Q3 2023 Huntsman Corporation Earnings Call

Greetings and welcome to the Huntsman Corporation third quarter 2023 earnings call. At this time, all participants are in a listen only mode.

<unk> and answer session will follow the formal presentation, if anyone should require operator assistance during the call. Please press star zero on your telephone keypad. As a reminder, this conference is being recorded at this time I would like to hand, the call over to Ivan Marcuse, Vice President of Investor Relations and corporate development. Thank you you may begin.

Thank you Daryl and good morning, everyone welcome to <unk> third quarter 2023 earnings call joining us on the call today are Peter Huntsman, Chairman President and CEO Mr.

Executive Vice President and CFO, yes.

Yesterday October 31, 2023 after the U S equity markets close we released our earnings for the third quarter.

2023 via press release and posted to our website Huntsman Com. We also posted a set of slides can be kept commentary discussing the third quarter.

On our website.

Peter Huntsville will provide some opening comments certainly we will then move into the question and answer session for the remainder of the call. During the call. Let me remind you that we may make statements about our projections or expectations for the future. All such statements are forward looking statements and while they reflect our current expectations things of risks and uncertainties and are not guarantees of <unk>.

Your performance is.

As you 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.

Do not plan on.

The updating or revising any forward looking statements during the quarter.

I'll also refer to non-GAAP financial measures such as EBITDA, adjusted net income or loss and free cash flow you can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website Huntsman Dot com I'll now turn the call over to Peter Huntsman I've.

I've been thank you very much and thank you all for taking the time to join US This morning.

This past week had the opportunity to visit one of our largest aerospace customers with our board of directors.

We watched firsthand as huntsman composite raw materials were applied to some of the most fuel efficient and modern aircraft built anywhere in the world today.

We also visited one of our plants that is making Germany's premier sports cars lighter and consume less electricity, we spoke to our associates at the same plan, who are responsible for making components for a smarter and more reliable power distribution and grid system.

I could go on about the numerous applications that huntsman is now producing deserves a less energy intensive but more energy reliant economy.

All of it skills.

Cause for optimism and it's a great reminder, about our company's position in the global marketplace over.

Over the past 24 months, we've seen some of the strongest economic performance as we recovered from a global pandemic and subsequently among the most chaotic economic conditions as European energy policy seemingly collapsed China's bounce back stumbled, along and north Americas construction markets.

Took a beating over high interest rates and consumer uncertainty.

As we now have some visibility into the beginning of the fourth quarter as I said during our last earnings call. We expect this to be a tough quarter, depending on the amount of customer inventory, we see lack of consumer confidence.

Our projections for the fourth quarter remain murky.

The real year end seasonality does not yet start for a couple more weeks.

However, our customer and plant visits demonstrates just how vital our products are in an evolving global economy. We continue to see the recovery of the aerospace industry and all of our other divisions, we will be a vital supplier to both the easy ice automotive industry, we continue to see growing demand.

Power and electronics building installation materials cleaner solvents for the chip industry, and expanding markets sort of lightweight and stronger materials.

We will pace our share buyback program to make sure. We are both returning value to our shareholders and preserving our strong balance sheet that will assure our flexibility and allow us to capitalize on M&A opportunities during.

During 2024, we will complete a $280 million cost alignment and European restructuring program, we announced over the past two years.

Offset inflation flatten the organization and allow us to compete more aggressively and respond quicker to market conditions.

As mentioned in our prepared remarks, we will be very conservative on our capital spend. This next year, we will spend what is needed to assure our reliability and safety as well as investing in high priority growth projects.

Pending on the speed of unexpected recovery in 2024, we will be ready to proceed with other projects as market conditions may warrant.

Short as we conclude what has been a year with more challenges and opportunities. We believe that we're in a unique position to rebound quickly as markets shift direction.

We will also be calibrating, our operations around a conservative approach to spending and capital allocation with an eye towards long term shareholder return and reliability.

Thank you very much and with that we will open the lineup for questions operator.

Thank you we will now be conducting a question and answer session I would like to ask a question. Please press star one on your telephone keypad.

Confirmation tone will indicate your line is in the question queue you.

You May press Star two if you would like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, we ask that you. Please limit yourself to one question and one follow up one moment. Please while we poll for your questions.

Our first questions come from the line it but let's say your firm off with Keybanc capital markets. Please proceed with your questions.

Thanks, and good morning.

Peter It seems like China could be one of the main reasons things global errors or so.

Yeah Pos in MDI in particular do you see anything in China that suggests a pass for a better 2024.

Well I think that well actually first of all good to hear from you and I.

I look at China.

Look we've been saying now for the past few of the we're seeing a slow and steady recovery taking place in China.

I think we got a little bit of an outlier earlier in the year. When we're saying that people were expecting because there was going to be a very sudden bounce back, but we're saying in the housing market that interest rates are dropping.

Typically that will mean that there'll be a recovery following but we're not overly reliant on that I think where we are investing on the domestic energy conservation in China around installation around building materials.

Around the EV market.

We continue to get market share and in the auto both in ice and in EV and and consumer goods into appliances. So our focus is not on the export segment of the Chinese economy, rather than domestic consumption.

And building side of the Chinese economy, and then that I think that we're going to just continue to see slow, but steady growth and recovery.

In that area I mean to that end I as I look at it Chinese prices from the beginning of the year that are actually slightly up.

From where they started the year and I think we're going to continue to see continued improvement throughout 2024 in China.

Thanks, Peter and just a follow up it seems like raw materials spiked that sometime in Q3 affecting margins in Q4 do you see this as sort of a temporary issue for Q4, such that margins should improve.

In subsequent quarters or is there sort of a reset.

Last longer.

I don't think that it's going to be a permanent reassess.

He said, but it is something when we look at raw material volatility remember for most chemical companies I don't think there were any different by the time you buy the product today and.

I guess I suppose some of this Phil is how you end up doing your accounting, but if you buy the material today, you're shipping it from various places around the world, you're bringing down your inventory you're working at it.

Through your inventory goes to your customer you are building your customer and are you getting your money for that that inventory that value of the inventory it can be anywhere from two months to four months.

If you get into slower demand periods.

And rising raw material cost that's kind of the worst of all worlds in my opinion and I think that's the reason why we were saying a quarter ago as we were seeing the global uncertainty and the rising cost as we go into the fourth quarter, which is usually a time when people are D inventory anyways.

I think that where we were kind of expecting to see higher cost slower demand and that that would typically mean a drag on earnings. So I think that's what we tried to reflect.

And the forecast that we've given.

I like to say.

It's clear we've got a headwind going into the fourth quarter, particularly when you look at benzene, which averaged about $3 10 in quarter. Three it's settled it I'm sorry, but over $4 is set for November at 365 spot prices lower but that is our largest raw material natural gas in Europe has also risen from approximately $10 a btu so about four.

14 to 15 today, so some headwinds there that there are some benefits in the chlorine chain with chlorine coming down Epichlorohydrin Pittsburgh.

But those are alright, white box, but benzene natural natural gas.

Yeah.

Thank you. Our next question is come from the line of Michael <unk> with Wells Fargo. Please proceed with your questions.

Hey, guys I'm, Peter when you think about I guess polyurethane and total he's done.

A lot of things over the last several years going downstream and trying to improve the.

You know the quality of that business site this year.

For a lot of businesses look really tough to T.

Those changes, but when you think about again, just thinking where the business should be when things recover yeah, maybe talk about what the EBITDA margins can get back to them. Once all of this destocking in difficult times and.

Yeah.

Yeah, I think that as we look at MDI fundamentally I.

I do think that we're in an unprecedented downdraft right now with MDI, putting it mildly the reason I say that is this is the product since I've been in it for the last 25 years and some of the veterans.

Unknown Executive: Greetings. Welcome to the Huntsman Corporation third quarter 2023 earnings call. At this time, all participants aren't a listen only mode.

Unknown Executive: Question and answer session will follow the formal presentation. If anyone should require operator assistance during the call, please press star zero on your telephone keypad. As a reminder, this conference is being recorded.

Then in the last 30 plus years.

We've not seen two consecutive years of falling demand.

And that's largely brought about because.

Because of the macroeconomic conditions were not seeing competing materials, we're not seeing a lot of people that are are stopped building homes with OSB.

Ivan Marcuse: At this time, I would like to hand the call over to Ivan Marcuse, vice president investor relations and corporate development. Thank you.

Ivan Marcuse: You may begin. Thank you, Darryl. Good morning. Good morning, everyone. Welcome to Huntsman's third quarter 2023 earnings call.

Stopped using MDI in furniture, and bedding and so what if anything we see MDI continuing to expand its application base, it's chemistry base and getting better. So I mean, if I if I look at the bare fundamentals, there's absolutely no reason why this material.

Ivan Marcuse: Joining us on the call today are Peter Huntsman, Chairman, CEO and President and Phil Lister, Executive Vice President, CFO yesterday, October 31st, 2023 after the US equity markets closed. We released our earnings for the third quarter 2023 VF press release and posted to our website huntsman.com. We also posted a set of slides and detailed commentary discussing the third quarter on our website.

During normal economic conditions.

Or even normal economic minus a bit shouldn't be doing immensely better than it's doing today.

And so I think that they're getting back to what I would say is.

Ivan Marcuse: Peter Huntsman will provide some opening comments. We will then move into the question and answer session for the remainder of the call. During the call, let me remind you that we may make statements about our projections or expectations for the future. All such statements are for looking statements and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. Be sure to 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.

Is mid teens, plus mid teens sort of margins I personally don't think that it's going to take a great deal of Av.

Of change.

<unk>.

Just from the sense that I don't see any fundamental to the business.

That have changed the broader outlook of MDI.

When U S housing comes back that that's obviously, a very large component of MDI demand when people buy a new home not only did the product goes into build a home, but also to furnish their homes and what it means of furniture embedding in paints and coatings electronics and so forth and you look at the automotive industry and particularly this last quarter.

Ivan Marcuse: We did not plan publicly updating or revising any further constraints during the quarter. We also refer to non-GAP financial measures such as EBITDA, adjusted net income, or loss and free cash flow. We can find recommendations to the most directly comparable GAP financial measures in our earnings release, which has been posted to our website huntsman.com.

While we werent directly hit with.

Strikes that we saw in North America, our customers weren't hit by that that did put more M. D eye on the market than you otherwise would have seen probably having a.

