Q3 2023 Eastman Chemical Co Earnings Call
Speaker 1: Good day everyone and welcome to the third quarter 2023 Eastman Conference School. Today's conference is being recorded. This call is being broadcast live on the Eastman website www.Eastman.com. We'll now turn the call over to Mr Greg Riddle of Eastman Investor Relations. Please go ahead sir.
Good day, everyone and welcome to the third quarter 'twenty 'twenty Free Eastman Conference call Today's conference is being recorded.
This call is being broadcast live on the Eastman website, Www Dot Eastman Dot com.
Now I'll turn the call over to Mr. Greg Riddle of Eastman Investor Relations. Please go ahead Sir.
Okay.
Thank you Jordan and good morning, everyone and thank you for joining us on the call with me today are Mark Costa Board Chair and CEO.
Speaker 2: Thank you Jordan, good morning everyone and thank you for joining us. On the call of me today are Mark Costa, Board Chair and CEO , William McLean, Executive Vice President CFO , and Jake Clorough, Manager Invest Relations.
Well, the Mclean executive Vice President and CFO, and Jake Laroe manager Investor Relations.
Speaker 2: Yesterday after market closed, we posted our third quarter of 2023 financial results news release and SECAK filing, our slides and the related prepared remarks in the investor section of our website, which is www.esmen.com. Before we begin, I'll come.
Yesterday after market closed we posted our third quarter 2023 financial results news release, and SEC 8-K filing.
Our slides and the related prepared remarks in the Investor section of our website, which is www dot <unk> dot com.
Before we begin I'll cover two items first during this presentation you will hear certain forward looking statements concerning our plans and expectations.
Speaker 2: First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations.
Speaker 2: actual events or results could differ materially. Certain factors related to our future expectations are or will be detailed in our third quarter 2023 financial results news release during this call in the proceeding slides and prepared remarks. And in our filings with the securities and exchange commission, including the form 10K filed for four year 2022 and the form 10Q to be filed for third quarter 2020.
Actual events or results could differ materially.
Certain factors related to future expectations are or will be detailed in our third quarter 2023 financial results news release during.
This call and the preceding slides and prepared remarks and in our filings with the Securities and Exchange Commission, including the Form 10-K filed for full year 2022, and the Form 10-Q to be filed for second for third quarter 2023.
Second earnings referenced in this presentation exclude certain noncore and unusual items reconciliations to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items are available in the third quarter 2023 financial results news release.
Speaker 2: Second, earnings referenced in this presentation excludes certain non-corner and unusual items, reconciliation to the most directly comparable GAAP financial measures and other associated disclosures, including a description of the excluded and adjusted items are available in the third quarter 2022 financial results newsroom.
Speaker 2: As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A. Jordan, please let's start with our first question.
As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A Jordan. Please let's start with our first question.
Thank you as a reminder, that star followed by one to register a question. If you change your mind. Please press star followed by two am. Please ensure your mute it when speaking wed ask all participants to limit themselves to one question with an additional follow up.
Speaker 1: Thank you, Adderaminder, that's star followed by one to register a question. If you change your mind, please press star followed by two and please ensure you're unmuted when speaking. We'd ask all participants to limit themselves to one question with an additional follow-up. Our first question comes from David Begliter of Deutsche Bank. David Deliner's yours. Thank you.
Our first question comes from David Begleiter of Deutsche Bank, David The line is yours.
Thank you good morning.
Speaker 3: Mark, thanks for the comments on 24 in the prepared comments. Keep a little more color on...
Mark Thanks for the comments on 24 in the prepared comments can you provide a little more color on the potential you think for 'twenty for earnings in this macro.
Sure David Great question, we're obviously spending a lot of time, focusing on putting this year behind us and focusing how we recover and deliver a lot of earnings and growth next year.
Speaker 2: Sure, David, and a great question. We're obviously spending a lot of time focusing on putting this year behind us and focusing how we recover and deliver a lot of earnings and growth next year. When you think about it and the way we built our forecast, or if you will, a scenario, was to intentionally be somewhat neutral on where markets recover or don't recover or what oil prices or energy prices are going to do. So we wanted sort of a neutral case to focus.
When you think about it in the way, we built our forecast or if you will a scenario was to intentionally be somewhat neutral on where markets recover don't recover or.
But oil prices or energy prices are going to do so we wanted to sort of a neutral case of focus for.
Speaker 2: First on, you know, what are the things that are more in control or math that deliver a better year next year than this year? And the biggest driver, of course, in the decline in earnings this year was volume and mix. And when you look at the extent of that across the portfolio, we're probably down about $450 million in volume and mix from a variable margin point of view, excluding capacity utilization.
First on what are the things that are more in control of our math.
Deliver a better year next year than this year.
The biggest driver of course in the decline in earnings this year was volume and mix.
And when you look at the extent of that across the portfolio, we're probably down about $450 million in volume and mix from a variable margin point of view excluding capacity utilization.
Speaker 2: And then as we look at how that can recover next year, we sort of think of it in three buckets. The first is obviously a lack of destocking. There's a lot of conversation around that. And it was certainly a very significant element to our business.
And then as we look at how that can recover next year, we sort of think of it in three buckets. The first is obviously a lack of destocking. There is a lot of conversation around that.
Certainly a very significant element.
To our business.
Speaker 2: And we generally think destocking was probably about 40% of the client and volume this year, but let's be conservative and we'll call that sort of one third, you know, comes back next year from destocking. So $150 million there on verbal margin. And that suggests a lack of destocking. So that doesn't include restocking. It doesn't include any markets getting better.
And we generally think destocking was probably about 40% of the client and volume this year.
Unknown Executive: Today's conference is being recorded.
Let's be conservative and we'll call that sort of one third comes back next year from Destocking, So $150 million there on variable margin and Thats just the lack of destocking. So that doesn't include restocking and doesn't include any markets getting better.
Unknown Executive: This call is being broadcast live on the Eastman website, www.eastman.com.
Greg Riddle: We'll now turn the school over to Mr Greg Riddle of Eastman Investor Relations. Please go ahead, sir. Thank you, Jordan. Good morning, everyone. And thank you for joining us on the call for me today are Mark Costa, board chair and CEO. William McLain Executive, Vice President CFO, and Jake Loro, Manager Invest Relations. Yesterday after market closed, we posted our third quarter 2023 financial results news release and SECAK filing our slides and the related prepared remarks in the investor section of our website, which is www.eastman.com.
Speaker 4: The second element is innovation. We are very excited about our innovation portfolio. It's been the center of our growth story as a company, and the biggest element, of course, will be the Kingsport methanolysis plant coming online, delivering an incremental $75 million in EBITDA to the...
Second element is innovation, we are very excited about our innovation portfolio. Its been the center of our growth story as a company.
The biggest element of course will be the kingsport methanol plant coming online delivery.
Delivering an incremental $75 million in EBITDA.
To the.
Speaker 4: next year relative to this year. And that's all in with cost and revenue and margins considered. So that's pretty considerable. So you've got that on top of the lack of destock.
Two next year relative to this year.
That's all in with cost and revenue and margins considered so that's it.
A pretty considerable so you've got that on top of the lack of destocking.
Greg Riddle: Before we begin, I'll cover two items. First, during this presentation, you will hear certain forward-looking statements concerning our plans and expectations. Actual events or results could differ materially. Certain factors related to our future expectations are or will be detailed in our third quarter 2023 financial results news release during this call in the proceeding slides and prepared remarks and in our filings with the Securities and Exchange Commission, including the form 10.2. SECAK filed for four year 2022 and the form 10.2 to be filed for third quarter 2023.
Speaker 4: And then you've got innovation that's having across our portfolio. It's not just Kingsport, you know, methanol says we've had great success with premium interlators delivering a lot of value with the growth in the automotive market and extreme leverage of three and a half times the material per car and EVs versus ice cars. So that's a great business and we'll continue to deliver above market growth.
When you've got innovation, that's happening across our portfolio. It's not just kingsport methanol says we've had great success with premium interlayer is delivering a lot of value.
With the growth in the auto market automotive market and extreme leverage of three five times the material for.
Car and Evs versus ice cars. So that's a great business and we will continue to deliver above market growth. We've got the advent of products. We've been telling you about where we've had great success adoptions and straws and.
Speaker 4: We've got the event of products we've been telling you about where we've had great success adoptions and straws.
Speaker 4: some brands going national as well as now making great progress in our polystyrene replacement for protein packaging and food packaging, etc. And you're going to see some real nice growth out of that business. And I text out business has been great this year. It'll continue Tetris Shields picking up more business and food, food cans and we're starting to move into the beverage side. So there's a lot of growth happening throughout the portfolio through innovation, even in a flat market.
Some brands going.
National as well as now making great progress in our polystyrene replacement for.
Greg Riddle: Second, earnings referenced in this presentation excludes certain non-core and unusual items, reconciliation to the most directly comparable gap financial measures and other associated disclosures, including a description of the excluded and adjusted items are available in the third quarter 2023 financial results news release.
Protein packaging and food packaging et cetera, and youre going to see some real nice growth out of that business Tonight textile business has been great. This year, and we'll continue tetra shields picking up more business in food food.
Food cans, and we're starting to move into the beverage side. So there's a lot of growth happening throughout the portfolio through innovation.
Greg Riddle: As we posted the slides and accompanying prepared remarks on our website last night, we will now go straight into Q&A. Jordan, please let's start with our first question. Thank you. As a reminder, that staff followed by one to register a question. If you change your mind, please press staff followed by two and please ensure you're unmuted when speaking.
Even in a flat market.
Speaker 4: And we're going to see more benefit really next year when you're in a more stable market situation and people are focusing on new launches.
And we're going to see more benefit really next year. When you are in a more stable market situation and people are focusing on new launches. The third element of course is the <unk>.
Greg Riddle: We'd ask all participants to limit themselves to one question with an additional follow-up.
Speaker 4: The third element of course is the, you know, the markets. And, you know, as you saw on our guidance, we're being pretty cautious about where the markets might go. I think there's lots of debate around markets could recover. Markets could go down. I think it's fair to say none of us really know. But I think it's a reason to expect that our stable markets will probably stabilize, because the end market demand there is, you know, sort of not as discretionary.
<unk>.
And.
As you saw in our guidance, we're being pretty cautious about where the markets might go I think there's lots of debate around markets could recover markets could could go down I think it is fair to say none of us really know.
David Begleiter: Our first question comes from David Begliter of Deutsche Bank. David, the line is yours. Thank you.
But I think as regional expect that our stable markets will probably stabilize because the end market demand there is sort.
Not as discretionary so pharma personal care packaging for food.
Speaker 4: So far, I'm a personal care, you know, packaging for food.
Mark Costa: Good morning. Mark, thanks for the comments on 24 in the prepared comments. Keep a little more color on the potentially thing for 24 earnings in this macro. David, in a great question, we're obviously spending a lot of time focusing on putting this year behind us and focusing how we recover and deliver a lot of earnings and growth next year. When you think about it and the way we built our forecast or if you will, a scenario was to intentionally be somewhat neutral on where markets recover or don't recover or what oil prices or energy prices are going to do.
Speaker 4: Those kind of markets are all going to stabilize medical and probably have some modest growth when you look at
Those kind of markets are all going to stabilize medical.
And probably have some modest growth when you look at those dynamics.
Speaker 4: You know, automotive is expected to grow, and we think that's a reasonable assumption. Building construction, we think, has flapped it down a little bit. So when you put all of those together, you've got some additional volume growth out of that on top of those, you know, numbers from destocking and Kingsport methanolysis. So considerable value there. The second part is asset utilization. So we've been extremely aggressive in...
Automotive is expected to grow and we think thats a reasonable assumption in building construction, we think flat to down a little bit.
So when you put all this together you've got some additional volume growth out of that on top of those.
Numbers from Destocking in Kingsport methanol. So so considerable value there. The second part is asset utilization. So we've been extremely aggressive and.
Speaker 4: Managing our assets and pulling the utilization rates down to free up cash You saw great success and over 500 million dollars of cash generated in the third quarter by the actions we took Unfortunately, it comes with a you know accounting headwind. It's not a cash headwind, but you take a 75 million dollar Utilization headwind hit in the third quarter alone
Mark Costa: We want to serve a neutral case to focus first on what are the things that are more in control or math that deliver a better year next year than this year. The biggest driver, of course, in the decline in earnings this year was volume and mix. When you look at the extent of that across the portfolio, we're probably down about $450 million in volume and mix from a variable margin point of view.
Managing our assets.
Pulling their utilization rates down to free up cash we saw great success in over $500 million of cash generated in the third quarter by the actions we took.
Unfortunately, it comes with the accounting headwind, it's not a cash headwind, but you take a $75 million utilization.
Utilization headwind hit in the third quarter alone.
For that over $75 million really on a full year basis.
Speaker 4: or 75 million dollars really on a full-year basis. When you think about the tailwind for next year, so you get to add that back if volumes are flat.
Mark Costa: Excluding the past utilization. Foundation. And then as we look at how that can recover next year, we sort of think of it in three buckets. The first is obviously a lack of destocking. There's a lot of conversation around that. And it was certainly a very significant element to our business. And we generally think destocking was probably about 40% of the decline in volume this year. But let's be conservative and we'll call that sort of one third comes back next year from destocking.
