Q4 2021 Dow Inc Earnings Call
Good day, and welcome to <unk> fourth quarter 2021 earnings call.
You may signal to ask a question by pressing star followed by one at any time during today's presentation.
Today's call is being recorded I would now like to hand, the call over to Pankaj Gupta. Please go ahead Sir.
Good morning, Thank you for joining <unk> fourth quarter earnings call. This call is available available via webcast and we have prepared slides to supplement our comments to date.
Posted on the Investor Relations section of Dow's website and through the link to our webcast I am Pankaj Gupta, all Investor Relations Vice President and joining me today on the call are Jim Farley, Dow's, Chairman and Chief Executive Officer, and Howard Underwriter, President and Chief Financial Officer. Please read the forward looking statement disclaimer contained in.
The earnings news release and slides.
You will recall, we will make forward looking statements regarding our expectations or predictions about the future. Because these statements are based on current assumptions and factors that involve risks and uncertainties. Our actual performance and results may differ materially from our forward looking statements.
This forms 10-Q and 10-K include detailed discussions of principal risks and uncertainties, which may cause such differences.
Unless otherwise specified all financials, where applicable exclude significant items. We will also refer to non-GAAP measures a reconciliation of the most directly comparable GAAP financial measure and other associated disclosures is contained in the Dow earnings release in the slides that supplement our comments today.
As well as on the Dow website.
On slide two you will see our agenda for the call Jim will begin by reviewing our fourth quarter and full year highlights and operating segment performance. Howard will then share our outlook and modeling guidance and then Jim will discuss how we will continue to execute on our priorities to deliver revenue growth.
Following that we will take your questions now, let me turn the call over to Jim.
Thank you Pankaj.
Beginning with slide three in the fourth quarter now once again delivered top and bottom line growth year over year with sales growth and margin expansion in every operating segment our results.
This reflects the strength and resilience of our advantaged portfolio and the incredible efforts of the Dow team as we continue to ensure our wellbeing and safety of our team and our communities. We delivered year over year sales growth of 34% with gains in every operating segment business and region.
Volume declined 4% year over year due to supply constraints from several factors, including our own maintenance lingering effects of weather related outages and global logistics challenges.
We continued to see robust underlying demand across our end markets, particularly for higher margin downstream and sustainability led applications prices were up 39% year over year, reflecting gains in all operating segments businesses and regions.
Our discipline and agility enabled us to navigate the supply constraints and logistics challenges I just mentioned.
Dual control actions in China, and rising energy costs, we delivered operating EBIT growth of $1 $2 billion year over year with margin expansion in every operating segment.
Equity earnings were also up year over year with margin expansion at our joint ventures in Saudi Arabia, Thailand and Kuwait.
These results translated into significant cash generation for the quarter with cash flow from operations of $2 6 billion up $901 million year over year and cash flow conversion of 88% and.
And we returned $912 million to shareholders in the quarter, including $512 million through our industry, leading dividend and $400 million and share repurchases. Our performance in the fourth quarter capped a record year for Dow, which you'll see highlighted on slide four.
In 2021 team Dow capitalized on the economic recovery, achieving record sales and earnings performance, Despite pandemic, driven uncertainty and industry wide weather related challenges our focus on cash flow and disciplined capital allocation enabled us to continue to deliver on our financial priorities.
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We achieved $7 $1 billion of cash flow from operations, bringing our total cash flow from operations since spin to $18 billion.
We enhanced our balance sheet by reducing gross debt by another $2 4 billion in the year, bringing down gross debt by more than $5 billion since spin.
We are also no substantive debt maturities until 2026, we proactively funded our U S pension plans and successfully executed SEDAR as debt re profiling lowering dallas guarantees by more than $2 billion.
Dow has returned a total of $7 3 billion to shareholders since spin through our dividend and share repurchases, including $3 $1 billion in 2021.
And we kept capex well within DNA as we continued to invest in our higher return and faster payback growth investments in 2021, we achieved a return on invested capital of greater than 22% on strong earnings growth.
As we turned the corner on the pandemic, we do so with a strong balance sheet and a deliberate and disciplined strategy to decarbonize and grow.
We achieved this record financial performance in 2021, while advancing our ESG leadership importantly, we announced our disciplined strategy to decarbonize, our assets, while improving underlying EBITDA by more than $3 billion as we capitalize on our participation in attractive high growth.
And markets and sustainability driven solutions.
Our ESG efforts continue to be recognized externally as we were recently recognized by just capital for the third year.
Now earned the top spot in the chemical sector overall as well as the number one position in the workers and stakeholders and governance categories in the industry.
I am extremely proud of team <unk> dedication to deliver for our customers and drive value for all of our stakeholders. We will build on these achievements in 2022 as we advance our ambition.
Moving to our operating segment performance for the fourth quarter on slide five.
In the packaging <unk> specialty plastics segment operating EBIT was $1 $4 billion.
Up $662 million year over year, primarily due to margin improvement and partly offset by lower supply volumes.
Sequentially operating EBIT was down $512 million and operating EBIT margins declined by 520 basis points on lower olefin and co product pricing combined with higher raw material costs and energy costs.
The packaging <unk> specialty plastics business reported higher net sales year over year, driven by price gains in all regions as well as in key applications, such as flexible food industrial and consumer packaging.
Volume declined year over year, primarily in Asia Pacific due to supply constraints.
Moving to the industrial intermediates and infrastructure segment operating EBIT was $595 million up $299 million year over year, primarily due to continued price strength sequentially operating EBIT was down $118 million in operating EBIT margins declined 280 basis.
Points, primarily driven by higher energy costs in Europe , and our planned maintenance turnaround activity.
The polyurethane and construction chemicals business increased net sales compared to the year ago period on broad based price gains in all regions volume declines were primarily due to a planned transition away from a low margin low margin co producer contract and our planned maintenance turnaround activity.
The industrial solutions business delivered a net sales improvement compared to the year ago period with local price gains in all regions volume was flat year over year as higher volume from our renewable energy contract was offset by fewer licensing and catalyst sales and.
And finally, the performance materials and coating segment reported operating EBIT of $295 million <unk>.
Compared to $50 million in the year ago period as margins increased 900 basis points due to strong price momentum for silicones and coatings offerings.
Sequentially operating EBIT improved $11 million as price gains were partly offset by our planned maintenance turnaround activity.
<unk> solutions business achieved higher net sales year over year with local price gains in all regions and across end market applications.
Volume declined as strong demand, particularly for our industrial electronics and personal care applications was offset by lower supply availability due to our own decision to pull forward maintenance activity to coincide with dual control actions in China.
Coatings and performance monomers business achieved increased net sales year over year as higher raw material costs and strong industry demand led to price gains in all regions volume declined as stronger demand for architectural coatings and industrial coatings, primarily in the U S and Canada was more than offset.
By lower merchant sales of acrylic monomers, partly due to one higher captive use.
I'll now turn it over to Howard to review, our outlook and modeling guidance.
Thank you Jim and good morning, everyone turning to slide six our diversified portfolio continues to enable us to capitalize on attractive end market trends with higher margin downstream products. Our four primary market verticals are each growing at rates of one three to one five times GDP and benefiting from sustainability Mac.