Peter Huntsman: I'll now turn the call over to Peter Huntsman. Ivan, thank you very much and thank you all for taking the time to join us this morning. This past week had the opportunity to visit one of our largest aerospace customers with our board of directors. We watched first-pand as Huntsman's composite raw materials were applied to some of the most fuel efficient and modern aircraft built anywhere in the world today. We also visited one of our plants that is making Germany's premier sports cars lighter and consume less electricity.

A detrimental effect.

And as we look at the global energy Conservation and installation.

Areas around spray foam insulation.

In insulation materials again, I look at those big macro issues I see no reason why MDI shouldn't recover and when it recovers.

I would gladly predictive.

Recoveries I think it's going to it's going to.

Peter Huntsman: We spoke to our associates at the same plant who responsible for making components for a smarter, more reliable power distribution and grid system. I've gone about the numerous applications that Huntsman is now producing to serve a less energy intensive but more energy reliant economy. All of this gives me a cause for optimism and it's a great reminder about our company's position in the global marketplace. Over the past 24 months we've seen some of the strongest economic performance as we recovered from the global pandemic and subsequently among the most chaotic economic conditions as European energy policy seemingly collapsed.

I think it's going to surprise people how quickly it does.

And just a quick follow up.

You referenced state Chinese MDI.

M D I price in the prepared remarks, but where are we in the U S and Europe.

How much lower do you think will go into the fourth quarter on those prices and do you think you know what's your thought about 24 and what needs to happen to shore up yeah.

All the regions.

Well fundamentally 24 people need to do to stop tolerating, losing money.

And I think that fundamentally has to be abroad.

A broader issue.

Peter Huntsman: China's bounce back stumbled along and North America's construction markets took a beating over high interest rates and consumer uncertainty. As we now have some visibility into the beginning of the fourth quarter, as I said during our last earnings call, we expect this to be a tough quarter depending on the amount of customer de-invent pouring we see in lack of consumer confidence. Our projections for the fourth quarter remain murky, as the real year end seasonality does not yet start for a couple more weeks.

It's the age old issue of any product, that's being bought and sold at very low margins is that what's the discipline of an industry.

To be able to sell a product and set a price.

To return money to shareholders and right now our MDI is not doing that and so fundamentally I think that there needs to be a change in the entire MDI market.

Now.

That doesn't just come about without economic recovery doesn't come about through without customer demand returning.

Those things will happen, but it's like as I look at how close much of this is getting too too.

Peter Huntsman: However, our customer and plant business demonstrate just how vital our products are in an evolving global economy. We continue to see the recovery of the aerospace industry. We're growing demand and power and electronics, building insulation materials, cleaner solvents for the chip industry, and expanding markets for lightweight and stronger materials. We will pace our share by back program to make sure we are both returning value to our shareholders and preserving a strong balance sheet that will assure our flexibility and allow us to capitalize on M&A opportunities.

Our fixed costs are sort of return.

It seems like we're there.

I look at pricing and in Europe, we've been able to get some modest increases in the fourth quarter I'd like to say, that's because demand is improving but I think it's more just disciplined.

And there are signs that I'm, saying or at least feeling that that where does the bottom, but you know.

Unfortunately, I I think I've, probably said that in the past and so I'm not ready to call. The bottom now, but I think that where we're very close to it.

Okay.

Thank you. Our next question is coming from the line of David Begleiter with Deutsche Bank. Please proceed with your questions.

Peter Huntsman: During 2024, we will complete a $280 million cost re-alignment in European Restructuring Program, we announced over the past two years. This will help us fed insulation, flatten our organization, and allow us to compete more aggressively and respond quicker to market conditions. As mentioned in our prepared remarks, we will be very conservative on our capital spend this next year. We will spend what is needed to assure our reliability and safety as well as investing in high priority growth projects.

Thank you I'll tell you what do you expect this destocking the inventory to continue into Q1 and yeah.

I know, it's early but should Q1 be better than Q4, maybe closer to Q3 or how you're thinking about Q1 right now.

Yeah.

I think the Q1 is going to end much stronger than how it begins.

I don't I don't think that there's this there's a first first quarter for us over the last couple of years as we become larger in China and so forth.

So we look at the Chinese new year and the impact that has in the early part of the year.

Peter Huntsman: Depending on the speed of unexpected recovery in 2024, we will be ready to proceed with other projects as market conditions may warrant. In short, as we conclude what has been a year with more challenges and opportunities, we believe that we are in a unique position to rebound quickly as markets shift direction. We will also be calibrating our operations around a conservative approach to spending and capital allocation with an eye towards long-term shareholder return and reliability. Thank you very much and with that we will open the line up for questions off-drigger. Thank you.

Can I simply cannot ignore that there is some of our businesses that do extremely well and a lot of our our downstream the aerospace business and so forth typically their orders will come a little bit stronger in Q1.

And then throughout the year as in others of our businesses they do better.

Part of the year, but I really struggle David to see that that inventories can continue to destock.

Yeah much into 'twenty four typically people are looking for a year end pop and free cash flow they want to end the year having.

Covered up there.

Inventory, they've gotten rid of as much as possible and typically Q1, just by and large it's typically not a quarter where people are getting rid of inventories unless there's an economic a larger macro economic reason to do so.

Unknown Executive: We will now be conducting a question and answer session. If you would like to ask a question, please press star one on your telephone keypad. The confirmation tone will indicate your line is in the question queue. It may press star two if you would like to remove your question from the queue. For participants using speaker equipment, it may be necessary to pick up your handset before pressing the star keys. We ask that you please limit yourself to one question and one follow-up. One moment please while we pull for your question.

Very good and I Didnt mentioned aerospace early where how much aerospace to be up this year and how what would that take us versus pre pandemic levels of profitability.

I think it's safe to say that we're probably about about.

About 50, 560% recovered.

Aleksey Yefremov: Our first questions come from the line of Alexi Yiframov with Keybank Capital Markets. Please proceed with your questions. Thanks and good morning. Peter, it seems like China could be one of the main reasons things globally are so. You know, toss in NDI in particular. Do you see anything in China that suggests pass for better 2024?

And that business.

There's a very healthy backlog on a on the the large jet builders I would say you have Airbus and Boeing there's a very healthy backlog on on demand for both of those platforms right now my understanding having had the opportunity to visit both of those accounts in the last couple of weeks.

Peter Huntsman: Well, I think that Alexi, first of all, good to hear from you. And as I look at China, look, we've been saying now for the past year that we're seeing a slow and steady recovery taking place in China. I think we're a little bit of an outlier earlier in the year when we were saying that people were expecting that there was going to be a very sudden bounce back. But I were saying in the housing market that interest rates are dropping.

Is it is it was really around our supply chain issues, you can only build a plane as fast as the slowest component that goes into that plan.

When you think about it we're talking to them. We're ready to go we can supply more materials and everything and it's a part that most people would never even heard off on on a single plane or a delay that's coming from a part of the world.

Metals, and so forth might be held up and so it's it's the demand is there I know the aerospace customer base is looking to debottleneck and to increase that capacity as quickly as possible I'm very confident that over the course of the next 12 to 18 months, we'll be back to pre pandemic levels or very close to.

Peter Huntsman: And I typically that will mean that there'll be a recovery following, but we're not overly reliant on that. I think where we are invested on the domestic energy conservation in China around insulation around building materials. Around the EV market, we continue to get market share in the auto, both in ice and in EV and consumer goods and appliances. So our focus is not on the export segment of the Chinese economy, rather the domestic consumption and building side of the Chinese economy.

Pre pandemic levels and I would say that as we look at the aerospace industry.

Ill remind you that about a third of our business that we're in 30% of that business is going to be military and commercial excuse me military and private aviation and we continue to see new new lighter more fuel efficient models come out on the private aviation side and of course.

Peter Huntsman: And in that, I think that we're going to just compete to see slow but steady growth and recovery in that area. And to that end, as I look at Chinese prices from the beginning of the year that are actually slightly up from where they started the year. And I think that we're going to continue to see continued improvement throughout 2024 in China. Thanks, Peter.

The more <unk>.

Drones that are our belton blown up that's obviously something that we'd like to see as well so while it's nobody's getting hurt.

But we did see 13% revenue increase year on year. So we are seeing some progress.

Peter Huntsman: There's a follow-up, but it seemed like raw material spiked a sometime in Q3, affecting margins in Q4. Do you see this as sort of temporary issue for Q4, such that margins should improve in subsequent quarters, or is it sort of a reset that could last longer? I don't think that it's going to be a permanent reset reset, but it is something when we look at raw material, volatility. Remember, for most chemical companies, I don't think they were any different.

In in aerospace despite the supply chain issues that Peter outlined.

Thank you. Our next question comes from the line of Kevin Mccarthy with vertical Research partners. Please proceed with your questions.

Yes, good morning, Peter.

Peter <unk> anhydride prices.

Seem like they're continuing to slide.

Here in the fourth quarter as they have really all year long. So I. Appreciate your updated views there what do you think we'll need to see to stabilize that market and maybe you could comment on.

Peter Huntsman: By the time you buy the product today, and I guess I suppose some of this still is how you end up doing your accounting, but if you buy the material today, you're shipping it from various places around the world. You bring it in, you're inventory, you're working it, it works through your inventory, it goes to your customer, you're building your customer, and you're getting your money for that inventory, that value of the inventory, it can be anywhere from two months to four months.

Things like operating rates and and butane costs in terms of profiling that business over the next couple of quarters here.

Well, we're much larger than that in the U S and we are anywhere else in the world. We do have a facility in Europe and I think.

I'm not overly concerned about margins right now some butane prices are continuing to be very competitive.

Peter Huntsman: If you get into slower demand periods, and rising raw material cost, that's kind of the worst of all worlds in my opinion, and I think that's the reason why we were saying a quarter ago is we were seeing the global uncertainty, and the rising cost is we go into the fourth quarter, which is usually time when people are de-inventoring anyways. I think that we were kind of expecting to see higher cost, slower demand, and that would typically mean a drag on earnings.

And so as the prices have come down raw material prices have come down as well the larger issue around the lake and hydride My opinion, it's gonna be the amount of malaise that goes into the construction markets unsaturated polyester resin and so forth and what is demand.

Happening there with imports coming in from areas of the world that continue to get.

Russian fed raw materials, and so forth, we're seeing we've seen trade movements and that that customer base that we havent seen heretofore and so.