When you think about the tailwind for next year. So you get to add that back if volumes are flat.
Speaker 4: That comes back. Obviously there's actions we're taking to keep our cost structure flat. So all that revenue growth we're talking about both in the volume side of things flows straight to the bottom line. So the incremental margins on the recovery are gonna be quite strong.
That comes back.
We see there's actions, we're taking to keep our cost structure flat. So all of that revenue growth we're talking about in.
Mark Costa: So 150 million dollars there on verbal margin. And that's just a lack of destocking. So that doesn't include restocking. It doesn't include any markets getting better. You know, the second element is innovation. We are very excited about our innovation portfolios in the center of our growth story as a company. And the biggest element, of course, will be the Kingsport methanol system plant coming online delivering an incremental 75 million dollars in EBITDA to the next year relative to this year.
And the volume side of things flow straight to the bottom line. So the incremental margins on the recover youre going to be quite strong. So all of that creates a good situation offsetting that it could be some specialty pricing starting to moderate in a few places we still have a lot of raw material in inventory.
Speaker 4: So all that creates a good situation. Offsetting that could be, especially pricing, starting to moderate in a few places. We still have a lot of raw material in inventory.
Speaker 4: That is lower and still needs to flow through or about 50% FIFO in our company So you're going to see some benefits of that flowing through into next year that will sort of you know offset especially pricing So we don't really see you know raw materials as a tailwind But we also don't really see it as much as
That is lower and still needs to flow through we're about 50% FIFO.
Our company, so youre going to see some benefits of that flowing through into next year that.
That will sort of offset especially pricing. So we don't really see raw materials as a tailwind.
But we also don't really see it as much of a headwind.
Speaker 4: So all those factors put together delivers quite a bit of improvement in earnings and earnings from our operating in the cash side as well. So we're pretty excited about focusing on all these actions that we can control this uncertainty and delivering a successful owner.
So all those factors put together delivers quite a bit of improvement in earnings.
Earnings from from.
Our operating.
And the cash side as well so we're pretty excited about focusing on all of these actions that we can control in this uncertainty.
Mark Costa: And that's all in with cost and revenue and margins considered. So that's pretty considerable. So you've got that on top of the lack of destocking. And then you've got innovation that's happening across our portfolio. It's not just Kingsport, you know, methanol system. We've had great success with premium interlators delivering a lot of value with the growth and the auto market, auto market and extreme leverage of three and a half times the material per car and EVs versus ice cars.
And delivering success for our owners.
Very very helpful and just lastly in the areas, we are still seeing destocking like crop protection.
Speaker 3: very, very helpful. And just lastly, in the areas where you are still seeing destocking, like crop protection, when do you think...
When do you think it will end or how long do you think will persist.
Speaker 4: On the ag market, which is more than crop protection, but a number of different products, obviously the de-stocking didn't start.
On the AG market.
Which is more than crop protection.
Mark Costa: So that's a great business and we'll continue deliver above market growth. We've got the event of products we've been telling you about where we've had great success adoptions and straws and brands going national as well as now making great progress in our polystyrene replacement for protein packaging and food packaging, etc. And you're going to see some real nice growth out of that business tonight. Textile business has been great this year. It'll continue tetra shields picking up more business and food food, food cans and we're starting to move into the beverage sides.
There are different products, obviously, the destocking didn't start until the second quarter of this year.
Speaker 4: Until the second quarter of this year, you know, very different timing stories like consumer durables or building construction started, you know, aggressively in the fourth quarter of last year, but but I didn't start until.
Very different timing stories like consumer durables are building construction started.
Aggressively in the fourth quarter of last year, but egg didn't start until.
The second quarter, so the Destocking started and got more aggressive in the second.
Speaker 4: the second quarter. So the destocking started, it got more aggressive from the second to the third quarter.
From the second to the third quarter.
Speaker 4: And it continues into the fourth quarter. We do think it'll be played out by the end of the fourth quarter from what our customers are telling us.
And it continues into the fourth quarter, we do think it'll be played out by the end of the fourth quarter from what our customers are telling US is they start looking to the next planting season, but normally you would have a build in inventory.
Mark Costa: There's a lot of growth happening throughout the portfolio through innovation, even in a flat market. And we're going to see more benefit really next year when you're in a more stable market situation and people are focusing on new launches. The third element, of course, is the, you know, the markets and, you know, as you saw on our guidance, we're being pretty cautious about where the markets might go. I think there's lots of debate around markets could recover markets could go down.
Speaker 4: as they start looking to the next planting season. But normally, you'd have a build-in inventory. It's starting in the fourth quarter and through the first quarter for the planting season.
Starting in the fourth quarter and through the first quarter as for the planning season. This year, we're going to see destocking through the fourth quarter and then a ramp up of building inventory in the first quarter of next year.
Speaker 4: This year, we're going to see destocking through the fourth quarter and then a ramp up of building inventory in the first quarter of next year.
Speaker 4: So that's part of that headwind relative to what is quote normal for a fourth quarter is is that Delta between building versus You know pretty aggressive destocking
So thats part of that headwind relative to what is normal for our fourth quarter is that delta between building versus pretty aggressive destocking.
Mark Costa: I think it's fair to say none of us really know. But I think it's reasonable expect that our stable markets will probably stabilize because the end market demand there is is, you know, sort of not as discretionary. So far, my personal care, you know, packaging for food, those kind of markets are all going to stabilize medical and probably have some modest growth when you look at those dynamics. You know, automotive is expected to grow and we think that's a reasonable assumption building construction.
Thank you very much.
Our next question comes from Frank Mitsch Fermium research.
Speaker 1: Our next question comes from Frank Mitch of Thermium Research. Frank?
Please go ahead.
Speaker 5: Good morning, and I did appreciate the video on methanolysis, so thanks for giving us the link there. Mark, you know, Advanced Materials has had a difficult 23 on the backs of a difficult 22, where you're now expecting 23 to come in below 400 million of EBIT. I took a look back. The last time that happened, that you were below 400 million of you was back in 2014.
Good morning.
And I did appreciate the video on methanol CIS, so thanks for giving us the length there.
Mark.
Advanced materials has had a difficult 2003.
<unk> of a difficult 22.
Mark Costa: We think slept it down a little bit. So when you put all this together, you've got some additional volume growth, you know, out of that on top of those, you know, numbers from destocking and Kingsport methanol. Also, so considerable value there. The second part is asset utilization. So we've been extremely aggressive in managing our assets and pulling the utilization rates down to free up cash. You saw great success and over 500 million dollars of cash generated the third quarter by the actions we took.
There you are now expecting 23 to come in below $400 million.
Of EBIT.
I took a look back the last time that happened that you were below 400 million of it was back in 2014.
Speaker 5: So, I know it's been a difficult couple of years, what sort of confidence might you have that that business can get to 500 million or better in 2024?
So.
I know, it's been a difficult couple of years, what sort of confidence might you have that that business can get to $500 million or better in 2024.
Speaker 4: So, Frank, we feel very good about the ability to do what you just said and getting this business to come back considerably from where it is now. The bridge I just laid out at the corporate level is very true at the AM level and all of those elements. So if you think about this year, just as context before we get to next year, the extremity of the demand decline was more than anything we've ever seen before. So we've seen difficult demand environments.
Yes, so frankly feel very good about the ability to what you just said and getting this business to come back.
Mark Costa: Unfortunately, it comes with a, you know, counting headwind. It's not a cash headwind, but you take a 75 million dollar utilization headwind hit in the third quarter alone. For that, or 35 million dollars really on a full-year basis, when you think about the tailwind for next year. So you get to add that back if volumes are flat, that comes back. Obviously, there's actions we're taking to keep our cost structure flat. So all that revenue growth we're talking about above in the volume side of things flows straight to the bottom line.
Considerably from where it is now the bridge I just laid out at the corporate level is very true at the at the AAM level and all of those elements.
So if you think about this year.
Just as context before we get to next year the extremity of the demand decline was more than anything we've ever seen before so we've seem difficult demand environments.
Speaker 4: in 2009, in 2020, but those were over in, you know, three quarters in 2009 and two quarters in 2020. We're now in our fifth quarter of, you know, low demand and in some applications, you know, continued destocking.
Nine in 2020, but those were over three quarters and one 9% in two quarters in 2020, we're now in our fifth quarter of low demand and in some applications continued destocking.
Mark Costa: So the incremental margins on the recovery are going to be quite strong. So all that creates a good situation. You know, off-setting that, you know, could be especially pricing starting to moderate in a few places. We still have a lot of raw material in inventory that is lower and still needs to flow through or about 50% FIFO in our company. So you're going to see some benefits of that flowing through into next year that will sort of, you know, offset, especially pricing.
Speaker 4: So this is something we've never really seen before. But it is all demand-related, and it's a lot of destocking where people got out of control in building inventory during the supply chain crisis.
So this is something we've never really seen before.
But it is all demand related and it has a lot of destocking that where people got out of control and building inventory during the supply chain crisis.
Speaker 4: And some of the markets that we're in have very long supply chains. When you think about consumer durable, if we're making the polymers here, having to ship it all the way to China, go through multiple steps to get an appliance or a TV or something made, and then shipping it back to the U.S. and Europe , you've got six to 10 steps. It's a long supply chain to deplete.
And some of the markets that we're in have very long supply chain. So when you think about consumer durables, we're making.
Mark Costa: So we don't really see raw materials as a tailwind, but we also don't really see it as much of a headwind. Management. So all those factors put together, delivers quite a bit of improvement in earnings and earnings from our operating in the cash side as well. So we're pretty excited about focusing on all these actions that we can control in this uncertainty and delivering a success for our owners. You know, very, very helpful.
Polymers here, having a ship at all in China go through multiple steps to get an appliance or a TV or something made and then shipping it back to the U S and Europe, you've got six to 10 steps along supply chain to deplete.
Speaker 4: when there's such a significant step down in demand that's as bad as 2009 when you think about consumer durables.
When there is such a significant step down in demand.
As bad as 2009, when you're thinking about consumer durables.
Our housing for that matter.
Speaker 4: And so the good news is we can see some markets bottoming out and recovering really well. So Durables was down 40% in the fourth quarter of last year, was even worse in the first quarter, came back 30% in the second quarter relative to the first, another 15% back in the third quarter.
And so the good news is we can see some market is bottoming out and recovering really well. So durables was down 40% in the fourth quarter of last year was even worse than the first quarter came back 30% in the second quarter relative to the first another 15% back in the third quarter.
Mark Costa: And just lastly, in the areas we are still seeing these stocking like crop protection, when do you think it will end or how long it will persist? Thank you. On the ag market, which is more than crop protection, but a number of different products. Obviously, the destocking didn't start until the second quarter of this year. Very different timing stories like consumables or building construction started, you know, aggressively in the fourth quarter of last year.
Speaker 4: Now it's going to be a little softer in the fourth quarter because of normal seasonality of activity and what customers do.
Now it is going to be a little softer in the fourth quarter because of normal seasonality of activity and what customers do that.
Mark Costa: But ag didn't start until the second quarter. So the destocking started. It got more aggressive in the second from the second to the third quarter. You know, and it continues into the fourth quarter. We do think it will be played out by the end of the fourth quarter from what our customers are telling us as they start looking to the next planting season. But normally you'd have a building inventory is starting into fourth quarter and through the first quarter for the planning season.
Speaker 4: You can see that the bottom of that market was the first quarter, and it's certainly in better shape as the destocking has definitely played out.
You can see that that is the bottom of that that market was the first quarter.
And it certainly in better shape.
Is the Destocking has definitely played out.
Speaker 4: we think, at the end of the third quarter. We have some other markets where the destocking is also still pretty extensive, like medical and packaging. It didn't start like ag until the second quarter of this year, and it's finishing out through this quarter, as we can see it. So, there's different timing and different levels of drop across the segment when it comes to specialty plastics, but we are pretty confident that the destocking part will be over by the end of this year. And when you think about that $450 million...
We think at the end of the third quarter, we have some other markets where the Destocking is also still pretty extensive like medical and packaging. It didn't start like <unk> until the second quarter of this year and it's finishing out through this quarter as we can see it.
So there's different timing and different levels of drop across the segment when it comes especially plastics, but we're pretty confident that the destocking part will be over by the end of this year.
When you think about that $450 million.
Speaker 4: of variable margin down for volume and mix, you know, about half of that is in the AM segment. So you can start seeing how that on the destocking part comes back.
Mark Costa: This year, you know, we're going to see destocking through the fourth quarter and then a ramp up of building inventory in the first quarter of next year. So that's part of that headwind relative to what is, quote, normal for a fourth quarter is that delta between building versus, you know, pretty aggressive destocking. Thank you very much.
Variable margin down for volume and mix about half of that is in the EM segment.
You can start seeing how that on the Destocking part comes back.
Speaker 4: That's just on the de-stocking part. Then you've got the $75 million of EBITDA coming from the methanolysis to add back to next year on top of this year. Remember, only 50 of that's going to show up in AM and the other 25 in other. And then you've got a lot of these stable markets that are going to have some amount of very modest growth in the packaging, medical. All we're going through this year is a decline in demand in medicals.