<unk> trends.
We are meeting this demand with higher margin solutions, such as functional polymers, our consulates surfactants polyurethane systems sustainable coatings and performance silicones.
And the packaging vertical demand for lower carbon emissions recyclable and circular materials are driving demand for dow's industry, leading plastics portfolio and in house application design capabilities.
Dow's broad suite of products and hybrid innovations targeting infrastructure will continue to benefit from government investments and incentives with particular demand resiliency in the Americas Europe as well as in the Middle East Africa and India.
We see global demand across the diverse consumer market vertical remaining at elevated levels, particularly for applications like electronics <unk> appliances are pharma and home care, where several of gallon growth investments are targeted.
And then mobility Dallas portfolio of specialty silicones, polyurethane and elastomers is uniquely positioned to benefit from growing electric and autonomous vehicle trends.
Importantly, these attractive market verticals are supported by favorable balances across our key value chains with continued strength across consumer and industrial end markets, which will see on slide seven.
We expect the economic recovery to continue as forecast call for above historical average global GDP growth in 2022.
While the Omicron Varian has resulted in some near term disruption, we do not expect it to materially change the current recovery path, particularly as global immunization levels and treatment options continued to increase.
Several factors support continued strength across our end markets.
<unk> balance sheet remained healthy with significant pent up demand driven by more than five trillion dollars in additional savings accumulated through the pandemic.
Manufacturing growth is expected to remain robust supported by increasing investments in infrastructure and accelerated adoption for <unk> EZ and sustainability trends.
And with retail inventories remaining low and backlogs elevated easing supply chain issues should unleash additional volume growth in 2022 as manufacturing activity increases to meet strong consumer demand.
This will certainly be a focus for Dow as we work closely with our customers to fill order backlogs and replenish inventories to meet the robust demand and increased service levels.
Turning to slide eight in the first quarter, we expect these demand trends to drive growth, particularly following the Chinese lunar new year.
<unk> remains resilient in packaging and specialty plastics, although domestic polyethylene supply improved through the fourth quarter Comonomer supply remains constrained and trade sources are predicting another year of higher than average turnaround activity. These factors coupled with improvements in shipping and logistics that will help meet demand in the export market.
Our leading to more constructive supply and demand balances domestically.
Equity earnings are expected to be lower sequentially due to rising feedstock costs impacting Asian, olefin margins, and we anticipate higher raw material and energy costs, particularly in Europe and Asia.
Altogether, we anticipate an approximately $200 million impact versus the prior quarter for this segment.
Utilizing our best in class feedstock flexibility and our differentiated portfolio Dow will continue to be agile to mitigate potential volatility and meet demand.
In industrial intermediates and infrastructure strong demand for our high value materials in appliances, construction pharma homecare and energy applications combined with tight supply and increased global infrastructure investments are supporting a constructive demand outlook.
We anticipate approximately $100 million benefit in this segment from completed turnarounds in the fourth quarter, including cigars isocyanate facility and several in our core polyurethane business.
And we expect the elevated energy costs in Europe will be a $75 million impact versus the prior quarter for this segment.
In performance materials, and coatings, increasing industrial activity and consumer demand for electronics and construction continues to outpace supply for our differentiated silicone products the.
The industry also anticipates resilient demand for architectural coatings and rebuilding from low inventory levels in preparation for the northern hemisphere spring and summer months.
The completion of our turnaround in the fourth quarter at our Siloxane facility in China will allow us to take advantage of tight global market conditions as silicon metal supplies improve and energy curtailments in China continued to ease we will also be executing a turnaround at our <unk> facility in Deer Park all in we expect.
The $25 million net tailwind versus the prior quarter from turnarounds for this segment.
Turning to the full year, we're continuing to provide our best estimates of several income statement and cash flow drivers, notably we expect lower equity earnings sequentially due to margin compression versus the tighter conditions in 2021, particularly in Asia as oil remains constructive putting upward pressure on naphtha based <unk>.
<unk> costs in the region.
Total turnaround spending for the year will be up approximately $100 million versus 2021, as we have another heavy turnaround year with three crackers slated for maintenance activity.
And increased inflationary pressure on materials and labor.
Net interest expense is expected to be approximately $600 million benefiting from our proactive deleveraging actions since spin.
For cash flow, we anticipate higher joint venture dividends from increased earnings in 2021, and the $1 billion tailwind towards pension related items following our actions last year.
Continued investment in our digital initiatives will drive efficiency and enable us to achieve our $300 million EBITDA run rate on the program by 2025, we will also complete the spending portion of our restructuring program, which is now delivering a full $300 million EBITDA run rate as we enter 2022.
And finally, as we highlighted at our Investor day, we anticipate increasing our capital expenditures to $2 2 billion well within our DNA target as we continue to advance our high return faster payback projects and execute on our Decarbonize and growth strategy.
Overall, the macroeconomic backdrop remains favorable in 2022, and Dow is well positioned due to our global footprint feedstock flexibility productivity programs and sustainable solutions for our customers.
We will continue to leverage these advantages as we navigate higher oil prices and continue to deal with inflation and logistics challenges and as the year progresses, we intend to drive operating rates and service levels higher and do expect widening oil and gas spreads with that I'll turn it back to Jim.
Thank you Howard turning to slide 10 at our Investor Day in October we laid out our disciplined strategy to Decarbonize and grow the company supported by a series of implied earnings growth programs that will drive over $3 billion and underlying EBITDA growth.
In 2022, our capital and operating investments are on track to deliver $200 million to $300 million and run rate EBITDA and will serve higher margin differentiated applications, where demand is accelerating as customers work to reduce their own carbon footprint and.
In packaging <unk> specialty plastics, our Fort Saskatchewan expansion completed last year will deliver a full year of earnings growth to support increasing polyethylene demand.
And our <unk> pilot plant in Louisiana will start up this year to produce propylene for coatings electronics, and durables end markets, notably the technology enables lower capex, opex and cotwo emissions compared to conventional PVH technologies.
These projects serve faster growing more sustainable market segments, such as renewables to drive lower carbon emissions for our customers. For example are endurance compounds for cable systems support next generation longer life, and lower carbon emissions infrastructure, including on and offshore wind farm.
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Reducing the cable manufacturing carbon emissions footprint by 80%.
And our engage elastomers delivered 35% improved performance and efficiency for solar photovoltaic applications.
In industrial intermediates and infrastructure are all <unk> systems expansion projects are closely linked with brand owner demand for higher value differentiated downstream applications across home and consumer care agricultural and infrastructure end markets.
For example, our surfactants offer an improved environmental profile for leading brand owner laundry and home care products.
And our colleagues urethane system Pascal technology enables up to 10% greater energy efficiency in appliances without raising manufacturing costs.
In performance materials and coatings, we're expanding capacity in formulated solutions for coatings and silicones through incremental debottlenecking projects, our products enable higher performing more sustainable solutions targeting mobility consumer and infrastructure end markets.
For example, fast track coatings enable autonomous mobility infrastructure and have approximately 45% lower greenhouse gas emissions.
And our Dallas still technology enables higher density lower cost battery packs for the fast growing electric vehicle market.