Peter Huntsman: I think that's what we tried to reflect in the forecast that we've given. Alex, I think it's clear we've got a headwind gain to the fourth quarter, particularly when you look at Benzine, which averaged about $3.10 in quarter three. It's settled in October over $4, it's settled for November at $365, what price is lower, but that is our largest raw material, natural gas in Europe is also risen from approximately $10 a BTU to about $14 to $15 today. So some headwinds there, there are some benefits in the chlorine chain, the chlorine coming down at the Chlorohydrom visible lane, but those are outweighed by Benzine and natural gas. Thank you.

When you when you get.

To have a more normalized construction market I think that that will be the opportunity more so than.

Raw material costing and so forth or manufacturing balance, it's gonna be around demand getting back to where I would say, it's more of a normalized sort of environment remind you Kevin that we'd have quite a majority of our contracts in North America, what's wrong formula based pricing so margins themselves just to.

Peter says, it's been relatively stable unit margins in North America, Europe sort of a different story, whether it's the number of depression impression you'd be talking about the.

Michael Harrison: Our next question has come from the line of Michael Sifat with Wells Fargo. Please proceed with your questions. Peter, when you think about, I guess, polyurethanes in total, you've done a lot of things over the last several years going downstream and trying to improve the quality of the business. This year's, for a lot of businesses, look really tough to see those changes, but when you think about, again, thinking where the business should be, when things recover, you may be talking about whether even Dow margins can get back to once all this destocking and difficult times.

The pricing pressure there.

That's helpful and then switching gears it sounds like.

You're contemplating.

New mural on plan I think your prepared remarks that were released last night said you know you're evaluating a 5000 tonne plant can you just talk a little bit about the opportunity there and.

You know.

Put that in possible investment into context, not not sure how much that might cost for example to to build that out.

Well, we're in the process right now we should be starting up the early part of this next year a 30 ton.

Facility and just as a reminder, if you were to go to our Skunk works. If you will our R&D facilities, we developed this technology.

Michael Harrison: Yeah, I think that as we look at this MDI fundamentally, I do think that we're in an unprecedented down draft right now with MDI putting it mildly. The reason I say that is, this is a product since I've been in it for the last 25 years and some of the veterans that have been in for the last 30 plus years. We've not seen two consecutive years of falling demand and that's largely brought about because of macroeconomic conditions.

Started with a number of.

Machines that were building that we're producing literally one pound a year of capacity.

We then went to two.

100 pounds per year of capacity at that point, we started selling.

NASA and the very high end, where youre looking at thousands of dollars of cost.

Her kilo.

We then went to a one ton per year and that proved to be a success. We're building a 30 ton facility right now.

Michael Harrison: We're not seeing competing materials. We're not seeing a loss of people that are stopped building homes with OSB and as they stop using MDI and furniture and bedding and so forth. If anything, we see MDI continuing to expand its application base, its chemistry base and getting better. I mean, if I look at the bare fundamentals, there's absolutely no reason why this material during normal economic conditions, or even normal economic minus a bit, shouldn't be doing immensely better than it's doing today.

In Texas.

And when that is complete.

We'll be looking at replicating that facility and actually putting it in one of our facilities, where we will be able to take one of them will be able to take the byproduct hydrogen.

And one of our own facilities and take the marijuana.

Material on the other side and that that will be the first quote unquote commercial unit I say commercial and that all of the output will be fully utilized.

When youre looking at that that 30 ton facility Youre looking in the low tens of millions of dollars as far as the overall cost.

Michael Harrison: And so I think that getting back to what I would see is mid-teens plus mid-teens sort of margins. I personally don't think that it's going to take a great deal of change just from the sense that I don't see any fundamentals in the business that have changed the broader outlook of MDI. When U.S, housing comes back, that's obviously a very large component of MDI demand when people buy a new home, not always in the process, it goes and builds a home.

On that facility again to date those facilities have only been built in a controlled environment and putting it in the middle of one of our facilities is going to be a real world experience and we will be starting on that project, which will take somewhere between nine and 12 months to complete.

Sometime in the latter part of 'twenty four than going to a 5000 ton facility, we see that starting in early 'twenty five.

Michael Harrison: But also to furnish a home means of furniture and bedding and paints and coatings, electronics and so forth. You look at the automotive industry, particularly the last quarter, while we weren't directly hit with strikes that we saw in North America. Our customers weren't hit by that. That did put more MDI on the market than you otherwise would have seen, probably having a detrimental effect. And as we look at the global energy conservation and insulation areas around spray foam and insulation materials. Again, I look at those big macro issues.

5000 tons of capacity.

If that proves to be successful.

We will have a product that we think will be very competitive on.

On a on a commercial scale.

For applications anywhere from traditional carbon fiber applications.

Going into strengthening concrete to going into EV batteries and we're in the process right now of qualifying.

And getting into a number of those applications. So very crucial time over the course of the next 18 to 24 months.

As in any chemical process going from a bench to a pilot plant to a commercial operation two world scale operation and I see all of that being completed.

Michael Harrison: I see no reason why MDI shouldn't recover and when it recovers, I would gladly predict that when it recovers, I think it's going to surprise people quickly. As a quick follow-up, you referenced the Chinese MBI price in the prepared remarks. Where are we in the US and Europe? And how much lower do you think we'll go into the fourth quarter on those prices? And do you think, what's your thought about 24 and what needs to happen to shore up all the regions?

Kevin I'm, sorry, that's probably way more information that you were looking for but.

It's something that we're we're pushing as aggressively as possible.

Possible without cutting any corners on the technological side, Kevin less less than $50 million of capital investments. The pizza just just described.

Over over a number of years southern contained within all of the total capital.

Expenditure that we've outlined for 2024.

Thank you our next questions come from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions.

Michael Harrison: Well, I fund them fundamentally in 24. People need to stop tolerating losing money. And I think that fundamentally has to be a broader issue. The age-old issue of any product that's being bought and sold at very low margins is that what's the discipline of an industry to be able to sell a product and set a price to return money to shareholders. And right now, MBI is not doing that. And so fundamentally, I think that there needs to be a change in the entire MBI market.

Thank you and good morning, Peter just wanted to square your comments on decelerating the pace of the buyback for them I think youre doing 100, a quarter to now maybe it can be 50 in the fourth quarter.

And in the prepared remarks, you referenced just sort of obviously what is happening to the EBITDA in the fourth quarter and the operating environment I think I heard you on the call talk about you also wanted to have some spare capacity for M&A. So I just wanted to get your latest thoughts on M&A and how you think about what might be out there versus your own stock trading in the low twenties.

Michael Harrison: Now, that doesn't just come about without economic recovery. It doesn't come about without customer demand returning. And those things will happen. But as I look at how close much of this is getting to fix costs sort of returned. It seems like we're there. As I look at pricing in Europe, we've been able to get some modest increases in the fourth quarter. I'd like to say that's because demand is improving, but I think it's more just disciplined. And, you know, there's signs that I'm saying or at least feeling that that word at the bottom. But, you know, unfortunately, I think I've probably shed that in the past.

Well I think right now from everything we see our stock remains a very competitive.

And a very good value. Unfortunately.

But I think that as we look at the broader M&A market.

We are seeing.

I would say a slight improvement on multiples coming down.

And as multiples come down that's not that doesn't that's not the only part that's changing asset valuations EBITDA for most assets. We look at are also coming down.

And so as we've kind of seen the end of free money, if you will and.

Michael Harrison: And that's why I'm not ready to call the bottom out, but I think that we're very close to it.

I'm seeing a little more competitive environment today, but more importantly.

Unknown Executive: Thank you.

The M&A market I think for our board of directors.

And our discussions around share buyback as we want to have consistent theme, we want to have reliability.

David Begleiter: Our next questions come from the line of David Beglider with Deutsche Bank. Please proceed with your questions. Thank you. Peter, do you expect this destocking, the inventorying to continue into Q1? And I know that early, but should Q1 be better than Q4, maybe closer to Q3, or how do you think about Q1 right now? I think that the Q1 is going to end much stronger than how it begins. I don't think that there's this first quarter for us over the last couple of years.

And the the discussions around our board table and Edward can we afford at this next quarter or even this next year, but rather how do we have a reliable.

A program that people can count on for the next couple of years. So we've got a balance sheet that can weather the storm.

They can give us opportunity flexibility, but also making sure that we're competitive with.

With the best of our peers in the chemical industry on returning value returning cash to shareholders. So I think it's really a balance of all of those things. So I don't I don't want you to look at the fourth quarter change is just a knee jerk reaction to a single quarter, but rather let's let's assume that.

David Begleiter: We've become larger in China and so forth. You know, we look at the Chinese New Year and the impact that has in the early part of the year. I can't, I simply can't ignore that. There's some of our businesses that do extremely well in a lot of our downstream, the aerospace business and so forth. Typically, their orders will come a little bit stronger in Q1 than throughout the years and others of our businesses.

We wanted to have that flexibility across the board and I.

I think I still think as I look back on what we've we bought back this last year with the price of our stock our dividend and so forth.

We've been one of the best in our industry as far as returning value to shareholders.

David Begleiter: They do better near the latter part of the year, but I really struggle, Dave, to see that that inventories can continue to destock much into 24. Typically, people are looking for a year in pop and free cash flow. They want to end the year having covered up their inventory. They've gotten rid of as much of it as possible and typically Q1 to buy in large is typically not a quarter where people are getting rid of inventories unless there's an economic, a larger macroeconomic region to do so.

If you close out the year with them, which has in excess of half a billion dollars to shareholders through a combination of dividends and <unk>.

The share repurchase throughout this year.

Thanks, that's very clear as a follow up I think I also saw that you anticipate completing your planned cost savings program. This year is intended are you contemplating anything for next year.

Oh, well I think that we're always we're always looking.

How we can be doing things better and more efficiently.

And more effectively I think as we look at our overall portfolio.

Depending on business conditions, and again, I think that we'd probably have.

David Begleiter: Very good. I didn't mention aerospace early. How much aerospace the up this year and what would that take versus pre-pandemic levels of profitability? I think it's take to say that we're probably about about 55-60% recovered in that business. There's a very healthy backlog on the large jet builders. I would say you asked Airbus and Boeing. There's a very healthy backlog on demand for both of those platforms. Right now, my understanding having had the opportunity to visit both of those accounts in the last couple of weeks is really around supply chain issues.

<unk> seen some rather unprecedented conditions I've said, we've never seen a year where MDI.

<unk> has fallen two years consecutively.

Yeah, we've got to make sure that we see the realities of the marketplace and that we calibrate the business the cost structure and so forth.

Accordingly so.

See $60 million in benefits in 2024 that we didn't see in 2023.