That's just on the Destocking part then you've got the $75 million of EBITDA coming from the methanol assist to add back to next year on top of this year number only 50 of that is going to show up in the other 25 in other and.
Frank Mitsch: Our next question comes from Frank Mitch of Thermium Research. Frank, please go ahead. Good morning. And I did appreciate the video on a methanol system. Thanks for giving us the link there. Mark, you know, advanced materials has had a difficult 23 on the backs of a difficult 22 where you're now expecting 23 to come in below 400 million of EBIT. I took a look back the last time that happened that you were below 400 million of you. It was back in 2014. So, you know, I know it's been a difficult couple of years.
And then you've got a lot of these stable markets that are going to have some amount of modest growth in the sort of packaging medical although we're going through this year is in a declining demand in medicals surgeries are.
Speaker 4: Steadying up, it's just a lot of de-stocking, but it's very high value and painful where you get past it. So I feel good about that. About $40 million of the $75 million of the asset utilization headwind from inventory management comes back as a tailwind. $35 million of FX is a headwind this year. I don't know where currency will go next year, so that could be up or down, but it's a significant headwind this year when you think about looking at the total decline.
Steady enough, it's just a lot of destocking, but its very high value and painful.
You get past it.
So we feel good about that about $40 million of the $75 million of the asset utilization headwind from inventory management comes back as a tailwind.
$35 million of FX as a headwind this year I don't know where currency will go next year, so that could be up or down, but it's a significant headwind. This year when you think about <unk>.
Looking at the total decline.
Speaker 4: So, you know, you've got the de-stocking coming off, you've got the markets, you have the utilization tailwind, Kingsport, you've got innovation, you've got the auto market, which we expect to continue to grow and a lot of the, you know, innovation that's happening in there. There's a lot of innovation throughout the portfolio in AM that'll create farm growth once the market stabilizes and customers are confident doing new launches. So we feel great and incremental margins will be impressive because we're going to keep the cost structure flat.
So you've got the Destocking coming off you've got the markets utilization tailwind Kingsport, you've got innovation. If you got the auto market, which we expect to continue to grow and a lot of the.
Mark Costa: What sort of confidence might you have that that business can get to 500 million or better in 2024? Yes. So, Frank, we feel very good about the ability to what you just said in getting this business to come back, you know, considerably from where it is now. You know, the bridge I just laid out at the corporate level is very true at the at the AM level and all of those elements.
Innovation, that's happening and there is lot of innovation throughout the portfolio and that will create our own growth once the market stabilizes and customers are confident doing new launches. So we.
We feel great and the incremental margins will be impressive because we're and keep the cost structure flat.
Mark Costa: So, if you think about this year, just as context before we get to next year, the extremity of the demand decline was, you know, more than, you know, anything we've ever seen before. So, we've seen difficult demand environments, you know, nine in 2020, but those were over in three quarters in 2009 and two quarters in 2020. We're now in our fifth quarter of, you know, low demand and in some applications, you know, continued destocking.
Very very helpful. If I could follow up on the.
Speaker 5: Very, very helpful. If I could follow up on the asset utilization, just a clarification in the appendix.
Asset utilization just a clarification in the appendix.
Speaker 5: The updated number on the headwind is $100 million on the lower asset utilization. It says first half versus second half versus the prior $75 million, and you're expecting a $75 million benefit in 24. Shouldn't we be expecting $100 million benefit in 24 on asset utilization if it's a, if the headwind for 23 is higher? I mean, I wouldn't assume, are you assuming that you're going to run at lower asset utilization as we start 2024?
The updated number on the headwind is $100 million on the lower asset utilization.
It says first half versus second half versus the prior $75 million and Youre expecting a $75 million benefit in 'twenty four shouldn't we be expecting a 100 million benefit in 'twenty four on asset utilization if it is.
Mark Costa: So, this is something we've never really seen before. You know, but it is all demand related and it's a lot of destocking that, you know, where people got out of control and building inventory during supply chain crisis. And some of the markets that we're in have very long supply chains. When you think about consumer durable, if we're making the, you know, polymers here having to ship it all with China, go through multiple steps to get, you know, an appliance or TV or something made and then shipping it back to the US and the Europe, you know, you've got six to 10 steps, you know, it's a long supply chain to complete. When there's such a significant step down in demand that's, you know, as bad as, you know, 2009 when you think about consumer durable. Co., or housing for that matter.
It's a headwind.
For 'twenty three is higher I mean, I wouldn't assumed are you assuming.
That youre going to run at lower asset utilization as we start 2024.
Speaker 6: Frank, this is Willie. So you've got to correct on the first half second half. That increased from 75 million to 100 million. And sequentially as Mark has highlighted, it was a 75 million dollar husband to Q2.
Frank This is Willie.
You've got to correct on the first half second half that increased from $75 million to a $100 million and sequentially as Mark has highlighted with a $75 million headwind to Q2 with that momentum we would expect it to improve quite a bit as we go from Q3 to Q4, but the full year.
Speaker 6: With that momentum, we would expect it to improve quite a bit as we go from Q3 to Q4. But the full year, obviously, you're taking the reference 22 and that doesn't come into effect as you look 23 to 24. So 75 of the reasonable estimate.
Obviously youre taking into reference 'twenty, two and that doesn't come into effect as you look 23 to 24. So 75 is a reasonable estimate.
Mark Costa: And so the good news is we can see some markets bottoming out and recovering really well. So, you know, Durables is down 40% in the fourth quarter of last year was even worse in the first quarter. Came back 30% in the second quarter relative to the first another 15% back in the third quarter. Now it's going to be a little softer in the fourth quarter because of, you know, normal seasonality of activity and what customers do, but, you know that you can see that that's the bottom of that market.
Speaker 6: It may be a little bit higher, but right now 75 is close enough.
Maybe a little bit higher but right now 75 close enough.
Speaker 4: Part of it was we built a little inventory in the first quarter, and so you got to offset that to the 100 because that's the first half, second half.
Part of it you see youre not anecdotal inventory Hey, Frank part of as we built inventory in the first quarter and so you've got to offset that to the 100, because thats a first half second half. So 75 implies we're running our assets in a similar manner.
Speaker 4: So 75 implies we're running our assets in a similar manner next year and get that tailored.
Next year and get that tailwind.
Okay. Thanks, Thanks, so much.
Mark Costa: It was the first quarter. And it's certainly in better shape, you know, as the destocking has, you know, definitely played out. We think at the end of the third quarter, you have some other markets where the destocking is also still pretty extensive, like medical and packaging, it didn't start like ag until the second quarter of this year and it's finishing out through this quarter as we can see it. So, there's different timing and different levels of drop across the segment when it comes to specially plastics, but we are pre confident that the destocking part will be over by the end of this year.
Our next question comes from Vincent Andrews of Morgan Stanley. Please go ahead.
Speaker 1: Our next question comes from Vincent Andrews of Morgan Stanley . Vincent, please go ahead.
Thank you good morning, everyone Mark your prepared comments talked about the potential for some state or federal incentives for the U S. Methanol plant, what what's the sort of order of magnitude and what might be available.
Speaker 3: Thank you. Good morning everyone. Mark, your prepared comments talked about the potential for some state or federal incentives for the U.S. methanolysis plant. What's the sort of order of magnitude and what might be available?
When will you know.
Speaker 4: So, yeah, the FLAQs Reduction Act is a great program for investing and inspiring sustainable investments, and we certainly see several of our projects that we're doing available for credit. When it comes to the second methanol sis plant here in the U.S., the one that we're doing with the Pepsi base load, that funding could be an incentive.
So yes.
Inflation reduction Act is a great program for investing and inspiring.
Mark Costa: And when you think about that $450 million of verbal margin down for volume and mix, you know, about half of that is in the AM segment. So, you can start seeing how that on the destocking part comes back. That's just on the destocking part. Then you've got the $75 million of EBITDA coming from the methanol system, you know, add back to next year on top of this year. Remember only 50 of that's going to show up in AM and the other 25 and other.
Sustainable investments and we certainly see.
Several of our projects that we're doing available for credit when it comes to the second methanol plant here in the U S. The one that we're doing.
With the Pepsi Baseload.
That <unk>.
<unk> could be incentives.
About $350 million of capital is what's in the application that doesn't mean, that's what we're going to get.
Speaker 4: About $350 million a capital is what's in the application. That doesn't mean that's what we're going to get. That's what we're asking for.
Mark Costa: And then you've got a lot of these stable markets that are going to have some amount of very modest growth in the sort of packaging, medical, you know, all we're going through this year isn't decline demand and medical, you know, surgeries are steady enough. It's just a lot of destocking, but it's very high value and painful like where you get past it. So, if you'll get about that, about $40 million, the $75 million of the asset utilization headwind from inventory management comes back as a tailwind.
That's what we're asking for.
Speaker 4: And so the good news is we've been through a couple rounds now and we continue to be considered for that program at the very competitive process. There's also some tax credits that we're pursuing as well and we should have insight on what they choose to get of all of us out of our requests in the first quarter of next year. It is what we've been told, but you never ever know it's a government process who knows how the timing will work.
And so the good news is we've been through a couple of rounds now and will continue to be considered.
For that program its a very competitive process Theres also some tax credits that we're pursuing as well.
And we should have insight on what they choose to give all of us.
Out of our requests.
In the first quarter of next year is what we've been told but you never know, it's a government process, who knows how the timing will work but.
Mark Costa: You know, $35 million of effects is a headwind this year. I don't know where current should go next year. So, that could be up or down, but it's a significant headwind this year when you think about, you know, looking at the total decline. So, you know, you've got the destocking coming off, you got the markets, you have the utilization tailwind, Kingsport, you got innovation, you got the auto market, which we expect to continue to grow in a lot of the innovation that's happening in there.
Speaker 4: But it's significant. It's a considerable help. We're also pursuing additional incentives in Europe with our project there in France, not at that scale, but some additional incentives.
But it is significant.
It's a considerable help we're also pursuing additional incentives in Europe with our project there in France, not at that scale, but some additional incentives.
Okay and could you just talk about the sale of the plant assets to any of us.
Speaker 3: Okay, and could you just talk about the sale of the plant assets to Enios? Is that something that you've been working on for a long time or does something that just sort of came up this year? And is there anything else like that that's being contemplated?
Is that something that you've been working on for a long time or is it something that just sort of came up this year and is there anything else like that that's being contemplated.
Mark Costa: There's a lot of innovation throughout the portfolio in AM that will create foreign growth once the market stabilizes and customers are confident doing the launches. So, we feel great and incremental margins will be impressive because we're going to keep the cost structure flat.
Speaker 6: Thanks for the question, and obviously we've had an ongoing relationship with any SS appeals.
Thanks for the question and obviously, we've had an ongoing relationship with <unk>.
<unk>.
William McLain: Very, very helpful. If I could follow up on the asset utilization, just a clarification in the appendix, the updated number on the headwind is $100 million on the lower asset utilization. This is first half versus second half versus the prior 75 million and you're expecting a 75 million benefit in 24. Shouldn't we be expecting a 100 million benefit in 24 on asset utilization? If it's a headwind for 23 is higher. I mean, I wouldn't assume.
Speaker 6: and through their acquisition of the BP assets for 10 years now. So I would say it's just through that ongoing, you know, partnership that we've had at the Texas City site, as we think about longer term, you know, in both, you know, increasing the percent.
And through their acquisition of the BP assets for 10 years now so I would say, it's just through that ongoing.
Partnership that we've had at the Texas City site.
As we think about longer term.
And both.
Increasing the percentage of Eastman that specialty as well as the highest and best use is the best owner for that and also as we think about strategically.
Speaker 6: as well as the highest and best use in EOS is the best owner for that. And also as we think about strategically feed stocks for our dance material segment long term. So all in all those factors came into play. And the team did a great job here and we expect to close that here in Q4 and that provides about 400 million of cash.
Feedstocks for our advanced materials segment long term. So all in all of those factors came into play and the team did a great job here and we expect to close that here in Q4 and that provides about $400 million of cash.
William McLain: Are you assuming that you're going to run at lower asset utilization as we start 2024? Frank, this is Willie. So, you've got to correct on the first half, second half. That increased from 75 million to 100 million. And sequentially as Mark has highlighted, it was a 75 million dollar headwind to Q2. With that momentum, we would expect it to improve quite a bit as we go from Q3 to Q4. But the full year, obviously, you're taking the reference 22 and that doesn't come into effect as you look 23 to 24.
Speaker 6: And we expect to use that to pay down cash here in the near term and for it to be basically immediately accreted.
And we expect to use that to pay down debt here in the near term and for it to be basically immediately accretive.
Speaker 6: Right now I would say there's no other items like this in the pipeline. We're always evaluating the portfolio, but nothing eminent.
Right now I would say.
There is no other items like this in the pipeline, we're always evaluating the portfolio.
But nothing.
William McLain: So, 75 is a reasonable estimate. It may be a little bit higher, but right now 75 is close enough. Part of it you see you're not in Dr. Louis inventory. Hey Frank, part of it was we've built a Louis inventory in the first quarter and so you got off stuff that to the hundred because that's the first half, second half. So 75 implies we're running our assets in a similar manner next year and get that tail.