Finally, as Howard mentioned, our restructuring program and digital investments, we will continue to support our low cost operating model and top quartile cost structure.
Turning to slide 11, the increasing demand for sustainable products represents a significant growth opportunity for Dow with attractive pricing that will support longer term higher quality earnings.
Our customers are looking for opportunities to enhance their sustainability and we are meeting those needs with lower carbon emissions solutions, beginning with our own operations.
Our Alberta project will decarbonize, approximately 20% of global ethylene capacity, while growing our global polyethylene supply by about 15%.
We are also working with our suppliers to reduce our scope three carbon emissions to date, we have more than 150 supplier agreements in place and have adopted third party frameworks like CDP together for sustainability and Echo betas to drive tangible improvements in environmental performance along the value chain.
We continue to advance a circular economy for plastics and see a consistent trend across our brand owner customer base toward redesigning packages to be recyclable and incorporating 30% post consumer recycled content in their packaging by 2030.
Six of our largest sites have now received international sustainability and carbon certification plus recognition for tracking the use of sustainable feedstocks.
We're advancing our partnership with Euro technology to scale advanced recycling solutions and secure circular product supply.
Mirror broke ground on a new plan with an expected startup around the end of the year.
Earlier this month, we announced an investment in Mr. Green Africa. The first recycling company in Africa to be a certified <unk> Corporation, which includes socially responsible waste collection and plans to co develop new flexible plastic packaging that will enable more sustainable packaging solutions.
A first of its kind investment for Dow in Africa. This business model will be scaled to other developing regions around the world.
We continue to grow our recyclable offerings recently, doubling sales with Chinese laundry brand Levi and increasing our addressable market opportunities and like the partnership's Dow recently announced to source pyrolysis oil from <unk> and new Hope energy these investments in circularity.
There are examples of our progress and solid foundation, as we grow and scale circular solutions.
To close on Slide 12, 2021 was an outstanding year for team Dow We delivered record financial performance and continued our disciplined execution of our strategic priorities building on this foundation, we are focused on advancing our plan to decarbonize, our assets and grow earnings.
Our competitive advantage enables us to meet the increasing needs of our customers and consumers who are demanding more circular and sustainable products, while we work to achieve zero carbon emissions in our own operations.
And as we look ahead, our priorities remain consistent.
Our focus on profitable growth, while maintaining our low cost position and best owner mindset will enable us to deliver on our earnings growth levers we.
We'll continue to maintain our balanced and disciplined approach to capital allocation driving higher returns for the company and our shareholders, while retaining the financial flexibility that has served us well.
And we will continue to advance our leadership in ESG with a clear path to achieve our zero carbon circularity and sustainability targets.
The world and our customers are demanding a more sustainable future as we execute our ambition I am confident that we will create significant long term value for all of our stakeholders with that I'll turn it over to <unk> to open up the Q&A.
Thank you Jim now lets move onto your questions I would like to remind you that our forward looking statements apply to both our prepared remarks and the following Q&A operator, please provide the Q&A instructions.
Thank you, ladies and gentlemen, if you would like to ask a question. Please second half by pressing star followed by one.
Its star one to queue for a question.
We'll take our first question from David Begleiter of Deutsche Bank. Please go ahead. Your line is now open.
Thank you good morning, Jim and Howard It looks like Theres, some recent stability or even strength in polyethylene.
What are your assumptions for polyethylene prices over the next couple of months could we actually see a price increase maybe in February given some higher oil prices and a.
Better demand and AR balances here.
Good morning, David Thanks for being with Us.
As we go into the quarter.
We had two increases out in the market plus four plus four.
Those who look like they're gonna lineup for February and for March.
As we ended the year, we were a little bit constrained on volume really due to some unplanned events of our own both the hurricane as well as the situation we had internally.
Otherwise December was the best Marine pack cargo months for exports that we've had since last March still not back to where we'd like it to be but I think we see signs of gradual improvement and the team is working hard to stay on top of that and I think Thats why you see the Asia volume number down.
In the fourth quarter was we just backed off of those exports in the fourth quarter.
Okay.
We will move onto our next question from Hassan Ahmed of Alembic Global. Please go ahead. Your line is open.
Wondering given Howard.
Just wanted to sort of.
Get your views on the Q1 guidance that you guys have given if I'm running my numbers correctly. It seems you guys you know with some of the data wins and headwinds that you talk about your guiding to around $2 8 billion and EBITDA for Q1 'twenty two.
And correct me if I'm wrong. It seems to me that that does not factor in the sort of polyethylene price hikes that you've talked about the four plus four.
Is that a fair assumption.
Let me have Howard Hudson Welcome and let me have Howard walk through the guidance and then we can comment a little bit more on the market outlook for Q1 sure. Good morning Hassan look I think your number your estimate is reasonable when you look at all the moving parts and I. The way I would think about it is look we're going to see about 275.
$5 million likely a margin moderation sequentially from from Q4 to Q1 and then the net turnarounds is actually a tailwind from Q4 to Q1 of about $125 million. So those are those are the big.
Those are the big moving parts.
And I'd say Hassan it's possible that margins could open up obviously, our view on oil is very constructive because as you look at the market demand has been better than anybody anticipated for oil and because of the investments being so low in oil and gas production in the last.
Three years it takes supply time to catch up so when you look at the spare available capacity for oil that number is relatively low and as this demand grows.
That shrinking spare available capacity number means the market moves up pretty dramatically and that opens up the spreads. Meanwhile, LNG is obviously driving natural gas production I think in the United States as we get through winter, we're going to see prices come down to like the $2 75, a million Btu range.
I don't mean, a pretty good oil to gas spread here.
Plenty of available ethane for the market.
We will now move on to our next question is from Vincent Andrews of Morgan Stanley . Please go ahead. Your line is open.
Thank you and good morning, everyone. I'm wondering if you could talk about the the Asian polyethylene large just where we continue to see negative margins and I assume some of that is just that the raw material costs and move faster than pricing, but is your anticipation that we'll see those margins neutralize at least through higher prices or should we anticipate.
With that we will see some reduction in production there and I guess I asked that in particular, because youre referencing increased export capability coming out of the U S. So I'm just trying to put all that together.
Yes, good morning, Vince Thanks for that question Asia has been under water because of the rise obviously in <unk>.
<unk> prices in the neuro margins there I'd also say.
Flow start to the year, we've got Chinese new year ahead of US here in the first of February and I think we're watching closely as we come out we've seen some rate reductions at some Asian producers that are higher cost that's what we would expect to see.
And obviously when when coal ramped up an LNG ramped up CTO and MTO.
So as we come out of Chinese new year, we're watching closely on both polyethylene as well as ethylene glycol and what happens to the market.
EG has come off a little bit from the fourth quarter, not terribly dramatic, but it's down more than $100 a ton and.
The demand coming out of Chinese new year will be something we keep an eye on.
Now that's good for us, obviously with our footprint and our advantage cost positions here.
Just have to continue to improve on these marine pack cargo shipments and get those numbers moving up to take advantage of that arbitrage with Asia.
We will now move on to our next question from Jeff Zekauskas of Jpmorgan. Please go ahead. Your line is open.