That's largely because we will have an annualized savings of <unk>.

2024 over 2023 of the cost savings will be completed by this year.

But again I yeah. The day, we sit back and look at our portfolio and say it doesn't need to be changed or our cost structure is perfect probably a time when our new management team needs to come out and because I think that's what largely what we get paid to do.

David Begleiter: You can only build a plane as fast as the slowest component that goes into that plane. I mean, if you think about it, we're talking to them. You know, we're ready to go. We can supply more materials and everything. And, you know, it's a part that most[inaudible] Vincent himself, Peter says, has been relatively stable, unit margins in North America. You're a different story where it's been under, under pressure, and it's pressure, and he'll be noting the, the pricing pressure there. That's helpful.

We see some additional opportunities in our manufacturing cost efficiency.

As well as completion of the European transformation, we do need to balance next year in terms of making sure that we're limiting the amount of restructuring cash out next year needs to be a real focus on free cash flow free cash flow generation, a girl, let's be assessed $60 million.

It has to come from from what we've done this year.

Thank you our next questions come from the line of Frank Mitsch with Permian Research. Please proceed with your question.

Hey, good morning.

You know I'd say as I looked at the guide for the fourth quarter I understand the macros are are not great.

But but the number was.

It was pretty low in terms of what you're guiding and and and and Peter as you started the call. You said look things are murky, we haven't even started to sort of the end of year.

Sort of you know our changes by the customers, maybe they're destocking or what have you into year end.

So can you can you give us.

Some more color as to how you came up with the 65 to 90 million.

<unk> for the for the fourth quarter, what's the what's kind of embedded in that and if I could be so bold as to ask.

A more granular question what the Heck did you guys report in October in terms of profitability, how much of that how much of that 65% to 90.

<unk> is kind of already in the bank.

Well as we look at the October numbers, we're not going to get into splicing. It's good question, but we're not going to get into the supply chain are monthly.

Our monthly performance, but as we look at the demand.

Across the board here.

I certainly wouldn't say that October was a bad month.

What we typically see at the end of the quarter. Frank is customers will come to us and these are larger customers on the mom and pops, but the large Oems who are going to the automotive industry and so forth.

Typically comment in a normal year midway through December and.

So we're done we're done for the year and usually a week or two before that they'll start cancelling orders and so forth and we will see the fourth quarter and rather suddenly not on December 31st, but usually some time in the month of December.

Usually not that dramatic, but it's pretty close to that so.

Really don't see the results of.

December in October typically the business doesn't move all that much in a month or two fourth quarter. It does and what we've what we've heard from customers we've not seen it yet in the order patterns. What we've heard is that there's going to be an earlier shutdown. This year that we're going to you know you hear from customers just anecdotally.

This is going to be shutting down earlier this year, they're going to be taking the last two or three weeks off but they're going to be reducing inventory.

Now you hear that anecdotally and then it's just that's why I started about three or four months ago, It's really tough for US a company. This size to just put on the brakes and say, we're going to reduce inventories starting this next week.

Because everything is on the road everything's on the water everything's in the railcar. So we anticipate fourth quarter, there's going to be.

Inventory reduction and if that starts at the beginning of December versus the middle of December frankly that that's going to have quite a bearing on on our bottom line. So I.

I wanted to just spell out in my comments, even though we're into the fourth quarter and even though we're starting to see the order patterns as they did.

Peter Huntsman: And then switching gears, it sounds like you're contemplating a new mural on plan. I think you're prepared remarks that were released last night said, you know, you're evaluating a 5,000 ton plan. Can you just, you know, talk a little bit about the opportunity there and, you know, put that in possible investment into context, not not sure how much that might cost, for example, to, to build that out. Well, we're in the process right now, we should be starting up nearly part of this next year, a 30 ton facility, and just as a reminder, if you're to go to our, our scunk works, if you will, our, R&D facilities, we developed this technology.

Through the quarter.

It still is a bit too early to say.

Minutely, where we're going to be.

Yeah, I mean, frankly, if you're if you're looking to bridge between the 136, we just stayed in the midpoint of that range you could think about half of it being price cost we're talking about what's going on with the benzene market in the natural gas market overall, we did indicate that all.

China joint venture for MTBE.

EBITDA is going to come down between Q3 Q4 by about $10 million and then the balance of it will be the.

The seasonality in that the inventory at the customer end up Peter's told about it.

That's very helpful. But you know there's a school of thought out there and I'm curious as to where you fall in.

Peter Huntsman: We started with a number of machines that were building that were producing literally one pound a year of capacity. We then went to 100 pounds per year of capacity. At that point, we started selling to NASA in the very high end, where you're looking at thousands of dollars of cost per kilo. We then went to a one ton per year, and that proved to be a success. We're building a 30 ton facility right now in Texas.

And this is that we have been hearing incessantly about destocking since the third quarter of 'twenty, two and so there's a school of thought out there that the destock as you know has got to be near an end and therefore, the sort of seasonality in the fourth quarter.

In terms of companies right sizing their inventories et cetera may not be as dramatic this year. It seems to me that youre not buying into that thesis that you still believe.

Peter Huntsman: And when that is complete, we'll be looking at replicating that facility and actually putting it in one of our facilities, where we'll be able to take one of, we'll be able to take the byproduct hydrogen in one of our own facilities and take the marijuana material on the other side. And that will be the first quote unquote commercial unit. I say commercial that all of the output will be fully utilized. And when you're looking at that, that 30 ton facility, you're looking in the low tens of millions of dollars, as far as the overall cost on that facility.

There is there is a more destocking that that needs to occur is that correct.

I personally and frankly, I don't want the headlines to start studio Peter Huntsman, the ultimate pessimist, but you know I do think that that's the I do think Thats correct I do think that theres going to be year end destocking.

And as I talk to customers and so forth.

I don't think it's going to be cataclysmic, but I do think it's going to happen.

I would also just note that I've I've been somewhat be funneled by this by what you said earlier about how do you get destocking that takes place for six quarters in a row that much inventory in the system.

Peter Huntsman: Again, today those facilities have only been built in a controlled environment and putting it in the middle of one of our facilities is going to be a real world experience. And we'll be starting on that project, which will take somewhere between nine and 12 months to complete. Sometime the latter part of 24. Then going to a 5,000 ton facility, we see that starting in early 25. It 5,000 tons of capacity. If that proves to be successful, we will have a product that we think will be very competitive on a commercial scale for applications anywhere from traditional carbon fiber applications to going into strengthening concrete to going into EV batteries.

And no there isn't that much inventory in the system I don't believe I think that it's really a combination of falling demand and have inventory and I think some of the quarters. When we perhaps saw falling demand and how quickly that demand was falling in housing and some of these other areas.

I think we took that as inventory destocking.

Because demand was down in the statistics look like it ought to be okay, but as you look back on it I think what we've seen over the last year and a half is really a combination.

Massive destocking of inventory and a.

Will fall off when.

When you look at areas like housing building materials, and so forth and let's remember going into 2022 and going into even the beginning of this year and a lot of areas. We saw very large inventory build because of the supply chain.

Peter Huntsman: And we're in the process right now of qualifying and getting into a number of those applications. So very crucial time over the course of the next 18 to 24 months is in any chemical process going from a bench to a pilot plant to a commercial operation to world scale operation. And I see all that being completed. So Kevin, I'm sorry, probably way more information than you're looking for, but it's something that we're pushing as aggressively as possible without cutting any corners on the technological side.

Chain constraints that we saw at the beginning of 2022, there were a lot of customers that were sitting on not just our inventory, but a lot of customers inventories and they were sitting on their own inventory.

Look at some of our OSB customers and Oems and so forth they were.

Typically we will deal with.

20 to 30 days of inventory. Some of these companies had 60 90 days worth of inventory and we may not see that because they're not holding 90 days of MDI inventory, but the holding 90 days of some other inventory that they've got to work through before they can start buying ours again. So I think it was just really a combination of of.

Philip Lister: Kevin, let's listen 50 million dollars a capital for all the investments that Peter's just described and spent over a number of years and contains, and the whole of the total capital expenditure that we've outlined for 2024. Thank you.

Of issues, but Frank I do share your your views there.

Whether it's demand or inventory I think that we're really very very close to the end of that.

At the end of that road.

Okay.

Vincent Andrews: Our next questions come from the line of Vincent Andrews with Morgan Stanley. Please proceed with your questions. Thank you and good morning.

Thank you our next questions come from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.

Peter Huntsman: Peter, just wanted to square your comments on decelerating the pace of the buyback from I think you were doing 100 quarter to quarter to now maybe it's going to be 50 in the fourth quarter. And the prepared remarks, your reference just sort of obviously with coming to the EBITDA in the fourth quarter in the operating environment. But I think I heard you on the call talk about you also wanted to have some spare capacity for MNA.

Hi, good morning.

Peter So the next.

It's logical question is maybe on.

Your expectations for Destocking as we get into next year.

Do you think we're in a situation, where we see a gradual recovery in order patterns or could we see a situation where customers are going to need to rapidly bring production back up rapidly accelerate orders to meet seasonal demand pick up in the spring.

Peter Huntsman: So I just wanted to get your latest thoughts on MNA and how you think about what might be out there versus your own stock trading in the low 20s. Well, I think right now from everything we see our stock remains a very competitive buy and a very good value unfortunately. But I think that as we look at the broader MNA market, we are seeing a I would say a slide improvement on multiple coming down and is multiple both come down.

Is that something that we could be seeing about two one fold here.

Hum.

Peter Huntsman: It's not that doesn't that's not the only part that's changing asset valuations EBITDA for most assets we look at are also coming down. And so we've kind of seen the end of free money, if you will. And I'm seeing a little more competitive environment today, but more importantly than the MNA market, I think for our board of directors in our discussions around share buyback is we want to have consistency. We want to have reliability and the discussions around our board table.

I'm not going to anticipate that just because it is.

It's tough to have the underlying data to justify it but I do think that people are getting low on inventory, which I think the market is.

I think that it's it takes a whole lot to split the herd if you will whether its a single shot of lightning or in this case, maybe just a rattlesnake.

[laughter] somewhere on the ground, who wants one when somebody starts moving very quickly to replenish inventory, you'll start to see people coming to us.

I need some more inventory.

We're running at $55, 60% capacity of the single facility and it's going to take US a couple of weeks to recalibrate the plant and to.