Imminent.
Thanks very much.
Speaker 1: Our next question comes from Patrick Cunningham of City. Patrick, please go ahead.
Our next question comes from Patrick Cunningham of City Patrick. Please go ahead.
Hi, good morning.
Speaker 5: Hi, good morning. You've held your 2024 CAPEX guide relatively flat with this year, and I'm curious what this means for your additional recycling facilities. Do you expect any meaningful CAPEX to be deployed towards site construction next year, and is there any sort of updated timeline on site selection for the second facility?
Our 2024, and Capex guide relatively flat with this year and I am curious what this means for your additional recycling facilities do you expect any meaningful capex to be deployed towards site construction next year or and is there any sort of updated timeline on selection for the second facility.
Yes, I would again 2024, we expect it to be similar to slightly below.
Speaker 6: 2024 we expect it to be similar to slightly below Our choices on cat-fax will be influenced by the external environment as Mark is highlighted We're pretty neutral on the external environment and we can You know ramp that up or take it down as needed. I think we've demonstrated that discipline over time We are committed to beginning construction for the France project as well as the second US project as we just discussed
William McLain: Okay, thanks so much.
Our choices on Capex will be influenced by the external environment as Mark has highlighted we're pretty neutral on the external environment and we can.
Vincent Andrews: Our next question that comes from Vincent Andrews of Morgan Stanley, Vincent, please go ahead. Thank you. Good morning everyone. Mark, you're prepared comments, talked about the potential for some state or federal incentives for the U.S. Methodologist's plan. What's the sort of order of magnitude and what might be available and when will you know? So, yeah, the the Election Reduction Act is a great program for investing and inspiring you sustainable investments and we certainly see several of our projects that we're doing available for credit when it comes to the second methodologist's plan here in the U.S, the one that we're doing with the Pepsi base load.
Ramp that up or take it down as needed and I think we've demonstrated that discipline over time.
We are committed to beginning construction.
The France project as well as the second U S project as we just discussed.
Speaker 6: We expect to start construction probably in that middle of the year timeframe.
We expect to start construction.
Probably in that middle of the year timeframe.
Speaker 6: Also, we have some other specialty growth investments within the year and we're waiting on the macro environment to ultimately set the pace of those.
Also we have some other specialty growth investments within the year and we're waiting on the macro environment ultimately set the pace of those so I think what youre seeing and hearing from US is we're going to be disciplined.
Vincent Andrews: You know, that that funding could be an incentive. About $350 million a capital is what's in the application. That doesn't mean that's what we're going to get. That's what we're asking for. And so, the good news is, we've been through a couple rounds now and we continue to be considered for that program. It's a very competitive process. There's also some tax credits that we're pursuing as well and we should have insight on, you know, what they choose to get of all of us out of our requests in the first quarter of next year.
Speaker 6: So, I think what you're seeing and hearing from us is we're going to be disciplined. We're finishing the year strong with the cash flow that we just talked about from the divestiture. Also, we expect to have about $250 million of free cash flow here in Q4, so we're positioning ourselves to be disciplined on capital allocation, which will be a mix of organic growth as well as share repurchases as we look into 2024.
We're finishing the year strong with the cash flows that we just talked about from the divestiture.
So we expect to have about $250 million of free cash flow.
Here in Q4, so we're positioning ourselves to be disciplined on capital allocation.
Which will be a mix of organic growth as well as share repurchases as we look into 2024.
Speaker 4: You know, we feel good about our organic growth strategy. We think, you know, that kind of growth clearly creates a lot of, you know, some shareholder value with great returns on capital. It's unfortunate the macro environment took a turn on us just as we were launching into the circular programs and a lot of other specialty growth. But as we've talked about with our view of 24 and, you know, the expectation that markets will normalize as you go into 25 and 26.
We feel good about our organic growth strategy, we think that kind of growth clearly creates a lot of.
Vincent Andrews: This is what we've been told, but you never know it's a government process. Who knows how the timing will work. But it's significant. Okay. It's a considerable help. We're also pursuing additional incentives in Europe with our project there in France, not at that scale, but some additional incentives.
Shareholder value with great returns on capital.
It's unfortunate the macro environment took a turn on us.
As we were launching into the circular programs and a lot of other specialty growth.
And as we've talked about with our view 24, and the expectation that markets will normalize as you go into 'twenty five and 'twenty six.
Mark Costa: Okay. And could you just talk about the sale of the plant assets to Enios? Is that something that you've been working on for a long time? Or is it something that just sort of came up this year? And is there anything else like that that's being contemplated? Thanks for the question. And obviously, we've had an ongoing relationship with Enios at the Pils and through their acquisition of the BP assets for 10 years now.
Speaker 4: We believe earnings and our cash will come back significantly as we move forward. You can remember this year, a lot of our headwind and earnings to 22 is non-cash, you know, 110 million of pension, 75 million dollars of acolydation to generate cash. So when you're just looking at earnings, a lot of it is a non-cash hit relative to 22. So if we're very good about our cash earnings, in how we're doing in this environment, as well as how we look forward to the future.
We believe earnings and our cash will come back Cigna.
Significantly as we move forward you got to remember this year a lot of our headwind in earnings to 'twenty, two is non cash and $110 million of pension $75 million of asset utilization to generate cash.
Mark Costa: So, I would say it's just through that ongoing, you know, partnership that we've had at the Texas City site as we think about longer term, you know, in both, you know, increasing the percentage of Eastman that specialty as well as the highest and best use in Enios is the best owner for that. And also as we think about strategically feedstocks for our advanced material segment long term. So, all of those factors came into play.
Assuming you are just looking at earnings a lot of it is a noncash hit relative to 'twenty. Two so we feel very good about our cash earnings and how we're doing in this environment as well as how we look forward.
To the future.
Speaker 6: And maybe just to build on that, Mark, on the cash, as we think about 2024 cash, as Mark highlighted, our baseline is starting at approximately 1.4 billion of operating cash flow. That's through the combination of higher cash earnings. Call that roughly 250 million.
And maybe just to build on that Mark on the cash as we think about 2020 for cash.
As Mark highlighted our baseline is starting at approximately $1 4 billion of operating cash flow that's through the combination of.
Higher cash earnings call that roughly $250 million.
Speaker 6: We always assume working capital is flat, so that would be a reduction of about 100 million year over year. And then we've got higher cash taxes, which also includes some of the taxes in the Texas City, the vest.
We always assume working capital is flat so that would be a reduction of about $100 million year over year, and then we've got higher cash taxes, which also includes some of the taxes on the Texas City.
Mark Costa: And the team did a great job here and we expect to close that here in Q4. And you know, that provides about 400 million of cash. And we expect to use that to pay down cash here in the near term and for it to be basically immediately accreted. Right now, I would say there's no other items like this in the pipeline. We're always evaluating the portfolio, but nothing, you know, eminence. Thanks very much.
Divestiture.
Speaker 7: that is very helpful. And then I appreciate that this sort of forward outlook doesn't have any restocking expectations embedded, but based on your conversations with customers coming out of this at least docking, do any end markets have precariously been inventories or do you get the sense that this has just been a trimming of safety stock spilled over the last couple of years?
Got it that's very helpful. And then I appreciate I appreciate that the sort of forward outlook doesn't have any restocking expectations embedded.
Based on your conversations with customers coming out of this destocking. So many end markets have precariously thin inventories or do you get the sense that this is just in a trimming of safety stock sales over the last couple of years.
Speaker 4: No, it's definitely both. There's definitely safety stocks that were built up in the supply chain crisis more than customers were sharing with us, and so hence the sort of destocking we're seeing this year. But we're seeing signs where suddenly we get an order from a customer, some of our big customers where they've brought inventory down so low they can't actually make product and they need an urgent shipment sent to them.
Patrick Cunningham: Our next question comes from Patrick Cunningham of City, Patrick, please go ahead.
No. It's definitely both Theres definitely safety stocks that were built up in supply chain crisis more than customers were sharing with us.
And so there.
William McLain: Hi, good morning. You called your 2024 CAPEX guide relatively flat with this year. Now I'm curious what this means for your additional recycling facilities. Do you expect any meaningful CAPEX to be deployed towards site construction next year or, and is there any sort of updated timeline on site selection for the second facility? Yeah, I would, again, 2024, we expect it to be similar to slightly below. You know, our choices on CAPEX will be influenced by the external environment.
Hence the sort of Destocking, we're seeing this year.
But we're seeing signs where suddenly we get an order from a customer.
Some of our big customers where they've.
Inventory down so low they can't actually make product.
Urgent shipments sent to them, so you're starting to see sort of people hitting bottom, which is encouraging when you look at all the data we've put together here around destocking.
Speaker 4: You're starting to see sort of people hitting bottom, which is encouraging. You know, if you look at all the data we've put together here around destocking.
Speaker 4: and underlying markets, you know, you definitely can see that, you know, that we're turning.
And the underlying markets.
You definitely can see that.
That were turning.
Speaker 4: You know, the back half of this year, where the destocking has played out. As you look at next year, when you get into this question of restocking, we wanted to build a really conservative view of how we could perform next year, because the macro economy, frankly, is so uncertain.
In the back half of this year, where the Destocking has played out as you look at next year.
William McLain: As Mark is highlighted, we're pretty neutral on the external environment. And we can ramp that up or take it down as needed. And I think we've demonstrated that discipline over time. We are committed to beginning construction for the France project as well as the second US project as we just discussed. We expect to start construction, you know, probably in that middle of the year timeframe. Also, we have some other specially growth investments within the year.
When you get into this question of restocking, we wanted to build facilities.
<unk> view of how it could perform next year because the macro economy frankly is so uncertain.
Speaker 4: So we don't have any restocking in there, but it's reasonable to expect that some restocking is going to have to happen with some of these customers if the markets start to stabilize and grow at all. And so that'll happen. That would be upside to sort of how we look at next year.
So we don't have any restocking in there, but it's reasonable expected. Some restocking is going to have to happen with some of these customers if the markets start to stabilize and grow at all.
And so that will happen that would be upside to us or how we look at it next year.
William McLain: And we're waiting on the micro environment to ultimately set the pace of those. So I think what you're seeing and hearing from us is, you know, we're going to be disciplined. We're finishing the year strong with the cash flow that we just talked about from the divasiture. Also, we expect to have about 250 million of free cash flow, you know, hearing Q4. So we're positioning ourselves to be disciplined on CAPEX allocation, which will be a next organic growth as well as cherry purchases as we look into the 2024.
Speaker 4: It's certainly going to happen in ag, as I think about it. That's one place we know for sure that a rebuild of inventory will occur.
It's certainly going to happen in AG as I think about.
That's one place we know for sure that a rebuild of inventory volcker.
Okay.
Unexplored and we can go to our next question. Please.
Speaker 1: Our next question comes from Jeff Zekorkas of J.P. Morgan. Jeff, please go ahead.
Our next question comes from Jeff Secaucus of J P. Morgan Jeff. Please go ahead.
Alright, thanks, very much how much did the methanol plant in Kingsport.
Speaker 8: Thanks very much. How much did the methodology to plant in King's
William McLain: You know, we feel good about our organic growth strategy. We think, you know, that kind of growth clearly creates a lot of, you know, shareholder value with great returns on CAPEX. It's unfortunate, the macro environment took a turn on us, just as we were launching into the circular programs and a lot of other specially growth. But as we've talked about with our view of 24 and, you know, the expectation that markets will normalize as you go into 25 and 26, you know, we believe earnings and our cash will come back, you know, significantly as we move forward.
Speaker 9: Jeff, on the methanol also think Kingsport, I think as we've highlighted earlier this year, we had a range of 700 to 800 million as we started the year. And we went to the higher end of that estimate. We've been able to manage the increase where the Kingsport methanol is within that discipline budget that we've been able to demonstrate through the year. That's how I've been summarized that. We have to school the specific project capital for competitive research.
So Jeff on the methodologies in Kingsport I think as we've highlighted earlier this year, we had a range of <unk>.
708.
$800 million as we started the year and we went to the higher end of that estimate and we've been able to manage the increase or the kingsport methanol office within that disciplined budget that we've been able to demonstrate through the year.
That's how I would summarize that we don't disclose specific project capital for competitive reasons. The additional things that I would continue to highlight Jeff is as we think about $450 million of EBITDA.
William McLain: You can remember this year, a lot of our headwind and earnings to 22 is non-cash, you know, 110 million of pension, 75 million dollars of assualization to generate cash. You know, so we're just looking at earnings, you know, a lot of it is a non-cash hit relative to 22. So if we're very good about our cash earnings, you know, in how we're doing in this environment, as well as how we look forward to the future.
Speaker 6: The additional thing that I would continue to highlight, Jeff, is, you know, if we think about, you know, 450 million of Ivada, also the fact that we're going to be generating 75 million of Ivada on the first plant here from a year over year basis in 2024, I think that demonstrates, you know, that velocity of Ivada, and, you know, we think that that's at 150 by the end of 20.
Also in the fact that we're going to be generating $75 million of EBITDA in the first plant here.
From a year over year basis in 2024.
That demonstrates.