Thanks very much.
And you in your modeling guidance for 'twenty, two you say that your share count is $745 million.
Isn't your share count today is.
743, and aren't you buying back shares at six or $7 million a quarter Shouldnt your share count be.
I don't know, if 735 or $7 30 for modeling purposes for 2022.
And secondly, how.
How are your <unk> operations in the United States are they back to normal running at full capacity or are there still issues.
Good morning, Jeff, Let me ask <unk> to walk through the share count in the <unk>.
Modeling guidance data.
Yes, sure good morning, Jeff I would say look our guidance is for flat because we're focused on making sure we cover dilution.
That said, we're going to continue to be opportunistic we bought $400 million.
Dollars worth in the in the fourth quarter. Our expectation is that we will do that same rough amount in the first quarter.
Forget, though as you're doing your math, you've got to think about where the stock price is because that will obviously impact the number of shares that we can buy increased exercise of options as the share price hopefully continues to move up and then also the averaging effect right because that will impact the number as well. So that's why we say look $7 45.
Is a good number could it be slightly lower than that by the end of the quarter it could be.
And back to your question, Jeff on asset utilization, we've seen obviously, we saw some impact in the fourth quarter from weather related outages and constraints, but as we start the first quarter I think everything's come back to normal operating rates.
So we've been running pretty strong in the Gulf Coast.
Strong as we have for a long time, and that's a nice sign going into the first quarter.
Yeah.
We will now move onto our next question from Frank Mitsch Fermium Research. Please go ahead. Your line is open.
Yes, good morning folks nice end to the year.
You referenced the two news an outage I was wondering if you could talk about your operating rates overall in the PSP.
Segment in the quarter, and then also versus the year and I believe Howard during your comments. You also mentioned that you anticipate higher operating rates in 2022, if you could expand upon that that'd be great. Thank you.
Yes, good morning, Frank PSP in the segment, obviously was down a bit in the fourth quarter from what we had been running throughout the year.
It was down about 5% and so that really hit us and if you think about fourth quarter fourth quarter. It could have probably been about 150 million better.
Had we not had those outages so.
We're running at much better rates right now the Gulf.
Speaker 1: now. Our outlook for rates for the year on ethylene and all the ethylene derivatives is north of 87%. We kind of see that as the low water mark, and that's the way things are running right now, really strong. And then Ternuz is back. One of the crackers has been back since the beginning of the year. The other one's in the startup phase right now. And so we'll be back out of that situation.
Our outlook for rates for the year on ethylene and ethylene derivatives is north of 87%.
Kind of see that as the low watermark and that's the way things are running right now really strong.
And then for news back one of the crackers has been back since the beginning of the year. The other ones in the startup phase right now and so we'll be back out of that situation.
Speaker 1: Any other comments on operating rate, Howard? You know, the only other thing maybe to add, Frank, is remember when you think about year-on-year for full year 22 versus 21. Last year, we had the winter storm. You know, that knocked out all of Texas, basically, for the industry for about 30 days, and then we also had the two hurricanes. So we obviously can't predict what weather events or what unplanned events are going to happen, but certainly it feels like last year was above normal. Normal amount of...
Any other comments on operating rate Howard the only other thing maybe to add Frank is remember when you think about year on year for full year 'twenty two versus 21 last year, we had the winter storm that's knocked out the goal that knocked out all of Texas basically for the industry for about 30 days and then we also had the two hurricanes. So we obviously can't predict what weather events or what unplanned.
Events are going to happen, but certainly it feels like last year was above normal normal amount of.
Speaker 1: capacity offline for the year. So typically planned downtime your year to year will be about the same, you know, we have three cracker turnarounds.
Our capacity offline for the year. So typically planned downtime your year to year will be about the same at three cracker turnarounds. The three crackers that are there remains about the same amount of outage time.
Speaker 1: three crackers that are there means about the same amount of outage time.
Speaker 1: Our expectations on growth, global GDP, 4% to 4.5%, US 4%, China 5% to 6%.
Our expectations on growth.
Global GDP four to four 5% U S for China five to six.
Translates really for US one five times GDP and about 6% year over year volume growth. That's what we're targeting for and Thats what were running for and we want to try to obviously also get some inventories back up and service levels are back for our customers trying to get back to a.
Speaker 1: Translates really for us that one-and-a-half times GDP into about six percent year-over-year volume growth That's what we're targeting for and that's what we're running for and we want to try to obviously also get some inventories back up and service levels back for our customers try to get back to a Kind of a normal cadence that they can expect and better availability and reliability for them
Kind of a normal cadence that they can expect and better availability and reliability for them.
Okay.
We will now move onto our next question from John Roberts of UBS. Please go ahead. Your line is open.
Speaker 2: We will now move on to our next question from John Roberts of UBS. Please go ahead, your line is open.
Speaker 3: Thanks. The downstream coating customers are obviously struggling with raw materials and looks like you made some changes to your acrylic mix as well. When do you think the supply chains and coatings sort of get back to a steady state where things aren't shuffling around?
The downstream coating customers are obviously struggling with raw materials. It looks like you made some changes to your acrylic mix as well when do you think the supply chain and coatings sort of get back to steady state where things aren't shuffling around.
Yeah.
Good morning, John they are gradually improving I would say the one thing and coatings, that's a little bit different than some of our other change there.
Speaker 1: Morning, John , they are gradually improving, I would say the one thing in coatings, that's a little bit different than some of our other chains, there are quite a few small ingredients that go into that coatings chain. So third party suppliers, even that supply to us from from day to day, we still see some disruptions on on third party supplied materials.
A few small ingredients that go into that coatings changed so third party suppliers, even that supply to us from from day to day, we still see some disruptions on third party supply and materials.
Speaker 1: We've got our turnaround right now in first quarter for Deer Park, but that's planned. And then we'll be running hard. We ran really hard in fourth quarter, and I think we picked up some ground in fourth quarter and we're able to help some things out.
We've got a turnaround right now in first quarter for Deer Park, but thats planned.
And then we will be running hard we ran really hard in the fourth quarter I think we picked up some ground in the fourth quarter and we were able to help some things out.
Speaker 1: We've been using more of our own Accolade monomers in our captive business, so that's kind of constrained monomers a bit. But my expectation is with this strong contractor demand for housing architecture.
We've been using more of our own acrylate monomers, and our captive business. So that's kind of constrained monomers a bit.
But my expectation is with the strong contractor demand for housing and architecture.
Speaker 1: Do-it-yourself is still holding up really well, and Housing Starts, I mean you saw the December Housing Starts number was up 11.9 percent in North America, which was well above what people expected.
Do it yourself is still holding up really well.
And housing starts I mean, you saw the December housing starts number was up 11, 9% in North America, which was well above what people expected with brands, increasing and the ability to buy or build.
Speaker 1: With rents increasing and the ability to buy or build, being there and some of the materials costs coming off, I think we're going to see a good housing season in North America. And that's going to drive some good business for us.
Being there and some of the materials cost coming off I think we're going to see a good housing season in North America.
That's going to drive some good business for us.
Speaker 2: We'll move on to our next question from Mike Sisson of Wells Fargo. Please go ahead, your line is open.