Peter Huntsman: And ever can we afford at this next quarter, even this next year, but rather how do we have a reliable program that people can count on for the next couple of years. We've got a balance sheet that can weather the storm. They can give us opportunity flexibility, but also make sure that we're competitive with the best of our peers in the chemical industry on returning value, returning cash to shareholder. So I think it's really a balance of all of those things.

Keep it up.

To have the production to be able to fill the inventory all of a sudden you've got shortages and often people are publishing their shortages prices are going up and everybody kind of crowd through the door at the same time.

And that's usually it's usually over something this is.

It's minuscule as a single operator somewhere around the world, having a plant problem.

Raw materials going up.

Theres anything going unusually strong in the middle East right now, but you know what would happen if something were to tanker gets hit or whatever all of a sudden people see crude prices going up for whatever reason that means my raw material prices next month I'm going to go up and all of a sudden I'm going back I can't get the product there.

Peter Huntsman: So I don't I don't want you to look at the fourth quarter change. It's just a knee-jerk reaction to a single quarter, but rather let's let's assume that we want to have that flexibility across the board. And I think I still think if I look back on what we've we bought back this last year, the price of our stock, our dividend and so forth, we've been one of the best in our industry as far as returning valued shareholders.

I thought I could get.

I do think that a number of of chemical companies are also operating their facilities.

Calibrating their facilities around today's demand not the demand of a recovery, but around today's demand.

Philip Lister: Yeah, I think if you close out, the year will have been excessive, probably $1 billion to push a hold of through a combination of dividends and sharey purchase throughout this year.

I think if you take all those things together and I think that it does put us in a position where you could see a more a more sudden knee jerk recovery than a kind of a longer sustained recovery.

Peter Huntsman: I think that's very clear as a follow-up, I think I also saw that you anticipate completing your plan cost savings program this year as intended. Are you contemplating anything for next year? Well, I think we're always looking at how we can be doing things better and more efficiently and more effectively. I think as we look at our overall portfolio, depending on business conditions. And again, I think that we probably have seen some other unprecedented conditions.

Alright.

That's very helpful. And then my other questions on the spray foam opportunity in international markets. Maybe you can give us an update on the kind of progress that you're making with spray foam insulation in Europe and in China.

Well I think it's just in a nutshell, we're continuing to see strong growth.

Peter Huntsman: I said we've never seen a year where NDI consumption has fallen two years consecutively. Yeah, we've got to make sure that we see the realities in the marketplace and that we calibrate the business, the cost reductions, so forth accordingly. So, you know, we'll see $60 million in benefits in 2024 that we didn't see in 2023. That's largely because we'll have an annualized savings of 2024 over 2023 of the cost savings will be completed by this year.

Both of those areas, mostly when we talk about international we're looking at the Middle East and we're looking at the U K.

As of the two markets, where we've got.

Randy made system houses that are making the raw materials, we've got the sales and marketing forces.

That are out in.

And aggressive in these markets I would say that the Japan also would be for us a growing market.

In that area.

But we're starting from a very low base, but we have very high expectations on that so I wouldn't see material movement on our P&L.

Peter Huntsman: But again, the day we sit back and look at our portfolio and say it doesn't need to be changed or our cost structure is perfect. Probably a time when a new management team needs to comment because I think that's what largely what we get paid to do. I think we see some additional opportunities in our manufacturing cost efficiency as well as completion of the European transformation. We do need to balance next year, in terms of making sure that we're limiting the mass of restructuring cash and next year needs to be a real focus on free cash flow and free cash flow generation overall must be assessed for $60 million a year on your benefits to come from what we've done this year.

Because of the sales in those regions, but those are going to be growth markets that are over the coming.

Years, we're going to see I think a real opportunity to change the business.

Unknown Executive: Thank you.

Thank you our next questions come from the line of Hassan Ahmed with Alembic Global. Please proceed with your questions.

Morning, Peter.

Yeah.

On the polyurethane side of things, obviously, a bunch of questions around trying to sort of forecast demand, which obviously in our industry is as always.

You know are challenging to do but you know it.

It seems that the supply side of things is easier to forecast rate. So as as you sort of sit there and look at polyurethane sort of cost curves I mean.

Frank Mitsch: Our next questions come from the line of Frank Mitsch with Fermi and research. Please proceed with your question. Hey, good morning. You know, as I as I looked at the guide for the fourth quarter, I understand the macros are not great, but but the number was, you know, was was pretty low in terms of what you're going and Peter, as you started the call, you said, you know, look, things are murky.

And the response to one of your earlier questions you talked about how margins have seen you know for some of the marginal producers. You know you guys yourselves reported 8% EBITDA margins. This quarter. So I'm just trying to understand the marginal guys, presumably are losing money right now so we're.

Frank Mitsch: We haven't even started sort of the end of year, sort of, you know, changes by the customers, maybe they're destocking or what have you into your end. And so can you can you give us some more color as to how you came up with the 65 to 90 million guide for the for the fourth quarter, what's what's kind of embedded in that? And if I could be so bold as to ask a more granular question, what the heck did you guys report in October in terms of profitability?

The supply looking the way, it's looking I mean, do you foresee cost potentially shut downs.

More delays in capacity additions and the like and how will that play out as.

As it pertains to a potential recovery going forward.

I'm not sure that the recovery going forward is going to be dependent on any shutdowns.

I am a bit surprised that hasn't happened yet.

Frank Mitsch: How much of how much of that 65 to 90 is kind of already in the bank? Well, as we look at the October numbers, we're not going to get into splicing. It's good question, but we're not going to get into splicing our monthly, our monthly performance, but as we look at the demand, you know, across the board here, I certainly wouldn't say that October was a bad month. What we typically see at the end of the quarter, Frank is customers will come to us and these are larger customers, not the mom and pops, but the large OEMs are going to be automotive industry and so forth.

As I look at the various regions I look at the U S.

I don't see a lot of shutdowns of of total facilities in the U S. Because the major producers in the U S. Only have one facility.

And.

I don't see somebody exiting the north American market and I think the same can be said.

For China I know there are people that are like one while that have multiple facilities in China.

I personally just don't see them shutting one of those down in the very competitive they start with cold and they work their way through.

On a competitive set of economics Europe in my opinion longer term.

Frank Mitsch: And they'll typically come in a normal year, midway through December and say, you know, we're done for the we're done for the year and usually a week or two before that, they'll start canceling orders and so forth. And we'll see that the fourth quarter ends rather suddenly, not on December 31, but usually sometime in the month of December. It's usually not that traumatic, but it's pretty close to that. So you really don't see the results of December and October.

When I look at the size of the facilities that are in Europe, and the number of people that have multiple facilities in Europe.

I do question the longer term viability of some of those assets, but again I'm not privy to decisions made obviously in those companies I don't know what their economics are.

To the degree that they've got longer term contracts with government.

Assisted money or with unions, and so forth I I have no idea.

Frank Mitsch: Typically, you know, the business doesn't move all that much in a month or two, fourth quarter it does. And what we've heard from customers, we've not seen it yet in the order times, what we've heard is that there's going to be an earlier shutdown this year that we're going to, you know, you hear from customers just anecdotally. They're going to be shutting down earlier this year, they're going to be taking the last two or three weeks off, but they're going to be reducing inventory.

What limitations that might be on that but fundamentally I think that the industry is shutting down.

Lines more than they're shutting down facilities and.

And I think you'd probably going to continue to see that because we haven't met supply coming into the market.

To the market.

Where would it be one month over the next sort of four to five years.

Else major that's been announced and if the industry returns to a 5% growth level, then that will outstrip supply as a rebound.

Frank Mitsch: Now, you hear that anecdotally and it just, that's why I started about three or four months ago. It's really tough for us to company this size to just put on the brakes and say we're going to reduce inventory starting this next week, because everything's on the road, everything's on the water, everything's in the rail car. So we anticipate fourth quarter that there's going to be inventory reduction. And if that starts at the beginning of December versus the middle of December, frankly, that's going to have quite a bearing on on our bottom line.

Makes sense and as a follow up I mean, if we could sort of switch gears to the M&A side of things. Obviously, you know the balance sheet continues to look very good and you guys have talked about.

You know you know.

Panic opportunities and the like.

Look in your prepared remarks.

No a fair bit of sort.

Sort of time was spent talking about.

The housing construction end market, the auto end market and the like and you know as you guys look at the portfolio. Today. Obviously those end markets are sizable end markets for you guys right, so rather than sort of.

Frank Mitsch: So I wanted to just spell out in my comments, even though we're into the fourth quarter, even though we're starting to see the order patterns as they develop through the quarter. It still is a bit too early to say definitively where we're going to be. Yeah, I mean, Frank, if you're looking to bridge between the 136 we just did and the midpoint of that range, you can think about half of it being price cost, we've talked about what's gone when the benzene market and the natural gas market.

You know in the past you've talked about potential M&A opportunities in advanced materials and the like.

I mean as you think about these inorganic opportunities are you also thinking about potentially diversifying away from housing autos and construction, which is sizable end markets right now and you know in.

Frank Mitsch: Overall, we did indicate that our China joint venture, PMTB, that EBITDA is going to come down between Q3 to Q4 by about 10 million and then the balance of it will be the the seasonality and the inventory and the customer and the Peter's talk about. That's very helpful, but you know there's a school of thought out there and I'm curious as to where you fall in this is that we have been hearing incessantly about these stockings since the third quarter of 22 and so there's a school of thought out there that the destock is, you know, has got to be near an end and therefore the sort of seasonality in the fourth quarter in terms of companies right sizing their inventory etc.

In this market at least tend to be a little shaky, maybe potentially diversifying away from those end markets.

Yeah.

Well I think if you.

Pardon the cliche, but follow the money.

Look what we've been investing our of our capital that we have internally.

Round producing cleaner.

Cleaning materials for the chip industry catalysts for our polyurethane in home installation and so forth.

Looking at how we diversify further downstream.

In the mirror lawn and so forth when you look at our M&A over the last couple of years.

Frank Mitsch: May not be as dramatic this year. It seems to me that you're not buying into that thesis that you still believe there's more destocking that needs to occur. Is that correct? I personally and Frank I don't want the headlines to start today of Peter Hunson's the ultimate pessimist but you know I do think that's correct. I do think that there's going to be year-end destocking and as I talked to customers and so forth, I don't think it's going to be cataclysmic but I do think it's going to happen.

It sits around advanced materials, and how we we not only get more but but a more diverse field a broader field of chemistry.

And I think we've been publicly if we haven't said it publicly I'll say now you know as.

As we prioritize where we see the world going it's going into a greener.