William McLain: And maybe just to build on that mark on the cash. As we think about 2024 cash, as Mark's highlighted, our baseline is starting at approximately 1.4 billion of operating cash flow. That's through the combination of higher cash earnings called that roughly 250 million. We always assume working capital is flat. So that would be a reduction of about 100 million year over year. And then we've got higher cash taxes, which also includes some of the taxes in the Texas City, the vestiture.
That loss of the EBITDA and we think that Thats about 150 by the end of 'twenty.
Speaker 8: 24 that sets up well for strong returns on this investment.
24.
That sets us up well for strong returns on this investment.
So.
My memory is that you would plan to expand your tightened capacity in Kingsport.
Speaker 8: with the building of the methanol plant, but chose.
With the building of the methanol plant, but chose not to do that.
Speaker 9: in your Normandy. I know, we didn't choose. I'm sorry, go ahead.
And you are enormous.
Didn't choose to Im sorry go ahead.
Speaker 8: So finish your question. I thought you were going to be very good. Good job. Thank you very much. Yep. In the Normandy plant, I thought that there was also a Triton component there as well.
Mark Costa: That is very helpful. And then I appreciate that this sort of forward outlook doesn't have any re-stocking expectations embedded. But based on your conversations with customers coming out of this piece of stocking, do any end markets have, you know, precariously been inventories, or do you get the sense that this has just been a trimming of safety stocks built over the last couple of years? Partners. No, it's definitely both. There's definitely safety stocks that were built up in supply chain crisis more than customers were sharing with us.
No finish your question I thought 200, I'm sorry, good go ahead sorry.
Yes, and the Normandy plan I thought that there was also a triton component there as well.
Speaker 8: Since you didn't build the Triton, the extra Triton capacity in the United States, are you still going to build the Triton capacity and Normandy in that? I would think that Triton would be more favorable.
You didn't build the Triton the extra tightened capacity in the United States.
Are you still going to build the tightening capacity in Normandy.
That I would think that Triton would be more favorably made in the United States.
Speaker 8: States. That is, are you going to scale back whatever it is that you thought you were going to build in Normandy, given the way that economic
Are you going to scale back whatever it is that you thought you were going to build in Normandy.
Mark Costa: And so they're, you know, let hence the sort of these documents we're seeing this year. But we're seeing signs where suddenly we get an order from a customer, you know, some of our big customers where they've, you know, brought inventory down so low that they can't actually make product and they didn't urgent shipment sent to them. So you're starting to see sort of people hitting bottom, which is encouraging. You know, we look at all the data we put together here around destocking and underlying markets, you know, you definitely can see that, you know, that we're turning, you know, the back half of this year, where the destocking has played out.
Given the way that economic conditions have evolved.
Speaker 4: So, you know, me, I'm clarifying a couple of points there. Jeff, first with the Kingsport Methodal Alices Plan and the Trident Expansion that we intend to do here in Kingsport, we're still doing it. Right, we've just pushed the construction timeline of that plan out to better align with the macro economy. So our intention here is to still have
So let me clarify a couple of points there Jeff first.
With the Kingsport methanol plant.
And Detroit and expansion that we intend to do here at Kingsport, we're still doing it right. We've just pushed the construction timeline of that plant out to better align with the macro economy. So our intention here is to still have.
85000 tons of capacity being brought online.
Speaker 4: 85,000 tons of capacity being brought online of additional Triton
Additional training.
Speaker 4: capability. It's just going to come online more in 2025 than in 2024 because, you know, the durable market where a lot of that Triton is sold is obviously down.
Capability.
Mark Costa: As you look at next year, when the, when you get into this question of restocking, we want to build a really conservative view of how to perform next year, because the macro economy frankly is so uncertain. So we don't have any restocking in there, but it's reasonable expect that some restocking is going to have to happen with some of these customers if the market starts to stabilize and grow at all. And so, you know, that'll happen.
It's just going to be come online more than 25% and 24 because.
The durable market, where a lot of that Triton is sold is obviously down.
Speaker 4: So there's no change in our strategy whatsoever, it's just an adjustment of timing, and that's part of what Willie was getting at in sort of how we adjusted our spend rate on capital this year to make room for the higher cost of finishing methanolysis by
So theres no change in our strategy whatsoever, it's just adjustment of timing and Thats part of what will he was getting at and sort of how we adjusted our spend rate on capital this year to make room for the higher cost of finishing methanol CIS by <unk>.
Speaker 4: pushing that capital on the Triton project out into the next year.
Pushing that capital on the Triton project out into the.
Mark Costa: That would be upside to sort of how we look at at next year. It's certainly going to happen in ag as I think about it. That's one place we know for sure that we build an internal curve.
Into next year.
Speaker 4: And so that's what we've done here. So no changes at all in how we think about the value creation from the first investment. It's just a shift a little bit in timing in the short term. The good news around our assets in Tennessee is they're flexible, right? We can swing our Triton lines between Triton and making copolyester. We can make PET. We can assign that recycle content to whatever products we want across our integrated system.
And so that's what we've done here so no changes at all and how we think about the value creation.
From the first investment.
Just to shift a little bit of timing in the short term the good news around our assets in Tennessee is they're flexible we can swing our triton lines between Triton and making co polyester, we can make PT, we can assign that recycled content to whatever products, we won across our integrated system.
Unknown Executive: Our next question, please.
Jeffrey Zekauskas: Your next question comes from Jeff, the caucus of JP Morgan. Jeff, please go ahead. Thanks very much.
Speaker 4: So that allows us to monetize the value of the recycle content as quickly as we can make it as we ramp up the facility. So that's not going to be hindered by the macroeconomic environment in Durables. Because there's plenty of packaging out there that we can make both in our co-polyestra applications like our shrink or in some PET.
So that allows us to monetize the value of the recycled content as quickly as we can make it as we ramp up the facility. So that's not going to be hindered by the macroeconomic environment in durables.
William McLain: How much did the methanolis this plant in Kingsport cost? So Jeff, on the methanolis was in Kingsport. I think as we've highlighted earlier this year, we had a range of 700 to 800 million as we started the year and we went to the higher end of that estimate. And we've been able to manage the increase for the Kingsport methanolis within that discipline budget that we've been able to demonstrate through the year. That's how I would summarize that.
Theres plenty of packaging out there that we can make both in our co polyester applications like our shrink or in some PT.
Speaker 4: So we'll be monetizing the full value of all the DMT as fast as we can make it and driving that utilization rate up as fast as we possibly can. And then as higher value markets like Triton come back, we'll shift the mix and how we assign the recycled content to the higher value market.
So we will be monetizing the full value of all the DMT as fast as we can make it.
Writing and driving that utilization rate up as fast as we possibly can and then as higher value markets like Triton come back.
Mark Costa: We also schooled specific project capital for competitive reasons. The additional thing that I would continue to highlight Jeff is, you know, if we think about, you know, 450 million of Ivida, also the fact that we're going to be generating 75 million of Ivida on the first plant here from a year over your basis in 2024. I think that demonstrates that velocity of Ivida, and we think that that's at the 150 by the end of 2024.
We will shift the mix and how we assign the recycled content to the higher value markets.
Speaker 9: So we got a great flexibility that's created huge amount of value and makes upgrade over the last decade as we grew Triton on the same assets that once made PET you know over a decade ago and you know we can take advantage of that now. In regards to the French plant we're not changing anything there either so the design of that plant is to have two polymer lines.
So we've got a great flexibility that's create a huge amount of value and mix upgrade over the last decade as we grew Triton on the same assets at once made pte in over a decade ago.
We can take advantage of that now in regards to the French plant.
Not changing anything there either so the design of that plant is to have two polymer lines.
Speaker 4: Both of which are flexible between making PET or textiles or what we said is specialties, but that's actually co-polyester is not triton. Your point, triton is much more economically made here in the US with the integrated systems and monomers that we have to make that very unique polymer. So this will be just more PETG products that go into packaging, cosmetics, bottles and things like that.
<unk> of which are flexible to put between making PT or textiles.
Mark Costa: That sets up well for strong returns on this investment. So my memory is that you would plan to expand your Triton capacity in Kingsport with the building of the methanolis this plant but chose not to do that in your Normandy. No, we didn't. Sorry, go ahead. So finish your question. I thought you were going to go. Thank you very much. In the Normandy plant, I thought that there was also a Triton component there as well.
Or what we said is specialties, but thats actually co polyesters not Triton to your point trading is much more economically made here in the U S with the integrated systems in monomers that we have to make that very unique polymer. So this will be just more <unk> products that go into packaging cosmetics.
Cosmetics bottles and things like that.
Speaker 4: and a variety of other applications that we make with our traditional PETG.
You have other applications.
That we make into with our traditional <unk>.
Speaker 4: So nothing's changed in our assets, rather, what's, however, from a product mix point of view. Kingsports all specialties, France's half, half, you know, PET, half specialty, and the second US plant here is all PET or text.
So nothing's changed in our asset strategy whatsoever from a product mix point of view.
Sports all specialties, France is half.
Mark Costa: Since you didn't build the extra-triton capacity in the United States, are you still going to build the Triton capacity in Normandy in that I would think that Triton would be more favorably made in the United States? Or are you going to scale back whatever it is that you thought you were going to build in Normandy, given the way that economic conditions have evolved? So, let me clarify a couple of points there.
PT have specialty and the second U S plant here is all P T or Texas.
Okay, great. Thank you.
Our next question comes from Salvator Tiano of Bank of America. Please go ahead.
Speaker 1: Our next question comes from Salvatore Tiano of Bank of America. Salvatore, please go ahead.
Yes, thank you very much.
Speaker 3: Yes, thank you very much. Firstly, I want to ask a little bit about your plasticizer's footprint. How much would you say of your total sales earnings was coming from the Texas City facility that you're selling? And can you discuss a little bit what are the economics of the agreement where emails will actually operate the asset, but technically you're still the owner of it?
I wanted to ask a little bit above.
Plasticizers claim.
How much would you say your.
Mark Costa: Jeff, first with the Kingsport methodology plan and the Triton expansion that we intend to do here at Kingsport, we're still doing it. Right, we've just pushed the construction timeline of that plan out to better align with the macro economy. So, our intention here is to still have 85,000 tons of capacity being brought online of additional Triton capability. It's just going to come online more in 25 than in 24 because the durable market where a lot of that Triton is sold is obviously down.
The total sales was timing hamzah, thanks for senior facility.
That you're settling in.
Can you discuss a little bit whether it'd be economics of the agreement where E mails will actually operate the asset.
Thank you.
The owner of <unk>.
Speaker 6: Yes, so we retained the ownership of the Texas City Plasticizers. That was the original strategic intent of buying the Texas City's facility along with the, I'll call it, the infrastructure that the site had. So first, we're retaining the ownership and the sales. Second, I would say the economics around that are substantially the same as it operated today within Chemical Intermediate.
Yes, so we.
Retain the ownership of the <unk>.
Texas City Plasticizers that was the original strategic intent of buying the Texas City facility along with.
I'll call it the infrastructure that the site had.
So first we're retaining the ownership in the sales.
Mark Costa: So, there's no change in our strategy whatsoever. It's just the adjustment of timing and that's part of what Willie was getting at in sort of how we adjusted our spend rate on capital this year to make room for the higher cost of finishing that analysis by pushing that capital on the Triton project out into the into the next year. And so, that's what we've done here. So, no changes at all in how we think about the valuation from the first investment.
Second I would say the economics around that.
Are substantially the same as it operated today within chemical intermediates.
Speaker 6: So the only thing that you're going to see is reduced sales of asset deals out of the Texas City site within chemical and immediate. The remaining plastic housing business is in remains intact.
The only thing that youre going to see is reduced sales of asset yields out of the Texas City side within chemical intermediates. The remaining plasticizer business is and remains intact.
Okay perfect.
Speaker 3: perfect and I also want to ask about how prices I think there has been some traction which increases in the past one or two months max. What are you seeing there and could this be a headwind in the end for $2.24?
I also want to ask about the pulp prices I think.
Mark Costa: It's just a shift a little bit in timing in the short term. The good news around our assets in Tennessee is they're flexible, right? We can swing our Triton lines between Triton and making co polyester. We can make PT. We can assign that recycle content to whatever products we want across our integrated system. So, that allows us to monetize the value of the recycle content as quickly as we can make it as we ramp up the facility.
There has been some traction with increases in the past one or two months Max.
What are you seeing there and could this be.
It's a headwind at the end for 2024.
Speaker 9: No, we're not expecting any headwinds from pulp.
No, we're not expecting any headwinds from pulp.
Part of what we did in our tow contracts is improve our pricing obviously to get our margins back to being able to reliably supply our customers.
Speaker 4: Part of what we did in our tow contracts is improve our pricing, obviously, to get our margins back to being able to reliably supply our customers.
Mark Costa: So, that's not going to be hindered by the macroeconomic environment and durables because there's plenty of packaging out there that we can make both in our co polyester applications like our shrink or in some PT. So, we'll be monetizing the full value of all the DMT as fast as we can make it and writing and driving that utilization rate up as fast as we possibly can. And then as, you know, higher value markets like Triton come back, you know, we'll shift the mix and how we assign the recycle content, you know, to the higher value markets.
Speaker 4: Because this is an extremely valuable product for them, and reliability is a priority for them.
Because this is an extremely valuable product for them.