Well move on to our next question from Mike Sison of Wells Fargo. Please go ahead. Your line is open.
Speaker 4: Hey, good morning guys. Nice end of the year. Just curious, you know, industry consultants still look for a lot of capacity coming on globally this year, 8 million plus, and you guys tend to have a better view on what realistically could come on. So, just any thoughts on sort of the outlook for new capacity and how much of that could be absorbed this year, given it seems like the outlook demand for polyethylene remains really strong.
Hey, good morning, guys nice a nice end of the year just curious.
You can sell them still look for a lot of capacity coming on in <unk>.
Globally, this year $8 million, plus and you guys tend to have a better view on what realistically could come on so just any thoughts on that.
The outlook for new capacity in and how much of that can be absorbed this year given it.
It seems like the outlook demand for polyethylene remains really strong.
Yes, the demand is very strong and welcome Mike Thank you for being here.
Speaker 1: Yeah, the demand is very strong and welcome, Mike, thank you for being here. For every 1% of GDP growth in the marketplace,
For every 1% of GDP growth in the marketplace you need two to three world scale polyethylene plants to come online and.
Speaker 1: You need two to three world-scale polyethylene plants to come online.
Speaker 1: And, you know, our expectation is that is not going to change. We see strong demand across all the sectors for plastics products. And so that's what's driving it.
Our expectation is that it's not going to change we see strong demand across all the sectors for plastics products and so that's what's driving it I would say we have very good line of sight to the projects and the timing of the projects.
Speaker 1: I would say we have very good line of sight to the projects and the timing of the projects, and most of them are going to start coming on second quarter, mid-year.
Most of them are going to start coming on second quarter mid year impact and so I think of the market growth is going to help moderate some of that I think our expectations on operating rates are two to three percentage points higher than what the industry is expecting on polyethylene and and.
Speaker 1: And so I think the market growth is going to help moderate some of that. I think our expectations on operating rates are...
Speaker 1: two to three percentage points higher than what the industry is expecting on polyethylene.
Speaker 1: And plastics is typically running a bit heavier than that.
Plastics is typically running.
Heavier than that so my outlook is you've got 4 million tons that are common in North America.
Speaker 1: So my outlook is you've got 4 million tons that are coming in North America.
Speaker 1: About half of that is destined for the export market. So that's why we're trying to keep an eye on marine pack cargo and the export shipment.
About half of that.
<unk> for the export market. So that's why we're trying to keep an eye on marine packed cargo into export shipments.
Speaker 1: About 50% of the global PE capacity ads between now and 2025 are coming on in high-cost regions. NAFTA, which is the most of that, and a little bit of CTO and MTO capacity.
About 50% of the global PE capacity adds.
Between now and 2025 are coming on in high cost regions naphtha, which is the most of that and a little bit of CTO and MTO capacity.
Speaker 1: About 60% of all global polyethylene capacity adds through 2025 are in Northeast Asia.
About 60% of all global polyethylene capacity add through 2025 are in northeast Asia.
Speaker 1: So I think with the advantage being in Canada, U.S., Argentina, Middle East, the places that have really good structural low-cost ethane positions, we're going to be in a good space and operating rates are going to be very high.
So I think with the advantage being in <unk>.
Canada U S Argentina Middle East places that have.
Really good structural low cost ethane positions, we're going to be in a good space and operating rates are going to be very high.
Speaker 2: We'll now move on to our next question from Bob Kurt of Goldman Sachs. Please go ahead, your line is open.
Now move onto our next question from Bob <unk> of Goldman Sachs. Please go ahead. Your line is open.
Right.
Speaker 5: Thank you very much. Good morning, gentlemen. Maybe along those same lines, Jim, I was curious, it looked like maybe polyethylene exports were down 15 or 20% in total in 21 from the U.S.
Thank you very much good morning, gentlemen, maybe along the same lines Jim I was curious it looks like maybe quality ethylene exports were down.
15, or 20% in total in 'twenty, one from the U S. As a result.
Speaker 5: as a result of those production issues. And I guess by our reckoning, production might be up as much as 15% in.
All of those production issues and I guess by our reckoning production might be up as much as 15% in.
In 2002.
Speaker 5: You mentioned the Asian crackers are maybe curtailing a bit. Where's all the extra polyethylene going to get sent relative to what you saw in the export arena in 21, do you think?
You mentioned, the Asian, crackers, or maybe curtailing a bit.
Where's all the extra polyethylene going to get a sense relative to what you saw on the export.
Arena in 'twenty, one do you think.
Okay.
Speaker 1: Yeah, good morning, Bob. I do think we're going to see a rebound from all that off line capacity is Howard said that it's unpredictable, right? I mean, a weather event can take some offline, but the amount offline due to unplanned events, weather related events last year was probably double what we would normally see in that Texas freeze had a lot of knock on impact.
Yes, good morning, Bob I do think we're going to see a rebound from all that off line capacity as Howard says, it's unpredictable right I made a weather event can take some offline.
But the amount offline due to unplanned events whether related events last year was probably double what we would normally see in that Texas phrase had a lot of knock on impacts.
Speaker 1: that are hurting. I think we're seeing movement into all the markets. We've seen India come back relatively strong, which has been a good positive. And I think after the Chinese New Year, we'll watch China coming back. We're seeing good...
That are hurting I think.
And movement into all the markets, we've seen India come back relatively strong which has been a good positive.
And I think after the Chinese new year watch China coming back we're seeing good.
Speaker 1: Steady improvements in marine pack cargo. We need to keep ramping those rates up And I think as we navigate through Omicron and and we start to see less of an impact on the labor force We'll see those numbers loosen up And so that's why we're we're looking for the higher operating rates and and the six percent volume growth coming out of the machine mission
Steady improvements in marine pack cargo, we need to keep ramping those rates up and I think as we navigate through omicron and we'd start to see less of an impact on the labor force, we will see those numbers loosen up.
And so that's why we're looking for the higher operating rates in the 6% volume growth coming out of the machine this year.
Speaker 1: I think global, I'm not pessimistic about inflation killing demand, honestly, inflation has always been a positive for our business.
I think global I'm not pessimistic about inflation.
Killing demand honestly inflation has always been a positive for our business.
Speaker 1: And over the last 30 years, when the Fed raises interest rates, that typically tends to drive outperformance in our sector versus the other sectors. And so I think, you know, commodities pull is very strong right now, whether it's in petrochemicals or whether it's in minerals and mining for all of the things that we need for EVs and alternative energy.
And over the last 30 years, when the fed raises interest rates.
That typically tends to drive outperformance in our sector.
Versus the other sectors and so I think.
Commodities pool is very strong right now whether it's in petrochemicals or whether it's in minerals and mining for all of the things that we need for Evs and alternative energy.
We will now move onto our next question from Steve Byrne of Bank of America. Please go ahead. Your line is open.
Speaker 2: We will now move on to our next question from Steve Byrne of Bank of America. Please go ahead, your line is open.
Thank you Jim you have some pretty ambitious sustainability goals on your slide 11.
Speaker 6: Thank you, Jim. You have some pretty ambitious sustainability goals on your slide 11 and when you look across all your businesses across the three segments.