It's going into light weighting its going into adhesion, it's going into two to where our materials, particularly in advanced materials, but also <unk> and <unk>.

Frank Mitsch: I would also just know that I've been somewhat befuddled by this by what you said earlier about you know how do you get to be stalking that takes place for six quarters in a row and is there that much inventory in the system and no there isn't that much inventory in the system I don't believe. I think that it's really a combination of falling demand and of inventory and I think some of the quarters when we perhaps saw falling demand and how quickly that demand was falling and housing in some of these other areas.

Performance products and polyurethane.

Particularly advanced materials, where that is going to be replacing ceramics, it's going to be replacing traditional applications composite materials and so forth.

And those are going to be the areas of.

The focus for us so as soon as Phil can bring me.

A 35% margin business that we can buy for five times EBITDA will be moving pretty aggressively.

Thank you our next questions come from the line of Salvator Tiano with Bank of America. Please proceed with your questions.

Frank Mitsch: I think we took that as inventory destocking because demand was down and the statistics looked like it ought to be okay but as you look back on it, I think what we've seen over the last year and half is really a combination of massive destocking of inventory. And a real fall off when you look at areas like housing, building materials and so forth. Let's remember going into 2022 and going into even the beginning of this year in a lot of areas, we saw very large inventory builds because of the supply chain constraints.

Yes. Thank you very much so as we're talking about hopefully getting a volume recovery at some point.

Your variable decremental margins this quarter were down around 40% or.

Somewhere in that range can you discuss how the decremental margins differ from.

We see in each segment and how essentially we would expect a volume recovery in each of the three businesses to flow down to EBITDA.

Frank Mitsch: We saw at the beginning of 2022 there were a lot of customers that were sitting on not just our inventory but a lot of customers inventories and they were sitting on their own inventory. I look at some of our OSP customers and OEMs and so forth. They were sitting there that typically will deal with 20 to 30 days of inventory. Some of these companies had 60, 90 days worth of inventory and we may not see that because they're not holding 90 days of MBI inventory but the holding 90 days of some other inventory that they've got to work through before they start buying ours again.

You are talking with them on a year on year of about 30% to 35% overall on Decrementals.

Good to talk to you by the way.

And then in terms of volume recovery.

Polyurethane some people have a real real leverage here, so a volume recovery.

As construction comes back, but overall I don't see that.

Amendments decremental margins sometimes materials.

Linked into the commentary you made around the aerospace and the same in the auto market continues to be some global production buildup.

Frank Mitsch: So I think it was just really a combination of issues but Frank, I do share your views that whether it's demand or inventory, I think that we're really very, very close to the end of that road.

Perfect and just as a follow up on on the raw materials for MDI, Besides a well known increases in benzene prices.

Can you provide us a little bit it was what you are assuming for Q4.

In each of the key regions, Europe, and China, and the U S for other key raw materials chlorine etcetera.

Unknown Executive: Thank you.

Mike Harrison: Our next questions come from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question. Hi, good morning, Peter. So the next logical question is maybe on your expectations for the stockings we get into next year. Do you think we're in a situation where we see a gradual recovery in order patterns, or could we see a situation where customers are going to need to rapidly bring production back up, rapidly accelerate orders. To meet seasonal demand pick up in the spring. Is that something that we could be seeing about one fold here?

Yeah, I think we I think we thought so we outlined benzene outlined where natural gas was Huntington from 10 to 15 chlorine caustic under a little bit of downward.

Pressure overall, so we build that in before epichlorohydrin, which are the two main raw materials. Those are they still represent a minority of advanced materials per system.

Coming are coming up as well and then you've got ammonia, which is obviously a big raw material into performance products, which is being moving moving upwards. It move down throughout the year, but it's been moving upwards.

Sort of tactical things and an entre into a into nitric acid. So that's that's the way to think about on raw materials benzene still remains the biggest raw material that we purchase globally.

Peter Huntsman: I'm not going to anticipate that just because it's tough to have the underlying data to justify it. But I do think that if people are getting low on inventory, which I think the market is, I don't think that it takes a whole lot to speed the herd, if you will, whether it's a single shot of lightning or in this case, maybe just a rattlesnake somewhere on the ground. Once somebody starts moving very quickly to replenish inventory, you start to see people coming to us.

Certainly the most volatile a lot of those products that Phil just mentioned on longer term contracts have pass through contracts with Rob without natural gas and so forth.

Thank you our next questions come from the line of Matthew Blair with Tudor Pickering Holt <unk> Company. Please proceed with your questions.

Yeah. Good morning, Peter So, it's obviously a tough market, but your prepared comments you had mentioned that building solutions volumes were up both.

Quarter over quarter as well as year over year.

So I don't know that that things are encouraging and the tough construction market.

Peter Huntsman: I need some more inventory. We're running at 55-60% capacity at this single facility, and it's going to take us a couple of weeks to recalibrate the plant and to have the production to be able to fill the inventory. Also, you've got shortages, and also people are publishing that their shortages, prices are going up, and everybody kind of crowds through the door at the same time. That's usually over something that is miniscule, is a single operator somewhere around the world having a plant problem, a raw material going up.

Should that be the read through for investors.

Do you have any more color here and also is this because you're gaining share in the spray foam market or are there other dynamics at play.

Well a couple of things first of all a lot last year third quarter.

Was it was a pretty tough here I mean, it was it was.

Uh huh.

It was the low point I think as we look at the overall business, but as we look at the third quarter were up 2%.

Versus the prior quarter were up 10% versus a year ago.

As we look at some of our other products.

Peter Huntsman: Not that there's anything going and usually wrong in the Middle East right now, but what would happen if something were to a tanker gets hit or whatever. Also, people see crude prices going up for whatever reason. That means my raw material price is next, nothing going to go up. And all of a sudden, I'm going back and I can't get the product that I thought I could get. I do think that a number of chemical companies are also operating their facilities, calibrating their facilities around today's demand.

Like the composite wood products and so forth as we look at the order patterns, thus far in the fourth quarter and I don't want to get out ahead of myself, but we're seeing a positive year.

Year on year comparison there.

It's the first time, we've seen a positive comparison, there for probably over a year on it on a quarterly basis. So again I'm not I don't want to get overly encouraged by this but these are signs you first have to hit the bottom and then youre going to see.

Peter Huntsman: Not the demand of a recovery, but around today's demand. So I need to take all those things together, and I think that it does put us in a position where you could see a more sudden knee-jerk recovery than a longer sustained recovery.

A bounce back so as I look at things from where we are in the third quarter.

You know I think there there are some positive signs I'm seeing an H b S in building solutions.

All around in and.

The areas around our total installation business from.

From the prior quarter was up 3% from a year ago and again this isn't just a spray foam business our installation it goes into rigid.

Mike Harrison: All right, that's very helpful.

Peter Huntsman: And then my other questions on the spray foam opportunity in international markets. Maybe give us an update on the kind of progress that you're making with spray foam insulation in Europe and in China. Well, I think just in a nutshell, we're continuing to see strong growth in both of those areas. Mostly when we talk about international, we're looking at the Middle East and we're looking at the UK. Those are the two markets where we've got ready-made system houses that are making the raw materials.

[noise] panels construction panels, and so forth were down 4% from over a year ago, but up 3% sequentially. So starting to see signs of that.

We're hitting the bottom and some of these areas and and and.

Like to think that we're recovering and others of them. So.

I would take those as we call them green shoots but.

I think that's it.

It's a tired metaphor because we've used it now two courses and we haven't seen much more than green shoots, but no I think there is probably more of those we see today than we did certainly a quarter ago.

Peter Huntsman: We've got the sales and marketing forces that are out and aggressive in these markets. I would say that Japan also would be for us a growing market in that area. But we're starting from a very low base, but we have very high expectations on that. So I wouldn't see material movement on our PNL because of the sales and those regions. But those are going to be growth markets over the coming years. We're going to see, I think, a real opportunity to change the business.

Unknown Executive: Thank you.

Okay. That's helpful. And then you mentioned some challenges from rising European natural gas prices do you have any hedges in place or is there anything youre doing today to mitigate potential price spikes in the winter.

We do a little bit I wouldn't say that there are material it'll it'll protect us from the absolute highs and lows and so forth.

But look I think that.

Those <unk>.

Spikes like that are going to impact us.

Hassan Ahmed: Our next questions come from the line of Hassan Ahmed with a limit global, please proceed with your questions. So as you sort of sit there and look at polyurethane sort of cost curves, I mean, you know, in the response to one of your earlier questions, you talked about how margins are saying, you know, for some of the marginal producers. You know, you guys yourself reported eight percent EBITDA margins is quarter.

As a company on the short term, but I think longer term what the reverberations of.

The very poor energy policy that you see in Europe is the longer term what that does for consumers.

What it does for confidence in the macro economy and what it does for our customer base that is this more energy intensive customer base.

And so I.

The gas price, yes, I think that we've got some protection there, but not a great deal.

My bigger concern of those what that what happens to the macro economy there.

Thank you our next questions come from the line of Josh Spector with UBS. Please proceed with your questions.

Peter Huntsman: So I'm just trying to understand, you know, the marginal guys presumably are losing money right now. So with the supply, looking the way it's looking, I mean, do you forecast potentially shutdowns more delays and capacity additions and the like and how will that play out as it pertains to a potential recovery going forward? I'm not sure that the recovery going forward is going to be dependent on any shutdowns. I am a bit surprised that that hasn't happened yet.

Yeah.

Yeah, Hey, guys. Thanks for taking my question.

Want to zero in on advanced materials, I guess, if you're looking at your volumes there youre down something like 40% versus 2019, obviously, you've talked about aero and that has an impact about how that recovers, but when you look at the rest how much of that gap is maybe some lost volumes because it's still a lot of competitive to play their destocking and where would you see.

The market is and then my follow up with that is your EBITDA is actually not terribly far off 2019. So your margins are doing much better is that a silver lining about where profitability would be when volumes improve or is that not the right way to look at it.

Peter Huntsman: As I look at the various regions, I look at the US, I don't see a lot of shutdowns of of total facilities in the US because the major producers in the US only have one facility. And I don't see somebody exiting the North American market. And I think the same can be said for China. Now there are people that are like a one law that have multiple facilities in China. But I personally just don't see them shutting one of those down. They're very competitive. They start with coal and they work their way through on a competitive set of economics.

No I think as you look at that business two things to keep in mind, one we've been getting out of the DLR business, So and a lot of the downstream.