And reliability is a priority for them.
But we also.
Speaker 4: You know, change the contracts. It used to be fixed price contracts. And we had to, you know, ride the benefit or the headwind associated with pulp prices or energy.
Change of contracts, who used to be fixed price contracts and we had to.
Right the benefit or the headwind associated with pulp prices our energy. We've now adjusted those contracts to be more like our amines business, where theyre more cost pass through and adjust.
Speaker 4: We've now adjusted those contracts to be more like our means business where there are more cost pass through and adjust.
Speaker 9: for changes in energy or pulp, so that's not a concern as we go forward. It's not perfect, but it's a significant improvement from where we were in the past.
For changes in energy or pulp so that's not a not a concern as we go forward it's not perfect.
Mark Costa: And so, we got a great flexibility that's created huge amount of value and makes upgrade over the last decade as we grew Triton on the same assets that once made PT, you know, over a decade ago, and, you know, we can take advantage of that now. In regards to the French plant, we're not changing anything there either. So, the design of that plant is to have two polymer lines, both of which are flexible between making PT or textiles or what we said, especially, but that's actually co polyester is not Triton.
But it's a significant improvement from where we were in the past.
Okay. Thank you very much.
Speaker 1: Our next question comes from Mike Lighthead of Barclays. Mike, please go ahead.
Our next question comes from Mike <unk> head of Barclays. Mike. Please go ahead.
Speaker 7: Great, thank you. Thank you. Good morning guys. Um, 1st, Mark, I want to follow up on fibers in January when we started the year. When you had the annual prices sort of locked in, you expected to make about 275Million this year and a bit. Now, we're looking north of 410, so can you maybe just talk about what's changed versus starting years largely costs.
Great. Thank you good morning, guys.
First Mark I wanted to follow up on fibers.
When we started the year when you had the annual pricing sort of locked in your expected to make about $275 million. This year in EBIT now north of 410. So can you maybe just talk about what's changed versus starting years largely cost and just help us with your confidence in the sustainability of this higher level here.
Mark Costa: To your point, Triton is much more economically made here in the US with the integrated systems and monomers that we have to make that very unique polymer. So, this will be just more PTG products that go into packaging, cosmetics, bottles and things like that. And a variety of other applications that we make with our traditional PTG. Keys. So, nothing's changed in our asset strategy whatsoever. It's from a product mix point of view. Kingsport's all specialties, France's half, half, you know, PT, half specialty, and the second U.S, plant here is all PT or textiles.
Mark Costa: Okay, great. Thank you.
Speaker 10: help us with your confidence and sustainability of this higher level.
So what I would highlight is the fact that.
Speaker 6: So what I would highlight is the fact that, you know, one, we're confident in the base of what we've gotten to at this point in time. So we're at, you know, greater than 410 for this year. The business team has done a tremendous job of getting the contract structure in place. That's what Mark just highlighted.
One we're confident in the base of where we've gotten to at this point in time, So we're at greater than 410 for this year.
The business team has done a tremendous job of getting the contract structure in place that's what Mark just highlighted.
Speaker 6: You know, from our confidence of both the margins within this business, also as we think about fibers more broadly with the textiles and the textiles growth as we go from 23 to 24. I guess I would just highlight that right now, you know, we're substantially complete with the contracts for 2024 and, you know, have a high commitment level as we highlighted in the prepared remarks for 25.
From.
Salvator Tiano: A next question comes from Salvator Tiano. I'll thank America. Salvator, please go ahead. Thank you very much. Firstly, I want to ask a little bit about your plasticizers footprint. How much would you say of your total sales run was coming from the tech facility that you're selling? And can you discuss a little bit whether the economics of the agreement where emails will actually operate the asset, but technically you're still the owner of it?
Our confidence of both the margins within this business.
Also as we think about fibers more broadly with the textiles in the textiles growth as we go from 23 to 24, I guess I would just highlight that right now we're substantially complete with the contracts for 2024 and have a high commitment level as we highlighted in the prepared.
On March four 2000 Psi.
Speaker 6: Going back to the first part of your question, you know, ultimately part of that was growing in confidence. We do have...
Going back to the first part of your question.
Ultimately part of that was growing in confidence we do have.
Salvator Tiano: Yes, so we retain the ownership of the Texas City plasticizers. That was the original strategic antenna behind the Texas City facility, along with the, I'll call it the infrastructure that the fight had. So first, we're retaining the ownership and the sales. Second, I would say the economics around that are substantially the same as it operated today within chemical intermediates. So, the only thing that you're going to see is reduced sales of asset deals out of the Texas City site within chemical intermediates.
<unk>.
Speaker 6: lower energy cost than we expected at the beginning of the year. And as we gained momentum in seeing how the contracts and the contract structures were working, we just reconfirmed that as we grew the earnings and grew the confidence by year end.
Lower energy cost than we had expected at the beginning of the year and as we gained momentum and seeing how the contracts on the contract structures, we're working with.
Just reconfirm that as we grew the earnings and grew the confidence by year end.
Speaker 6: A lot of business and we're happy with where it's headed and will be a strong Contributor to cash as we go forward
A lot of it as a business and we're happy with where it's headed and will be strong.
Contributor to cash as we go forward.
Speaker 4: The cost structure and the utilization benefits and we were being conservative about how well some of the investments we were making and running the plant efficiently. We're gonna play out until we had that proven out and so all that came together. So it's not just price. We've made investments and are operating our facilities a lot better. And that we didn't want to sort of count on until we've proven it.
The cost structure and the utilization of benefits and we are being conservative about how well some of the investments we were making in running the plant efficiently.
We're going to play out until we had that proven out and so all of that came together. So it's not just price we've made investments in our operating our facilities a lot better.
Mark Costa: So, the remaining plasticizer business is and remains intact. Okay, perfect. And I also want to ask about how prices I think there has been some traction, which increases in the past one or two months. What are you seeing there and could this be a headwind in the end for 2024? No, we're not expecting any headwinds from pulp. Part of what we did in our tow contracts is improve our pricing, obviously, to get our margins back to being able to reliably supply our customers, because this is an extremely valuable product for them and reliability is a priority for them.
And that we didn't want to sort of count on until we've proven it to ourselves.
Great. That's Super helpful. And then second I just wanted to follow up on the trajectory of Capex, obviously, you've given us some numbers about capex somewhat lower next year.
Speaker 10: Great, that's super helpful. And then second, I just wanted to follow up on this trajectory of CAPEX. Obviously you've given us some numbers about CAPEX going somewhat lower next year. But when I just think about your large growth project, we've got about two more methanoluses projects on the horizon. You mentioned earlier to Jeff about the new timing on Triton.
I just think about your large growth projects, we've got about two more methanol projects on the horizon, you mentioned earlier to Jeff about the new timing so.
Just high level should we expect capex to roughly stay are almost $800 million range. The next few years should trend higher or lower overall.
Speaker 10: high level, should we expect CapEx to roughly stay around this $800 million range the next few years? Should it trend higher or lower?
Okay.
Yeah, what you would expect US again that we expect around 800 or less in 2024 to your point obviously, we're in the detailed engineering phases right now.
Speaker 6: Now what you would expect is, again, that we expect around 800 or less in 2024. To your point, obviously we're in the detailed engineering phases right now, and then France would be probably first out of the gate on long lead and then construction, closely followed by the second U.S.
Mark Costa: But we also change the contracts. It used to be fixed price contracts and we had to ride the benefit or the headwind associated with pulp prices or energy. We've now adjusted those contracts to be more like our means business where they're more cost pass through and adjust for changes in energy or pulp. So that's not a concern as we go forward. It's not perfect, but it's significant improvement from where we were in the past. Perfect.
Michael Leithead: Thank you very much.
And then.
France would be probably first out of the gate on long lead and then construction.
Closely followed by the second U S. So.
Speaker 6: So we would expect 2025, you would be building CAPEX, and it's just going to depend on the timeline. So what I would say is, it'll be above 800 million, and we'll give you more firm answers on how we see 25 when we actually get the project schedule set.
We would expect 2025, you would be building capex.
And it's just going to depend on the timeline. So what I would say is it'll be above $800 million and we will give you more firm answers on how we see 25, when we actually get the project schedule set.
Michael Leithead: Our next question comes from Mike Lighthead of Barclays. Mike, please go ahead. Great. Thank you. Good morning, guys.
Great. Thank you.
Our next question comes from Josh Spector of UBS, Josh. Please go ahead.
Speaker 5: Our next question comes from Josh Specter of UBS. Josh, please go ahead. Here you guys, this is James Kenner. I'm Josh. Thanks for taking my-
Mark Costa: First, Mark, I want to follow up on privacy. In January, when we started the year, when you had the annual prices sort of locked in, you expected to make about 275 million this year. And even now we're looking north of 410. So can you maybe just talk about what's changed versus starting years, the largely cost, and you've helped us with your confidence and sustainability of this higher level here. So what I would highlight is the fact that, you know, one, we're confident in the base of where we've gotten to at this point in time.
Hey, guys. This is James Cameron on for Josh Thanks for taking my question.
In AFP, you've called out in your guidance, some raws increasing in the fourth quarter.
I believe I believe you transfer some propylene from the CA segment, I'm, assuming that might be a big part of it but is there anything else we should be thinking about.
Speaker 11: I believe, I believe you transfer some propylene from the segment. I'm assuming that might might be a big part of it. But is there anything else we should be thinking about. And.
In that.
Yes, so we buy by methanol, we buy ammonia we buy.
Speaker 4: Yeah, so we buy, you know, buy methanol, we buy ammonia, we buy, you know, and we do have propylene derived specialty products and coatings.
And we do have propylene derived specialty products in coatings.
Mark Costa: So we're at, you know, greater than 410 for this year. The business team has done a tremendous job of getting the contract structure in place. That's what Mark just highlighted. You know, from our confidence of both the margins within this business. Also, as we think about fibers more broadly with the textiles and the textiles growth as we go from 23 to 24. I guess I would just highlight that right now, you know, we're substantially complete with the contracts for 2024.
Speaker 4: So all those products obviously are impacted by oil and overall market dynamics and creating some headwinds as those are increasing, especially from the oil change.
So all of those products, obviously are impacted by oil and overall market dynamics and creating some headwinds.
Those are increasing.
Especially from the oil change.
Speaker 4: You know, it flows through and there's just a lag in how the Contract braces catch up to it and so you'll have a
It flows through.
There's just a lag and how the how the contract prices catch up to it and so youll have a.
Speaker 4: have a headwind in the fourth quarter and that sequentially will then turn to a tailwind in the first quarter from the fourth quarter when those pricing adjustments catch up.
We have a headwind in the fourth quarter and that sequentially. We'll then turn to a tailwind in the first quarter from the fourth quarter when those pricing adjustments catch up.
Mark Costa: And, you know, had a high commitment level as we highlighted in the prepared remarks for 25. Going back to the first part of your question, you know, ultimately part of that was growing in confidence. We do have lower energy cost than we expected at the beginning of the year. And as we gained momentum and seeing how the contracts and the contract structures were working. We just reconfirmed that as we grew the earnings and grew the confidence by year end.
Speaker 11: All right, great. Thanks. And then just on the specialty fluids that you called out some pull forward. Can you give a little bit more color on what you saw there and. Kind of how much you expect to get.
Alright, great. Thanks, and then just on the spec.
Specialty fluids that you called out some pull forward can you give a little bit more color on what you saw there.
Kind of how much you expect to get pulled out of Q4.
Yes. So our original guidance was we had some great sales on some LNG plants in the in.
Speaker 4: So our original guidance was we had some great fills on some LNG plants in the second quarter. We had originally expected that to be a bit more in the third, you know, at the beginning of the year. So those fills were made.
The second quarter, we had originally expected that to be a bit more in the third.
Mark Costa: A lot of business and we're happy with where it's headed and will be a strong contributor to cash as we go forward. The cost structure and the utilization benefits and we were being conservative about how well some of the investments we were making and running the plant efficiently. You know, we're going to play out until we had that proven out. And so all that came together. So it's not just price. You know, we've made investments and are operating our facilities a lot better. And that, you know, we didn't want to sort of count on until we've proven it to ourselves.
At the beginning of the year, so that those sales were made.
Speaker 4: And so when you look at the sequential drop from Q2 to Q3, we thought it'd be about $30 million.
And so when you look at the sequential drop from Q2 to Q3, we thought it would be about $30 million.
William McLain: Great. That's super helpful.
Speaker 4: But we had some additional fills show up in the third quarter, so that drop turned out to only be about $20 million. But the flute sales for the year aren't changing, so that just means now that there's an additional $10 million drop.
But we had some additional sales show up in the third quarter. So that dropped it turned out to only be about $20 million.
But the fluids sales for the year are changing so that just means now.
Additional $10 million drop of.
Speaker 4: of that 30 that will happen from Q3 to Q4. So that's part of, you know, why AFP is, you know, declining sequentially into the.
Of that 30 that will happen from Q3 to Q4, so that's part of.
<unk> ASP is declining.
Sequentially into the fourth quarter.
Speaker 4: But overall, you know, great business and we really like these LNG fills. You know, there's obviously a lot of.
But overall, great business and we really like these LNG fills theres, obviously a lot of.