And when you look across all your businesses across the three segments.
Speaker 6: what would you estimate the fraction of those customers that are asking you for a more sustainable product? And then.
What would you estimate.
The fraction of those customers that are that are asking you for a more sustainable product.
And then if you drill into that.
Do they want your product has been derived from some recycled material or do they just simply want their product to be recyclable or does it go even further in that.
Speaker 6: do they want your product to have been derived from some recycled material or do they just simply want their product to be recyclable or does it go even further in that?
Speaker 6: They want your product to be derived from a renewable feedstock or a low carbon feedstock.
They want your product to be derived from our renewable feedstock or low carbon feedstock.
Speaker 1: Yeah, no, it's a great question, Steven. This is an area that's rapidly changing.
Yeah, No. It's a great question, Steve and this is an area that <unk>.
Rapidly changing.
Speaker 1: I would say on the brand owner segment, the brand owners pull a lot through the packaging. So brand owners can be brands that you buy for food or personal care items, could be medical care and other types of applications as well. All the brand owners.
I would say on the brand owner segment the brand owners pull are locked through the packaging.
So brand owners can be brands that you buy for food or personal care items could be medical care and other types of applications as well.
The brand owners are asking us for more post consumer recycled content, obviously, the quality needs to be good and that's why the discussion around advanced recycling is so strong and we're making progress getting more and more acceptance of advanced recycling I think our view is as we go into high value.
Speaker 1: asking us for more post-consumer recycled content and obviously the quality needs to be good and that's why the discussion around advanced recycling is so strong and we're making progress getting more and more acceptance of advanced recycling.
Speaker 1: I think our view is as we go into high value applications, that is going to be the way that we tackle this. Mechanical recycling will still be there, but in those cases, I think you're going to see more mechanical recycling into more durable type applications, different end markets.
<unk> that is going to way the way that we tackled this mechanical recycling will still be there, but in those cases, I think you're going to see more mechanical recycling into a more durable type applications.
Different end markets, we see the same trend in silicones.
Speaker 1: We see the same trend in silicones, silicones, especially.
Silicones, especially.
Speaker 1: in personal care. We see the trend in automotive, all the automotive OEMs and manufacturers are looking for to be able to make claims on sustainability on their products. That even goes into polyurethanes for seating and cushioning. And so the project we announced last year in France for full recycle of polyurethane foams, strong demand for those in the automotive sector.
In personal care, we see the trend in automotive all of the automotive Oems and manufacturers are looking for.
To be able to make claims on sustainability on their products that even goes into polyurethane for seating and cushioning and so the project, we announced last year in France for pool recycle at polyurethane foams strong demand for those in the automotive sector.
Now the supply is not there yet.
Speaker 1: Now, the supply is not there yet, and they all want more supply faster, and supply challenge is making sure that that's all cost competitive, and they just don't have a blank check to write for these materials.
One more supply faster and supply challenges and making sure that that's all cost competitive and they just don't have a blank check to write for these materials.
Speaker 1: It is going to be more expensive than virgin materials, and I think they're all getting their hands head wrapped around that.
It is going to be more expensive than Virgin materials, and I think they're all getting their hands head wrapped around that.
Speaker 1: Just like the whole discussion we're having now about, you know, a focus too much towards renewable energy really drives up the energy cost for the whole complex. And so that's a big debate right now and that's why we're very disciplined about our approach and making bets that we think will be low cost in that future and also will be the quality the customers need for their end product.
Just like the whole discussion, we're having now about.
Our focus too much towards renewable energy really drives up the energy cost for the whole complex and so that's a big debate right now and that's why we're very disciplined about our approach and making bets that we think will be low cost in that future.
Also we will be the quality that customers need for their end product.
Speaker 2: We'll now move on to our next question from Kevin McCarty of Vertical Research Partners. Please go ahead, your line is open.
We will now move onto our next question from Kevin Mccarthy of vertical Research partners. Please go ahead. Your line is open.
Speaker 7: Yes, good morning, Jim. I was wondering if you could expand on your outlook for volume growth. I think you indicated.
Yes. Good morning, Jim I was wondering if you could expand on your outlook for volume growth I think you indicated a target or a projection of 6% growth, which is quite a bit above the minus four that we saw in the fourth quarter you touched on supply constraints maintenance turnarounds in tool control.
Speaker 7: a target or projection of 6% growth, which is quite a bit above the minus 4 that we saw in the fourth quarter. You touched on supply constraints, maintenance turnarounds, and dual control actions in China. Is it the case that the fourth quarter was unduly depressed by these sort of fleeting or temporary effects?
All actions in China is it the case that.
Fourth quarter was unduly depressed by these sort of fleeting or temporary effects.
Speaker 7: uh... such that uh... you will come back quickly to six percent and and if so you know might that happen as soon as the first quarter or or do you think that takes longer uh... or more patients of the year progress
Such that.
We'll come back quickly to 6% and if so might that happen as soon as the first quarter or do you think that takes longer or more patients as the year progresses.
Yes, good morning, Kevin It's a very good question and we will ramp into this as we go through the year.
Speaker 1: Yeah, good morning Kevin. It's a very good question and we will ramp into this as we go through the year.
Speaker 1: Think about it this way. It was this time last year, I think it was February last year that we had the freeze in Texas.
Think about it this way.
It was this time last year I think it was February of last year that we had the freeze in Texas that took pretty much the whole state of Texas down a lot of capacity came out.
Speaker 1: took pretty much the whole state of Texas down. A lot of capacity came out. And by March, we were back, and we ran hard through the month of March. What happened during that time was inventories got depleted pretty much through the chain.
By March we were back and so we ran hard through the month of March what happened during that time was inventories got depleted pretty much through the chain.
Speaker 1: And then we had a very strong second and third quarter, so there wasn't a chance to really rebuild any inventories. We had an October hurricane. Again, pressure on inventories. And then we had logistics constraints all through the year. In fact, March was our best marine pack cargo exports after the freeze. And December was the best month we've had since March.
And then we had a very strong second and third quarter. So there wasn't a chance to really rebuild any inventories we had in October hurricane.
Again pressure on inventories and then we have logistics constraints all through the year. In fact March was our best Marine packed cargo exports after the freeze.
And December was the best month, we've had since March.
Speaker 1: So it took that long to really kind of scale back out of it. So gradually, we're seeing improvement month by month on marine pack cargo exports.
So it took that long to really kind of scaled back out of it. So gradually we're seeing improvement month by month on marine packed cargo exports, we were constrained by the fact that there.
Speaker 1: We were constrained by the fact that, you know, if you had inventory, that it might not have been in the right grade for a customer.
If you had inventory, but it might not have been in the right grade for a customer we are constrained a little bit by co monomers.
Speaker 1: We were constrained a little bit by comonomers. Comonomers are very tight for the higher alpha olefin sector.
<unk> is a very tight for the higher alpha olefins sector.
Speaker 1: And we were constrained by logistics and so that's and the Tunisian situation that in Europe
And we were constrained by logistics and so thats in the news and situation than in Europe .