Differentiated specialty ends of advanced because we've actually seen very good growth in those areas.

I mentioned earlier about some of the components that are going into.

The EV sports cars and so forth.

On the other hand, we've been getting out of the bulk liquid resins.

Peter Huntsman: Europe, in my opinion, longer term, when I look at the size of the facilities that are in Europe and the number of people that have multiple facilities in Europe, I do question, you have the longer term viability of some of those assets. But again, I'm not privy to decisions that are made obviously in those companies. I don't know what their economics are that it is agreed that they've got longer term contracts with government assisted money or with unions and so forth.

And that is a business. If you go back 510 years ago, that's what made up the vast majority of advanced materials. So we've been getting out of large volume low margin.

Accounts, we've been getting so so when you look at the business overall it doesn't look like there is anything that you said earlier you have seen negative growth, but the quality of what were building the quality of the core of the business. It continues to grow very aggressively.

And that in that division.

<unk> continues to be to be very firm and to be very strong I would also note that since 2019, we've had two large acquisitions in that business that I.

Peter Huntsman: I have no idea. What limitations there might be on that. But fundamentally, I think that the industry is shutting down lines more than they're shutting down facilities. And I think you're probably going to continue to see that. The only supply coming to the market has found will really be one more over the next sort of four to five years. There's nothing else major that's been announced. And if the industry returns to a 4.5% growth level, then that will have strip supply as a rebound occurs. Makes sense.

I think have both been.

Very successful in both.

Integrating those acquisitions and from a cost point of view, but now that we're done with the cost synergies more importantly, now is the longer term market opportunity and what are the customers and applications. This allows us to compete in and Thats I think thats as we look at advanced materials on the longer term.

Oh boy, if we find good valued.

Hassan Ahmed: And as a follow-up, if we could switch gears to the M&A side of things, obviously the balance sheet continues to look very good. And you guys have talked about inorganic opportunities in the like. I mean, look in your prepared remarks, say a bit of time was spent talking about the housing construction and market, the auto end market and the like. And as you guys look at the portfolio today, obviously those end markets are sizable end markets for you guys. So rather than in the past, you've talked about potential M&A opportunities and advance materials in the like.

M&A opportunities there that that certainly is going to continue to be a high priority for us.

Thank you our next questions come from the line of Laurence Alexander with Jefferies. Please proceed with your questions.

Good morning could you give a little bit more color on what you think the <unk>.

Is going on behind the stuff her in the EV market to what degree your customers are.

Rethinking their structural or their fundamental assumptions.

And then secondly can you just talk a little bit about how you think about working capital days.

You know, both next year and kind of where you.

Peter Huntsman: Mark, as you think about these inorganic opportunities, are you also thinking about potentially diversifying away from housing, autos and construction which are sizable and market for you right now, and in this market at least tend to be a little shaky, maybe potentially diversifying away from those end markets? Well, I think if you, pardon the cliche, but follow the money, look where we've been investing our capital that we have internally is around producing cleaning materials for the chip industry, catalysts for polyurethane and home insulation and so forth, looking at how we diversify further downstream into Mirolon and so forth, when you look at our M&A over the last couple of years, it's around advanced materials and how we not only get more but a more diverse field, a broader field of chemistry, and I think we've been publicly, if we haven't said it publicly, I'll say now, as we prioritize where we see the world going, it's going into a greener, it's going into light weighting, it's going into adhesion, it's going into where our materials, particularly in advanced materials, but also pp and performance products and polyurethane, but we're seeing particularly in advanced materials, where that is going to be replacing ceramics, it's going to be replacing traditional applications, composite materials and so forth, and those are going to be the areas of focus for us, so as soon as still can bring me a 35% margin business that we can buy for five times of at DA, we'll be moving very aggressively.

And also where you think kind of mid cycle should be.

As your portfolio has been evolving.

One very good question I'm going to let.

I'm going to let Phil comment on on the working capital.

Inventory issues.

On the EV side.

I'm not going to say that I am concerned, but if I look at that entire chain and you see some of these car manufacturers I think with the exception of Tesla.

Built largely on the back of billions of dollars of federal Green credits at other companies bought from them I mean, it's only been relatively recently that Tesla was making money money on their EV cars in the last couple of years obviously.

Excellent vehicle.

But as you look at the overall EV.

Markets I'm not sure that that.

On a standalone basis, and when you look at some of the more recent earnings on some of these some of these companies that are losing tens of thousands of dollars per vehicle.

And they say well then it's a question of volume, but the volume does.

Doesn't seem to be coming.

And then you look at the supply chain, where does the money being made in the supply chain seemingly or the components going into the batteries themselves.

And that seems to be where the money is being made and who controls the EV components, while the Chinese I think have done an excellent job in the last 15 years of developing that supply chain the refining to mining the processing the expertise in that area and.

Give them credit for what they've done.

So.

All of those things I, just outlined that's well above our pay grade at least mine as far as where the markets are going but.

But as I look at the applications going into any pace any EV vehicle is going to need a couple of basic issues. When the lightweight strong materials. They are going to need effective and efficient batteries, which are going to require ultra pure ethylene carbonates, it's going to require materials like our forthcoming Merrill.

Unknown Executive: Thank you, our next questions come from the line of Savator Tiana with a Bank of America, please proceed with your questions. Yes, thank you very much, so as we're talking about hopefully getting a volume recovery at some point, I think your variable decremental margins this quarter were again around 40% or somewhere in that range. Can you discuss how the decremental margins differ from within each segment and how essentially we would expect volume recovery in each of the three businesses to throw down to Big David Dow?

And some of the other materials that we're producing today.

Going to reduce the weight strengthen the car and give manufacturers.

Better mileage overall, and hopefully lower cost and building the car, so and better comfort so.

As we look at this on all of our divisions, we continue to make.

We continue to have more opportunity per vehicle on an easy than we do in ice. So I continue to be a proponent.

Unknown Executive: Yeah, I think we were more like year on year about 35% overall on decremental, so it's good to talk to you by the way, and then in terms of volume recovery, both polyurethane and PP have a real real leverage here to a volume recovery as construction comes back overall and obviously that will amend those decremental margins. The advanced materials really linked into the commentary we made around the aerospace and assuming the automotive continues on a decent global production build path.

From a business point of view for that I can't answer all of the economic conundrum of it.

Yeah.

But yeah I won't comment further on that but I do think as we look at the opportunities for huntsman.

We continue to see a lot of opportunities not just today, but over the course of the next two or three years.

Laurence I'm working capital are we talking approximately 30 days cash conversion cycle.

Do you want to think about that.

Unknown Executive: Perfect, and just as a follow-up on the rural materials for MDI, besides the well-known increasing benzene prices, can you provide us a little bit with what the EU are assuming for you for in each of the key regions, Europe, China and the US for other euro-materials, chlorine, etc. Yeah, I think we said so. We are live dancing out like we're in that tall castle, it's headed in your from 10 to 15, chlorine course, they come here a little bit of downward pressure overall.

For 2024, we have been bringing down.

Our inventories in quarter three of about 5% in the third quarter looking at another 10% in the fourth quarter to make sure. We're calibrating until April overall demand I do think there's an opportunity if it makes it 2024th pre booking capital when we talk about it in.

In the in the prepared remarks.

Okay.

Okay.

Thank you our next questions come from the line of Patrick Cunningham with Citi. Please proceed with your question.

Unknown Executive: So we've built that in Biffform A and Ethiclorohydron, which are the two main raw materials, although they still represent the minority of advanced materials, but coming off as well. And then you've got ammonia, which is obviously a big raw material and performance products, which has been moving upwards. It moved down. That also impacts polyurethane in nitric acid into nitric acid. So that's that's the way to think about our raw material based on being still remains the biggest raw material that we purchase globally. And certainly the most volatile. A lot of those products that Phil just mentioned on longer term contracts, a pass through contracts with natural gas and so forth.

Hi, Good morning, So you decided to pause that you pet project given the weaker pricing there, but on the flip side you are moving forward with the other two projects. So can you talk about what gives you confidence to move forward in those markets there and whats the expected contribution to both 2024 and run rate earnings from those programs.

Unknown Executive: Thank you.

Yeah, So Patrick.

Cause you indicate wanting to come round, one in pet food or in Hungary.

On a linked into the semiconductor market with confidence about that with all of them about the delivery of that project. Despite a lowering of the semiconductor market. This year in the long run Cleveland.

We'll play out well in that market and particularly with all of the investment that's going on the ground and in the in North America, we'll have that up and running in the first half.

Matthew Blair: Our next questions come from the line of Matthew Blair with Tudor Pickering Holton Company. Please proceed with your questions. Hey, good morning, Peter. So it's obviously a tough market, but you're prepared. Comment did mention that building solution volumes were up both quarter recorder as well as year over year. So I don't know that things encouraging in the tough construction market. Should that be the read through for investors? And do you have any more color here? And also, is this because you're gaining share in the spray foam market or are there other dynamics to play?

Next year and continue contributing to the P&L in the second half of 2020 for the oil and pet food are with his family linked into into our installation of energy efficiency and also into automotive.

Okay.

<unk>, which the automotive Oems demand so again.

We're not concerned about the ability to sell out of those problems.

Those projects.

Projects.

Decent margins you pack as being the one that's being the issue and that's just been a flood of Chinese material has come in and therefore with.

Peter Huntsman: Well, a couple of things. First of all, last year, third quarter was a pretty tough year. I mean, it was it was a low point. I think as we look at the overall business, there's a little third quarter. We're up 2% from versus the prior quarter, we're up 10% versus a year ago. You know, as we look at some of our other products like the composite wood products and so forth, as we look at the order patterns thus far into fourth quarter.

The appropriate thing caused that construction.

We started at the appropriate time, we can get it going within 12 months, but right now the returns that we can put that capital to other projects such as marijuana and advanced materials in terms of benefits overall, we think of about $10 million maybe in the second half of next year from the two projects and that ramps up over time to over 30 million.

As you move through 2025 and 2026.

Operator, we are the top of the hour why don't we take one more question.

Peter Huntsman: I don't want to get out ahead of myself, but we're seeing a positive year on year comparison there. That's the first time we've seen a positive comparison there for probably over a year on a quarterly basis. So again, I'm not I don't want to get overly encouraged by this, but these are signs you first have to hit the bottom. And then you're going to see bounce back. So as I look at things from where we are in the third quarter.

Thank you. Our next question comes from the line of a religious Swanson with RBC. Please proceed with your questions.

