I think that we're starting to see the benefit of that coming through.
Thank you very much.
And.
We have reached the end of the question and answers.
Answer session and with that the conclusion of today's call. You may disconnect. Your lines at this time. Thank you for your participation and have a wonderful day.