Speaker 4: construction, sort of traditional chemical construction activity uncertainty, you know, especially with PT plants in China where a lot of these fills go, and it's been great to diversify our exposure to that cycle with these LNG plants that also use a lot of heat transfer fluids.
William McLain: And then second, I just wanted to follow up on this trajectory of catback. Obviously you've given us some numbers about catbacks going somewhat lower next year. So when I just think about your large growth project, we've got about two more methanolis this project on the horizon. You mentioned earlier to Jeff about the new timing on trading. So just high levels should we expect catbacks to roughly stay around the $800 million range the next few years should a trend higher or lower overall.
Construction sort of traditional chemical construction activity uncertainty, especially with PT plants in China, where a lot of these fields go.
And it's been great to diversify our exposure to.
To that cycle with these LNG plants that also use a lot of heat transfer fluids.
Speaker 4: And I think as we look at that set of the markets, we see a lot of LNG facilities being built with the Ukraine-Russia situation.
And I think as we look at that set of the markets. We see a lot of LNG facilities being built with the Ukraine, Ukraine, Russia situation.
Speaker 4: And in a very well positioned with our products for those fills, which also turn out to be pretty high value products for what
And are very well positioned with our products with those fills which also turned out to be pretty high value products.
William McLain: Now what you would expect is, again, that we expect around 800 or less and 2024. To your point, obviously we're in the detailed engineering phases right now. And then France would be probably first out of the gate on long lead and then construction, you know, closely followed by the second US. So we would expect 2025. You would be building catbacks. And it's just going to depend on the timeline. So what I would say is it'll be above 800 million and we'll give you more firm answers on how we see 25 and we actually get the project schedule set.
For what they need to do.
Speaker 4: And we continue to really diversify our exposure into these places that are not as connected to what's going on in China, which is great.
And we continue to really diversify our exposure.
Unknown Executive: Thank you.
Into these places that are not as connected to what's going on in China, which is great.
Great. Thanks.
Our next question comes from Kevin Mccarthy of vertical research partners, Kevin The line is yours.
Speaker 1: Our next question comes from Kevin McCarthy of vertical research partners, Kevin the line is
Yes, good morning.
Speaker 11: Good morning. Mark, I didn't see anything in the prepared remarks that you released on the subject of the UAW strike. I'm just wondering if you have anything to add to that.
Mark I didn't see anything in the prepared remarks that you released on the subject of the UAW strike.
Speaker 11: Can you speak to whether or not that's having any material impact, and if so, what you might be baking into the fourth quarter, or any auto-related commentary in general?
Can you speak to whether or not that's having any material impact and if so what you might be baking into the fourth quarter.
Unknown Executive: Our next question comes from Josh Specter of UBS Josh, please go ahead. David. Hey guys, this is James Cannon, I'm for Josh, thanks for taking my question. In AFP, you called out and you're guiding some rosy increasing in the fourth quarter. I believe I believe you transfer some propylene from the CI segment. I'm assuming that might might be a big part of it, but is there anything else we should be thinking about?
Or any auto related commentary in general welcome.
Sure. So specifically UAW the math on that is it's a pretty.
Speaker 9: Sure, so specifically UAW, the math on that is it's a pretty.
Speaker 4: limited impact on us. About 20% of our auto and other business globally is in the United States, so just overall exposure is not that high. And then you're just talking about three brands of many, you know, that are in the U.S. that are being impacted by the UAW, so it's not a material impact. I would say that overall the auto business obviously has been a solid business for us. We've seen a lot of growth in in the business.
Limited impact on us.
20% of our auto and other business.
Globally is in the United States. So we're just overall exposure is not that high.
And then you're just talking about three brands of many.
That are in the U S that are being impacted by the UAW. So it's not a material impact.
Unknown Executive: And in that, yeah, so we buy, you know, by methanol, we buy ammonia, we buy, you know, and we do have coupling derived, especially products and coatings. So all those products are obviously are impacted by oil and all market dynamics and creating some headwinds as those are increasing, especially from the oil change, you know, it flows through and there's just a lag and how the contract price is catch up to it. And so you'll have a headwind in the fourth quarter and that sequentially will then turn to a tailwind in the first quarter from the fourth quarter when those pricing adjustments catch up.
I would say that overall the auto business, obviously has been a solid business for us we've seen a lot of growth.
And in the business.
Speaker 4: in the U.S. and Europe in particular for the interlayer business as well as the films business. I would note that China has been a challenge all year long, so we haven't seen the growth we expected.
In the U S and Europe in particular for the interlayer business as well as the films business. So we'd note that China has been a challenge all year long. So we haven't seen the growth we expected.
Speaker 4: We definitely thought we'd see some improved growth in the back half of the year, and that's one of the things that, you know, didn't play out as we thought, you know, from July to now, and how we've adjusted our outlook down a bit.
We definitely thought we'd see some improved growth in the back half of the year and Thats one of the things that didn't play out as we thought from July to now.
And how we've adjusted our outlook down a bit.
Speaker 4: And that's particularly impacting our performance films business, which has an important business in China, and we're not seeing the growth that we expected there, and even some contraction right now at the sales level in some parts of that Chinese business.
And that's particularly impacting our performance films business, which has an important business in China, and we're not seeing as.
Sure the growth that we expected there and even some.
Some contraction right now at the sales level in some parts of that Chinese business. So.
Mark Costa: All right, great, thanks. And then just on the specialty fluids that you called out some pole forward, can you give a little bit more color on what you saw there and kind of how much you expect to get pulled out of Q4? Yeah, so original guidance was we had some great fills on some LNG plants in the second quarter. We originally expected that to be a bit more in the third, you know, at the beginning of the year, so that those fills were made.
Speaker 4: Overall, I'd say it's been a great business. We expect it to be better next year than this year. But there's a lot of ups and downs going on across the different markets.
Overall, I'd say, it's been a great business, we expect it to be better next year than this year, but it's there's a lot of ups and downs going on across the different markets.
Speaker 11: Thank you for that. And then secondly, if I may, perhaps for Willie, I think earlier this year you had guided.
Thank you for that and then secondly, if I may perhaps for Willie I think earlier. This year, you had guided to a cost headwind related to pension and <unk> pad.
Speaker 11: cost headwind related to pension and OPEB of $110 million if my notes are correct. Is that still the case? And more importantly, what happens to that line item moving forward into 2024? Does it come back down or would you point to a different...
Hundred $10 million. If my notes are correct is that still the case and more importantly.
Mark Costa: And so when you looked at the sequential drop from Q2 to Q3, we thought it'd be about $30 million. But we had some additional fills show up in the third quarter, so that drop turned out to only be about $20 million. But the fluids sales for the year aren't changing, so that just means now that there's an additional $10 million drop of that 30 that will happen from Q3 to Q4. So that's part of, you know, YAFP is, you know, declining sequentially into the fourth quarter.
<unk> to that line item moving forward into 2024 does it come back down or would you point to a different trajectory.
Yes so.
Speaker 6: Yes, so ultimately that number is set for the year at the beginning of the year. So the 110 is just coming through quarterly as we expected. That gets marked a market at the end of the year. So there will be a gain loss from asset return as well as interest rate.
Ultimately that number set for the year at the beginning of the year. So the 110 is just coming through quarterly.
As we expected.
That gets mark to market at the end of the year. So there will be.
Mark Costa: But overall, you know, great business and we really like these LNG fills. You know, there's obviously a lot of construction for traditional chemical construction activity uncertainty, in especially with PT plants in China where a lot of these fills go. And it's been great to diversify our exposure to that cycle with these LNG plants that also use a lot of heat transfer fluids. And I think as we look at that set of the markets, we see a lot of well-positioned with our products for those fills, which also turned out to be pretty high value products for what they need to do. And we continue to really, you know, diversify our exposure, you know, into these places that are not as connected to what's going on in China, which is great.
Mark Costa: Great.
Again loss from.
Asset returns as well as interest rates.
Speaker 12: And right now as we look at where rates are, assets, and returns, it's probably a modest headwind. If you were to market to market right now, but again, we'll give you an update. We don't expect anything material that will update at your end. Or R?vern. Somersault Over lavoro.
And right now as we look at where rates are assets and returns.
Unknown Executive: Thanks.
It's probably a modest headwind if you were to market to market right now, but again, we will give you an update we don't expect anything material, but we'll update you at year end.
And any insight on 2020 for Willie.
From a pension.
Standpoint.
Speaker 6: We expect it to be a modest headwind if we look at it right now.
We expect it to be.
Modest headwind, if we look at it right now.
Speaker 6: That will change a lot depending on how rates.
That will change a lot depending on.
Hal.
Right finish up for the year.
Speaker 1: Our next question comes from Lawrence Alexander of Jeffreys. Lawrence, please go ahead.
Our next question comes from Laurence Alexander of Jefferies. Please go ahead.
Kevin Mccarthy: Our next question comes from Kevin McCarthy of vertical research partners. Kevin, the line is yours. Yes, good morning.
Speaker 13: Hi, good morning. This is Dan Resaud and for Lawrence. Thank you for taking my question. I don't know if I missed this or not, but so for the second plant in the US and the plant that you're building in France.
Hi, Good morning. This is Dan Rizzo on for Laurence. Thank you for taking my question.
Mark Costa: Mark, I didn't see anything in the prepared remarks that you released on the subject of the UAW strike. Can you speak to whether or not that's having any material impact? And if so, what you might be baking into the fourth quarter? Or any, you know, auto related commentary in general, welcome. Sure. So specifically, UAW, the math on that is it's a pretty limited impact on us, about 20% of our auto and other business globally is in the United States.
I don't know if I missed this or not but so for the second plant in the U S and the plant that you're building in France do.
Speaker 13: Do we think of those as when they are up and running to be 150 million in EBITDA additions as well? Or is it greater scale or less than that, or how should we think about it long term?
Do we think of those as when they are up and running to be $150 million in EBITDA.
Additions as well.
Is it <unk>.
Greater scale or less than that or how should we think about it long term.
And we've never given.
Speaker 6: We've never given a plant by plant. We said greater than 450 and you know, as Mark highlighted earlier in some of our conversations. The first plant is more specialty with our Triton portfolio, so you can expect it to be higher than the other two.
At plant by plant, we said greater than 450, and as Mark highlighted earlier in some of our conversations.
The first plant.
As more specialty with our Triton portfolio. So you can expect it to be higher than.
Mark Costa: So our just overall exposure is not that high. And then you're just talking about three brands of many, you know, that are in the US that are being impacted by the UAW. So it's not a material impact. I would say that overall the auto business obviously has been a solid business for us. We've seen a lot of growth in the business in the US and Europe in particular for the earlier business as well as the films business.
The other two.
Yeah.
Okay. Thanks.
Speaker 13: Okay, thanks. And then if we think about you saying, you know, medical demand, there being some destocking, but getting back to more, I guess, normalization, I was just wondering if, if that end market is at pre COVID levels in terms of elective surgeries and the actual overall demand versus, you know, some of the inventory adjustments we're seeing right now.
Thanks.
And then if we think about you say medical medical demand to be some destocking mitigating back to more I guess normalization I was just wondering if if that end market is at pre COVID-19 levels in terms of elective surgeries and the actual overall demand.
Some of the inventory adjustments were seeing right now.
Speaker 4: Yeah, the elective surgeries that are occurring are certainly growing roughly 5% a year and
Mark Costa: So I would note that China has been a challenge all year long. So we haven't seen the growth we expected. We definitely thought we'd see some improved growth in the back half of the year. And that's one of the things that didn't play out as we thought from July to now and how we've adjusted our outlook down a bit. And that's particularly impacting our performance films business, which has an important business in China.
Yes, the elective surgeries.
That are occurring are certainly growing roughly 5% of year end.
Mark Costa: And we're not seeing is the sort of the growth that we expected there and even some contraction right now at the sales level and some parts of that Chinese business. So, you know, overall it's been a great business. We expected it can be better next year than this year. But it's, you know, there's a lot of ups and downs going on across the different markets.
William McLain: Thank you for that.
Speaker 4: and that definitely, you know, both sort of pre-COVID levels if you look at it not a lot, but a little bit. You know, the issue we're having in medical is not about demand at all, right? And like in consumer gerbos, you know, laptops, TVs, appliances, they're not paying so close, you know, nearly as much as they were, medical is really stable in market. The customers though.
And definitely above sort of pre COVID-19 levels. If you look at it not a lot, but a little bit.
The issue, we're having a medical is not about demand at all right now like in consumer durables laptops Tvs appliances are not being sold nearly as much as they were medicals really stable end market customers, though.
Speaker 4: We're very nervous during the supply chain crisis about having enough material, and so they built a lot of inventory to be...
We're very nervous during the supply chain crisis about having enough material and so they built a lot of inventory to be.
Speaker 4: you know, safe. And because you cannot have a problem in getting medical devices delivered in our packaging to the marketplace for obvious reasons.
Safe.
And because you cannot have a problem in getting medical devices delivered in our packaging.
To the marketplace for obvious reasons so.
Speaker 4: You know, they finally got calm that there's plenty of, you know, supply and reliability and started destocking in the second quarter of this year. And they're still doing it through this quarter. But it's just a destocking event. The markets are solid and expected to be better next year than this year.