Great. Thanks for taking my question.

If we look at over the last couple of years I think he did a $13 50 or so EBITDA in 'twenty one.

The textiles business, and maybe youre down to call. It 50, or so as a peak you're run rating around $400 million right now.

Peter Huntsman: You know, I think there's some positive signs I'm seeing in HBS and the building solutions all around in areas around our total insulation business from the prior quarter was up 3% from a year ago. And again, this isn't just spray foam. This is our insulation goes into rigid panels construction panels and so forth. We're down 4% more where a year ago, but up 3% sequentially. So starting to see, I think signs that we're hitting the bottom in some of these areas and and I'd like to think that we're recovering in other seven.

So you know is that the right way to think about kind of trough to peak EBITDA.

Huntsman as it stands now and maybe like a $800 million.

Mid cycle number and if so any kind of you know.

Larger items that would take you from say that 400.

To that $800 million annualized.

Number how should we think about that thanks.

Yeah.

So I mean, your calculations about what $1 $2 billion, excluding textile effects.

The recent sort of 2021 and 2022.

Hi, overhauls, but we have to look for three things right ultimately fail.

Peter Huntsman: So I would take those as we call them green shoots, but I think it's a tired metaphor because we've used it now to course around and we haven't seen much more than green shoots. But no, I think there is probably more of those we see today than we did certainly a quarter ago. Okay, that's helpful.

For the current rates that come up one is a continued recovery in China, we've seen a steady and moderate same predicament. We didnt expect them frequent next year U S. Construction markets absolutely have to turn about 40% of our business is in North America and a decent portion of that is in the U S. Construction, whether that's residential or commercial so that needs to.

Peter Huntsman: And then you mentioned some challenges from rising European natural gas prices. Do you have any hedges in place or do anything you're doing today to mitigate potential price spikes in the winter? We're going to impact us as a company on the short term, but I think longer term, what the reverberations of the very poor energy policy that you see in Europe is the longer term, what that does for consumers, what it does for confidence in the macro economy, what it does for our customer base that is this more energy intensive customer base. And so the gas spikes, yes, I think that we've got some protection in there, but not a great deal. My part bigger concern is what happens to the macro economy there. Thank you.

And then ultimately everyone needs to find a way to make more money effectively in Europe with higher gas prices on those three things are the key elements macro wise, which will move.

<unk> ability up in addition to that we obviously do have.

Some projects coming online in performance products.

That's coming online in advanced materials over the next few years and you can expect in aerospace recovery is.

Well, maybe much but theres nothing with them.

Thanks.

Okay.

Okay.

Okay.

Operator.

We're done with the with our time, we'd like to thank everybody for taking the time to join US This morning.

Thank you that does conclude today's teleconference. We appreciate your participation you may disconnect. Your lines at this time and enjoy the rest of your day.

Yeah.

Yeah.

Okay.

Josh Spector: Our next questions come from the line of Josh Spector with UBS. Please proceed with your questions. Yeah, hey guys, thanks for taking my question.

[music].

Josh Spector: I want to zero in on advanced materials. I guess if you look at your volumes there, you're down something like 40% versus 2019. Obviously you talked about arrow and that has an impact about how that recovers, but when you look at the rest, how much of that gap is maybe some lost volumes because it's no longer competitive to play there. De-stocking and where would you see the market is and you know my follow up with that is your EBITDA is actually not terribly far off 2019. So you know margins are doing much better. Is that a silver lining about where profitability would be when volumes improve or is that not the right way to look at it? Thanks.

Yeah.

[music].

Okay.

Peter Huntsman: I think that as you look at that business, two things to keep in mind. One, we've been getting out of the BLR business. So in a lot of the downstream. We've been getting out of the bulk liquid resins and that is a business view back five, ten years ago. That's what made up the vast majority of advanced materials. So we've been getting out of large volume and low margin accounts we've been getting.

[music].

Peter Huntsman: So when you look at the business overall doesn't look like there's anything as you said earlier, you've seen negative growth. But the quality of what we're building the quality of the core of the business it continues to grow very aggressively in that division continues to be very firm and to be very strong. I would also note that since 2019 we've had two large acquisitions in that business that have I think have both been very successful in both integrating those acquisitions in from a cost point of view.

Peter Huntsman: But now that we're done with the cost synergies more importantly now is the longer term market opportunity and what are the customers and applications that allows us to compete in. And that's I think that's as we look at advanced materials on the longer term. But if we find good valued MNA opportunities there that certainly can continue to be a high priority port.

Laurence Alexander: Thank you.

Laurence Alexander: Our next questions come from the line of Laurence Alexander with Jeffries. Please proceed with your questions.

Unknown Executive: Good morning. Could you give a little bit more color on what you think the is is going on behind the stutter in the EV market to what degree your customers are rethinking their structural or their fundamental assumptions. And then secondly, can you just talk a little bit about how you think about working capital days, you know, both next year and kind of where we as you know, and also where you think kind of mid psycho should be as your portfolio has been evolving.

Unknown Executive: Laurence, very good question. I'm going to let I'm here. Let's feel coming on on the working capital inventory issues on the EV side, I'm not going to say that I'm concerned, but if I look at that entire chain and you see some of these car manufacturers, I think with the exception of Tesla that was built largely on the back of of billions of dollars of federal green credit. That's another company's bought from them.

Unknown Executive: I mean, so I've been relatively recently that Tesla was making money money on their their EV cars in the last couple of years and obviously over an excellent vehicle. But as you look at the overall EV market, I'm not sure that that on a standalone basis. And we look at some of the more recent earnings on some of these EVs and some of these companies are losing tens of thousands of dollars per vehicle.

Unknown Executive: And they say, well, then it's a question of volume, but the volume doesn't seem to be coming. And then you look at the supply chains, words of money being made in the supply chains, seemingly are the components going into the batteries themselves. And that seems to be where the money is being made and who controls the EV components. Well, the Chinese, I think, have done an excellent job in the last 15 years of developing that supply chain, the refining, the mining, the processing, the expertise in that area.

Unknown Executive: And given credit for it, take time. So, Lawrence, all of those things I just outlined, that's well above our pay grade, at least mine as far as where the EV markets are going. But as I look at the applications going into an EV, any EV vehicle is going to need a couple of basic issues. When the lightweight strong materials are going to need effective and efficient batteries, which are going to require ultra pure, ethylene carbonates, it's going to require materials like our forthcoming marijuana and some of the other materials that we're producing today.

Unknown Executive: It's going to reduce the weight, strengthen the car and give manufacturers better mileage overall and hopefully lower cost in building the car. So, and better comfort. So, as we look at this on all of our divisions, we continue to make, we continue to have more opportunity per vehicle on an EV than we do an I. So, I continue to be a proponent from a business point of view for that. I can't answer all the economic conundrums of it.

Unknown Executive: But, yeah, I won't comment further on that, but I do think as we look at the opportunities for Huntsman, we continue to see a lot of opportunities not just today, but over the course of the next two or three years. Larsson, Working Capital, we target approximately 30 days cash conversion cycle. At the year end, you want to think about that, but for 2024, we have been bringing down our inventories in quarter three, about 5% in the third quarter, looking at another 10% in the fourth quarter to make sure we're calibrating to overall, overall demand. I do think there's an opportunity to move through 2024 further and pre-working capital, we highlight it that way, in the prepared remark.

Philip Lister: Thank you.

Patrick Cunningham: Our next questions come from the line of Patrick Cunningham with city, please proceed with your question. Hi, good morning, so you decided to pause the UPEC project in the weaker pricing there, but on the flip side, you're moving forward with the other two projects. If you can talk about what gives you confidence to move forward in those markets there, and what's the expected contribution to both 2024 and runway earnings from those projects?

Patrick Cunningham: Yeah, so Patrick, two projects you indicate, one in Conrown, one in Ketford, and one in Hungary. The one in Conrown linked into a semi-conducting market, we confidence about that, we confidence about the delivery of that project, despite a lowering the semi-conducting market this year in the long run. Our clean amines will play out well in that market, and particularly with all of the investments going on the ground in North America. We'll have that up and running in the first half of the next year and contribute things to the P&L in the second half of 2024.

Patrick Cunningham: The one in Ketford, it's firmly linked into installation, energy efficiency, and also into automotive, from one of the OC products, which the automotive OEMs demand. So again, we're not concerned about the ability to sell out those projects at decent margins. You think it's been the one that's been the issue, and that's just been a flood of Chinese material that's come in, and therefore we've done the appropriate thing, caused that construction. Well, we started at the appropriate time, we can get it going within 12 months, but right now the returns aren't there, and we can divert that capital to other projects, such as marijuana and advanced materials.

Patrick Cunningham: In terms of benefits, overall we think about 10 million, maybe in the second half of next year from the two projects. And that ramps up over time to over 30 million dollars as you move through 2025 and 2026. Operator, what are the parts of the R1? And we take one more question.

Unknown Executive: Thank you.

Arun Viswanathan: Our next question comes from the line of Rue and Ms. Wanathan with RBC. Please proceed with your questions. Great. Thanks for taking my question. You know, if we look at over the last couple of years, I think you did a 1350 or so, you've been done 21. You remove the textiles business and maybe you're down to 50 or so as a peak. You're running around 400 million right now. So, you know, is that the right way to think about kind of trough to peak, even of husbands that stands now and maybe like a 800 million dollar mid cycle number. And if so, any kind of larger items that would take you from say that 400 to that 800 million dollar annualized number. We think about that. Thanks.

Philip Lister: Yeah, Arun, so, I mean, your calculation is right, we're $1.2 billion excluding textile effects at the recent sort of 2021 and 2022 high overall. We have to look for three things, right? Ultimately, for the current rates to come up, one is a continued recovery in China. We've seen a steady and moderate improvement. We do an expected improvement next year. US construction markets absolutely have to turn about 40% of our businesses in North America and a decent portion of that is into US construction, whether that's residential or commercial.

Philip Lister: So that needs to return upwards and then ultimately everyone needs to find a way to make more money effectively in Europe with higher gas prices and those three things. The key elements macro wise which will move profitability up. In addition to that, we obviously do have some projects coming online in performance products. We have projects coming online in advanced materials over the next few years and you can expect an aerospace recovery as well moving those those numbers up. Thanks.

Unknown Executive: Operator with, I think that we're done with with our time. We'd like to thank everybody for taking the time to join us this morning. Thank you. That does conclude today's teleconference. We appreciate your participation. May disconnect your lines at this time. Enjoy the rest of your day.