Speaker 1: obviously put a curtailment on taking orders in the fourth quarter. So I think that's a bit of an anomaly that was specific to those issues, but I think the underlying demand growth is still there and the order book is still strong.
Obviously.
Curtailment on taking orders in the fourth quarter. So I think that's a bit of an anomaly.
Specific to those issues.
But I think the underlying demand growth is still there and the order book is still strong.
Okay.
Speaker 2: We will now move on to our next question from John McNulty of BMO Capital Markets. Please go ahead, your line is now open.
We will now move onto our next question from John Mcnulty of BMO Capital markets. Please go ahead. Your line is now open.
Yeah. Thanks for taking my questions. So I guess, maybe two related things on the on the supply chain impact that you guys had in terms of the the hit to volumes in the quarter can you help us to understand what that was and then maybe a little bit more broadly when you. When you think about the really tight freight and logistics markets right now and.
Speaker 5: Yeah, thanks for taking my question. So I guess maybe two related things on the on the supply chain impact that you guys had in terms of the hit to volumes in the quarter. Can you help us to understand what that was? And then maybe a little bit more broadly, when you, when you think about the really tight freight and logistics markets right now, and the impact that they're having on some of these very wide ARBs, I guess, how are you thinking about how that plays out as we look through the rest of 2022?
The impact that they're having on some of these very wide arbs I guess, how are you thinking about how that plays out as we look through the rest of 2022.
Yeah.
Speaker 1: I think a good proxy for the supply chain impact would be to look at the Asia volumes year over year, and that will give you a good, because we had a strong fourth quarter last year, and so that would give you a good indication on the Asia volumes. So if you look at our fourth quarter sales volumes, they decreased.
Alright, I think a good proxy for the supply chain impact would be to look at.
The Asia volumes year over year.
And that will give you a good because we had a strong fourth quarter last year and so that will give you a good indication on the Asia volumes. So if you look at our fourth quarter sales volumes decreased.
Speaker 1: in Asia, and that's mostly obviously China. And so I think you can look at that and see that opening back up, and that'll drive some of that 6% growth.
And Asia, and Thats, mostly obviously China.
And so I think you can look at that and see that opening back up and that will drive some of that.
6% growth and then obviously, we have other markets that we serve out of the goal that will come back and some of that outage time was in Europe .
Speaker 1: And then obviously we have other markets that we serve out of the Gulf that will come back. And some of that outage time was in Europe and Europe .
In Europe is really.
Speaker 1: you know, sized for the domestic market there. And the business in Europe , Q1, has been strong. There hasn't been an issue with demand in Europe .
<unk> for the domestic market there in the business in Europe , Q1 has been strong and it hasnt been an issue with demand in Europe .
Speaker 1: So I think we'll work through that. Teams working hard on the reliability and availability of schedule, that's been the biggest challenges. You've got something scheduled, and then worker shortages, because somebody's tested positive for Omicron, means they're not able to pick it up. That's the hand-to-hand that the team's dealing with right now.
So I think we'll work through that team's working hard on the reliability and availability of schedule. That's been that's been the biggest challenges.
You've got something scheduled.
Orcher shortages, because somebody has tested positive for omicron.
It means they are not able to pick it up.
That's the hand to hand that the teams are dealing with right now.
We will move onto our next question from Duffy Fischer of Barclays. Please go ahead. Your line is open.
Speaker 2: We'll move on to our next question from Duffy Fitcher of Barclays. Please go ahead. Your line is open.
Yes. Good morning, two questions. The first one on your Jv's EBITA is down a couple of hundred million dollars, but cash equity dividends to your App can you walk through the puts and takes on that and then how should we think about those two.
Speaker 8: Yeah, good morning. Two questions. The first one on your JVs, EBITDA is down a couple hundred million dollars, but cash equity dividends to you are up.
Speaker 8: Can you walk through the puts and takes on that? And then how should we think about those two moving together going forward? And then maybe more broadly, just on dual control, now that you and the government there have had the opportunity to kind of go back and forth on some stuff, what do you think the impact in 22 is gonna be on your business from dual control? And what do you think it's gonna do to your end market?
Moving together going forward and then maybe more broadly just on dual control now that you and the government. There I've had the opportunity to kind of go back and forth on some stuff. What do you think the impact in 'twenty two is going to be on your business from dual control and what do you think it's going to do to your end markets.
Speaker 9: Howard, you've got a good line of sight on the JVs, so you want to take a shot at that? Yeah, sure. Hey, good morning, Duffy. Yeah, equity earnings were up. Year on year, they were up $224 million, up $118 million, really gains in Kuwait, Thailand, and JV, primarily in PNSP, in our industrial solutions business. And you're right about cash. So, our dividends, they come a year in arrears.
You've got a good line of sight on the JV. So you want to take a shot at that yes, sure Hey, good morning Duffy.
The earnings were up year on year. They were up 224, while they were $224 million up 118 really gains in Kuwait, Thailand, and JV, primarily in PSP in our industrial solutions business and you are right about cash so our dividends are they come a year in arrears.
So if you think about it the reason why the cash was down this year is because earnings last year were lower 2020 versus 2019, obviously the equity earnings were up in 2021, and so that's why this year in 2022, we're guiding that the dividends will be up about $250 million.
Speaker 9: So if you think about it, the reason why the cash was down this year is because earnings last year were lower 2020 versus 2019. Obviously the equity earnings were up in 2021, and so that's why this year in 2022 we're guiding that the dividends will be up about $250 million. So you should model in about $500 million to $600 million. We targeted the midpoint of 550 of higher cash from our JV dividends in 2020.
So you should model in about about $5 to $600 million, we targeted the midpoint of $5 50 of higher cash from our from our JV dividends in 2022.
Speaker 1: In China on dual control, the biggest thing that we had our eye on was obviously silica metal for silicone.
In China on dual controls is the biggest thing that we had our eye on was obviously silicon metal for silicones is energy intensive process and early on there was some concern that.
Speaker 1: is an energy intensive process and early on.
Speaker 1: there was some concern that China was going to curtail some of that manufacturing. We were able to move.
China was going to curtail some of that manufacturing we were able to move.
Speaker 1: some silica metal from Brazil because we have production there as well, to kind of offset. But that's why in the fourth quarter, we pulled some turnaround time into the fourth quarter for Zanjagang for silicones, and that's done now. And over the course of the fourth quarter,
So im silicon metal from Brazil, because we have production there as well to kind of offset but thats why in the fourth quarter, we pulled some turnaround time into the fourth quarter for <unk> for silicones and Thats done now.
And over the course of the fourth quarter.
Speaker 1: Both our industry and the solar industry, you know, made sure it was obvious to the Chinese government that the impact that that would have on solar PV market and on our market as well. So right now, those assets are not under the dual control curtailments. We keep a close eye on that.
Both our industry and the solar industry made.
Made sure it was obvious to the Chinese government that the impact that that would have on solar PV market.
Our market as well so right now those assets are not under the dual control curtailments, we keep a close eye on that.
Speaker 1: We are not in some of the other locations that have been more impacted by dual control and I think it could be positive You know for imports for polyethylene, although I haven't seen that yet So we just keep a close eye on it, but I think for silicones. We're in a good track We're going to we're up and going to have a strong first quarter there and the market demand and the volumes are good
We are not in some of the other locations that have been more impacted by dual control and I think it could be a positive.
For imports for polyethylene, although I havent seen that yet.
So we just keep a close eye on it but I think for silicones. We're in a good track, we're going to we're up and going to have a strong first quarter, there and the market demand.
And the volumes are good.
Speaker 2: We will now move on to our next question from Alex Yerfremoth of eBank. Please go ahead. Your line is open.
We will now move onto our next question from Alex <unk> from off of Ebay Inc. Please go ahead. Your line is open.
Thank you good morning, everyone. Howard I wanted to follow up on your comment about $275 million of sequential margin pressure in the first quarter. If you get any of the eight cents of polyethylene price increases the denominator does this number become better or does it include the eighth.
Speaker 6: Uh, thank you. Good morning. Everyone Howard. I want to follow up on your comments about 275Million of sequential margin pressure in the 1st quarter. If you get any of the 8 cents of polyethylene price increases, but you nominate does this number. Become better, or or does it include the 8 cents?
Yes, I think if you look you've got let's say good morning, I think <unk> got really you've got two moving parts are really three you've got how much volume, we can get which will be the total margin dollars you've got the price and then you've got the cost structure I mean, clearly what we're seeing is elevated natural gas prices in the U S.
Speaker 9: Yeah, I think you've got, Alexa, good morning. I think you've got really, you've got two moving parts, or really three. You've got how much volume we can get, which will be the total margin dollars. You've got the price.
Speaker 9: And then you've got the cost structure. I mean, clearly what we're seeing is, you know, elevated natural gas prices in the U.S.
Speaker 9: and also significantly higher, you know, rent pricing, which will impact Napa. So certainly in Europe , our cost structure is going to be higher. But I think the points that Jim mentioned earlier, demand is very strong.
And also significantly higher Brent pricing, which will impact naphtha. So certainly in Europe , our cost structure is going to be higher but I think the points that Jim mentioned earlier demand is very strong and so you are likely going to see higher prices around the world. It is too soon to tell about Asia to the <unk>.
Speaker 9: And so, you know, you are likely going to see higher prices around the world. It is too soon to tell about Asia to the point that Jim made about Chinese New Year. We'll see what happens. But you've got good global GDP. You've got good manufacturing output. You've got good consumer spending that will drive demand growth.
Ain't that Jim made about Chinese new year, we will see what happens, but you've got good global GDP, you've got good manufacturing output you've got good consumer spending that will drive demand growth and with a higher feedstock costs, whether it's on the natural gas basis in the Americas or oil Brent naphtha and the rest of the world.
Speaker 9: and with a higher feedstock cost, whether it's on a natural gas basis in the Americas or oil, Brent, NAFTA, in the rest of the world, that will put pressure on price. So, you know, the best that we can do is
That will put pressure on price. So the best that we can do is our view is that minus $2 75, a margin offset by a 125 million of favorable net positive sequential turnarounds and thats, how you get to that $2 eight plus or minus number.
Speaker 9: Our view is that minus 275, a margin offset by 125 million of favorable net positive sequential turnarounds. And that's how you get to that, you know, 2A plus or minus number.
Well now move onto our next question from Arun Viswanathan from RBC capital markets. Please go ahead. Your line is open.
Speaker 2: We'll now move on to our next question from Arun Visvantan from RBC Capital Markets. Please go ahead, your line is open.
Speaker 10: Great. Thanks for taking my question. Congratulations on a strong year there. I guess we talked a lot about the polyethylene market, so maybe I could also just get you guys to elaborate on your outlook for polyurethanes as well as silicones. Could you just comment on those two markets as well? Thanks.
Great. Thanks for taking my question and congratulations on a strong year there.
We.
We've talked a lot about the polyethylene market so maybe.
Also just get you to elaborate on your outlook for poly urethane.
Well, it's silicones.
Can you just comment on those two markets as well.
Speaker 1: Yeah, Arun, thank you. Polyurethane, market strength, and, you know, furniture and bedding, appliances, construction, everything related to housing is very good. And in that segment, IINI segment, also industrial solutions, market strength, pharma, home cleaning.
Yeah, Arun, Thank you polyurethane markets strengthen.
Furniture and bedding appliances construction.
Anything related to housing is very good.
And in that segment.
This segment also industrial solutions market strength pharma home cleaning.
Speaker 1: Food, we have some feed additives in there. Crop defense, intermediates for crop defense, and electronics are all very strong. And what you see is that the supply demand is very constructive to the middle of this decade, whether you're looking at MDI, polypropylene glycol, or ethylene oxide, and ethylene oxide derivatives, all very strong through mid-decade.
Food, we have some feed additives in their crop defense intermediates for crop defense and electronics are all very strong and what you see is that the supply demand is very constructive to the middle of this decade.
Whether you're looking at MDI.
Polyethylene.
Propylene glycol or ethylene oxide and ethylene oxide derivatives, so all very strong mid decade.
Speaker 1: You know, we think that even though automotive is a little bit constrained right now because of semiconductor chip shortages.
We think that.
Even though automotive is a little bit constrained right now because of the semiconductor chip shortages.
Speaker 1: We expect that's going to ease throughout the year, and especially the second half is going to be better. Light vehicle production estimates for this year, about 85 million units around the world. That'll be up from last year, so that's positive.
We expect that's going to ease throughout the year and especially the second half is going to be better.
Light light vehicle production estimates for this year about 85 million units around the world that will be up from last year. So that's positive.
Speaker 1: Electric vehicle trends are good for us. There's more content on an EV for us.
Electric vehicle trends are good for US there is more content on an EV for us.
Speaker 1: than there is on an internal combustion engine vehicle, but both of them continue to look good.
Then there is on <unk>.
Internal combustion engine vehicle, but both of them continue to look good so I think thats thats good.
Speaker 1: So I think that's good, a little bit.
A little bit.
Speaker 1: Slower operating rates on propylene oxide because the new capacity has come on. But net-net, so the systems business, which is a strong driver of the profitability is gonna be good.
Slower our operating rates on propylene oxide because of the new capacity that's come on.
But net net so the systems business, which is a strong driver of the profitability is going to be good.
Just to give you an example on building and construction and we're looking at.
Speaker 1: Just to give you an example on building and construction, we're looking at kind of 4% market growth rate, similar to last year. Electronic, 6%. And so.
Kind of a 4% market growth rate similar to last year electronics six.
And so.
I think we've got a good trend in front of us.
Sure.
I think thats the time, that's all the time you have today. So thanks, everyone for joining our call. We appreciate your interest in Dow for your reference a copy of our transcript will be posted on <unk> website within about 24 hours or so.
Speaker 6: I think that's all the time we have today, so thanks everyone for joining our call. We appreciate your interest in DAO. For your reference, a copy of our transcript will be posted on DAO's website within about 24 hours or so. This concludes our call. Thank you very much.
This concludes our call. Thank you very much.
Ladies and gentlemen. This concludes today's conference call. Thank you for your participation you may know disconnect.
Speaker 2: Ladies and gentlemen, this concludes today's conference call. Thank you for your participation. You may now disconnect.