They finally got com that theres plenty of.
William McLain: And secondly, if I may perhaps for Willie, I think earlier this year you had guided to a cost headwind related to pension and OPEB of $110 million if my notes are correct. Is that still the case? And more importantly, what happens to that line item moving forward into 2024? Does it come back down or would you point to a different trajectory? Yes, so ultimately that number is set for the year at the beginning of the year.
Supply and reliability.
And started destocking in the second quarter of this year.
And they are still doing it through this quarter, but it's just a destocking event.
The markets are solid and expected to be better next year than this year.
Okay. Thank you very much.
Speaker 1: Our next question comes from Mike Sython of Wells Fargo. Mike, please go ahead.
Our next question comes from Mike <unk> of Wells Fargo. Mike. Please go ahead.
Hi, This is Richard on for Mike.
William McLain: So the 110 is just coming through quarterly as we expected. That gets marked a market at the end of the year. So there will be a caught a gain loss from asset return as well as interest rates. And right now as we look at where rates are assets and returns, you know, it's probably a modest headwind if you were to market to market right now. But again, we'll give you an update.
Speaker 7: So just question on the 2020 for outlook. Are you assuming any price improvement in the next year? Now, we've seen prices come down in the third quarter and second quarter despite higher raw material pressures. So just wondering if there's any...
So just a question on the 2020 for outlook are you assuming any price improvement next year and we've seen prices come down in the third quarter and second quarter.
Higher raw material pressures. So just wondering if there is any.
Speaker 7: price mix improvement that we should expect, you know, new product launch.
Price mix improvement that we should expect new product launches that type of thing.
Speaker 4: Well, so from a price on an existing product, you know, sold this year versus next year on the specialties, we're not really expecting much price increases, except for where we have cost pass-through contracts. And the prices will adjust up or down based on where raw materials are going. Now, obviously, for an increasing raw material environment, we will increase prices across the specialties. But in our scenario that we gave you, where raw materials are relatively flat next year to this year, I would not expect to increase prices in the specialties.
Well so from a.
Price on an existing product.
William McLain: We don't expect anything material that will update your end. And any insight on 2024, Willie? From a pension standpoint, we expect it to be a modest headwind if we look at it right now. That will change a lot depending on how rates finish up for the year.
Sold this year versus next year on especially as we're not really expecting much price increases except for where we have cost pass through contracts in there with the prices, we will adjust up or down based on where raw materials are going obviously for an increasing raw material environment, we will increase prices across the specialties.
In our scenario that we gave you of raw materials are relatively flat next year to this year.
I would not expect to increase prices in the specialties.
Speaker 4: I do expect prices probably to go up in chemical intermediates, because right now we're at the bottom of the market, right? We're at the cash – in the olefin derivatives, we're at the cash cost of the marginal producer in these markets. You know, it's a pretty – you know, it's a very challenging market situation right now in olefins. And so there is an expectation of some normalization of those prices, you know, getting better. I mean, the value of – the price of propylene
Do expect prices probably to go up in chemical intermediates, because right now we're at the bottom of the market right where at the cash.
Lawrence Alexander: Next question comes from Lawrence Alexander of Jeffries Lawrence, please go ahead. Hi, good morning. This is Dan Rizzo on Florence. Thank you for taking my question.
Olefin derivatives worth of cash cost of the marginal producer in these markets.
It's a pretty.
It's a very challenging market situation right now in olefins.
And so there is there is an expectation of some normalization.
Mark Costa: I don't know if I missed this or not, but so for the second plant in the US and the plant that you're building in France, do we think of those as when they are up and running to be 150 million in EBITDA additions as well? Or is it greater scale or less matter? How should we think about it long term?
Those prices getting better.
The value of the price of propylene.
Speaker 4: relative to oil is about 40% lower than normal. That's extreme and never ever seen before in the past. So that's a lot of the compression that we're facing due to just excess amount of capacity being added as well as very low demand in a number of applications that use propylene. So there's some balancing of that that'll occur even with just the energy stocking and some stable markets growing.
Relative to oil is about 40% lower than normal.
<unk> extreme and never saying never ever seen before in the past. So that's a lot of the compression that we are facing due to just an excess amount of capacity being added as well as very low demand in a number of applications that use propylene.
Mark Costa: We've never given our plant by plant. We said greater than 450 and as Mark highlighted earlier in some of our conversations, the first plant is more specialty with our Triton portfolio so you can expect it to be higher than the other two. Okay, thanks.
So there is some balancing of that that will occur even with just the end of destocking and some stable market is growing.
Speaker 4: So that's one place where I would expect some prices to improve and margin to improve. Sort of.
So that's one place where I would expect some prices and prices to improve our margins to improve.
Sort of how we look at it at this stage.
Mark Costa: And then if we think about you saying medical demand, there being some destocking, but getting back to more, I guess, normalization. I was just wondering if that end market is at pre-COVID levels in terms of elective surgeries and the actual overall demand versus some of the inventory adjustments we're seeing right now. Yeah, the elective surgeries that are occurring are certainly growing roughly 5% a year and definitely above sort of pre-COVID levels, if you look at it, not a lot, but a little bit.
I would say the teams have done a phenomenally good job of holding prices right.
Speaker 4: I would say the teams have done a phenomenally good job of holding prices at very high levels in this very challenging market that's created a lot of improvement in our price to variable cost ratio, offsetting some of the volume challenges.
At very high levels in this very challenging market that's created a lot of.
Improvement in our price to variable cost ratio.
Offsetting some of the volume challenges.
Yes.
Speaker 7: Great, and as a follow up, any update on terms of the market for pricing for the product from your Kingsport plant and, you know.
Great and then as a follow up.
Any update on in terms of.
Market for pricing.
For the product from Kingsport plant and.
Circular products.
Mark Costa: You know, the issue we're having in medical is not about demand at all, right? You know, like in silver gerbos, you know, laptops, TVs, appliances, they're not being sold, you know, nearly as much as they were, medical is really stable in market. The customers, though, we're very nervous during supply chain crisis about having enough material and so they built a lot of inventory to be, you know, safe. And because you cannot have a problem in getting medical devices delivered in our packaging to the marketplace for obvious reasons.
How is that progressing.
Speaker 7: and moving forward with as you move to develop the other.
Moving forward, but as you move to develop the other.
Large projects.
Speaker 9: Yes, so pricing is holding up really well. We're having no issues with the premiums that we need to get.
Yes, so pricing.
Is holding up really well, we're having no issues with the premiums that we need to get.
Speaker 4: for the recycled content related products on the specialty side and having good conversations with our customers on the PT side for the premiums that we need to get that go in line with the economics that we've provided to you. So we feel really
For the recycled content related products on the specialty side.
And having good conversations with our customers on the <unk>.
On the PT side for the premiums that we need to get that go in line with the economics that we've provided to you. So we feel really really good about that.
Mark Costa: So, you know, they finally got calm that there's plenty of, you know, supply and reliability and started destocking in the second quarter of this year. And they're still doing it through this quarter, but it's just a destocking event. The markets are solid and expected to be better next year than this year.
Speaker 9: really good about that. You know, it's an exciting time right now with the methanol supply coming, being completed and starting up. We have a phenomenal number of people working hard and making sure that startup process goes well.
It's an exciting time right now with the methanol plant coming.
<unk> completed and starting up we have.
A phenomenal number of people working hard and making sure that startup process goes well.
Speaker 9: Back to Frank's comment, the video is a great marketing tool with customers. It's an outstanding story when you see these huge piles of garbage, multicolored garbage, all kinds of types of garbage.
Back to France comment the video.
As a great.
Getting tool with customers.
It's an outstanding story when you see these huge piles of garbage multi colored garbage all kinds of types of garbage.
Mark Costa: Thank you very much.
Michael Sison: Our next question comes from Mike Sython of Wells Fargo. Mike, please go ahead. Hi, this is Richard on for Mike. So, just question on the 2020 for outlook. Are you assuming any price improvement next year? We've seen prices come down in the third quarter and second quarter, despite higher raw material pressures. So, just wondering if there's, you know, any price mix improvement that nobody should expect, you know, the new product launches that type of thing.
Speaker 9: that we're taking and running through our process and coming out with a clear pellet. Customers are very surprised and impressed by the low-quality material that we're using.
That we're taking and running through our process and coming out with a clear pellet customers are very surprised and impressed by the low quality material that we're using.
Speaker 9: that is headed to, you know, cannot be reused with mechanical recyclers at all, you know, this is going to go to landfill or incineration or really low-end applications. And they're just very impressed that we can take that garbage and turn it into a clear, food-grade quality pellet.
Yes. It is headed to cannot be reused with mechanical recyclers that all this is going to go to landfill or incineration or really low end applications and theyre just very impressed that we can take that garbage and turn it into a clearer food grade quality pellet.
Speaker 4: And so, the customer engagements around that story of getting things truly out of landfill and incineration, you know, not just using a clear bottle that, you know, is from a – that could have been mechanically recycled, is driving a lot of engagement. The other thing that's important to keep in mind is a lot of the applications we're targeting
And so the customer engagements around that story of getting things truly out of landfill and incineration.
Michael Sison: Well, so from a price on the existing product, you know, sold this year versus next year on the specialties, we're not really expecting much price increases, except for where we have cost faster contracts and their prices will adjust up or down based on where raw materials are going. Now, obviously for an increasing raw material environment, we will increase prices across the specialties, but in our scenario that we gave you a raw materials are relatively flat next year to this year.
Not just using a clear bottle on that.
It was from a that could have been mechanical recycled.
<unk> is driving a lot of engagement. The other thing that's important to keep in mind is a lot of the applications we are targeting.
Speaker 4: With this recycle content, both especially, but especially in the are applications where mechanical recycling is not really able to meet the specifications in performance because the quality is just not good enough. Right? Our product is identical to virgin material made from fossil fuels. Mechanical is not, it's got integrity issues, color issues.
With this recycled content, both in especially but especially in the PT are applications, where mechanical recycling is not really able to meet the specifications and performance because the quality is just not good enough radar product is identical to Virgin material made from fossil fuels mechanical is not its got integrity issue.
Michael Sison: I would not expect to increase prices in the specialties. I do expect prices probably to go up in chemical intermediates because right now we're at the bottom of the market, right? We're at the cash cut in the elephant or of this, we're at the cash cost of the marginal producer in these markets. It's a pretty, you know, it's a very challenging market situation right now in elephants. And so there is an expectation of some normalization of those prices, you know, getting better.
As color issues.
Speaker 9: So, you know, we are really targeting those applications where mechanical is not a choice.
So we are really targeting those applications, where mechanicals not a choice.
Speaker 4: That allows us to, you know, command a better premium than mechanical and in supporter economics.
That allows us to command a better premium than mechanical.
In support of our economics.
Thank you.
Michael Sison: I mean, the value of the price of properly. Coaching, Relative to Oil, is about 40% lower than normal. That's extreme and never seen before in the past. So that's a lot of the compression that we're facing due to just excess amount of capacity being added, as well as very low demand in a number of applications that use propylene. So there's some balancing of that that will occur even with just the end of destocking and some stable markets growing.
Speaker 1: Our next question comes from Alexei Yefremov of KeyBank Capital Markets. Alexei, please go ahead.
Our next question it comes from Aleksey <unk> of Keybanc capital markets. Please.
Please go ahead.
Speaker 4: Uh, thanks good morning and staying with methanol. So there have been many projects in the industry where.
Hi, Thanks, good morning, and staying with methanol assessed so there have been many projects in the industry, where capital cost estimates have.
Speaker 2: have been a revised tire, you know, the last year or two. And I believe you presented your return on capital objections for the two additional methodologies played a couple of years ago. So is it reasonable to assume cat-backs probably need to go up versus your initial expectations? And if so, how are you mitigating return on capital now?
Have been revised higher over the last year or two.
I believe you presented your return on capital objections.
Michael Sison: So that's one place where I would expect some prices to improve. And the margins to improve sort of how we look at it at the stage. I would say the teams have done a phenomenal good job of holding prices at very high levels in this very challenging market that's created a lot of improvement in our price to variable costs ratio offsetting some of the volume challenges.
The two additional methanol plant with a couple of years ago. So is it reasonable to assume capex probably needs to go up versus your initial expectations and if so how you mitigate the return of capital now.
Speaker 9: Yeah, so it's a it's a important question and one we're very focused on, you know, the capital headwinds that we encountered.
Yes.
An important question and one we're very focused on the capital headwinds that we encountered.
Speaker 9: In the project here in Kingsport, we're really isolated to construction quality and productivity issues around pipe installation. And that was a very specific issue. It had nothing to do about the design of the plant or the scope of the plant in what we're trying to do. When we got into these issues here in the last six months.
And the project here in Kingsport.
Really isolated to construction quality and productivity issues around pipe installation.
Mark Costa: Great. And as a follow up any update on terms of the market for pricing for the product from your Kingsport plant and circular products. How is that progressing moving forward as you move to develop the other large projects? Yes, so pricing is holding up really well. We're having no issues with the premiums that we need to get for the recycled content related products on the specialty side and having good conversations with our customers on the on the PT side for the premiums that we need to get that, you know, go in line with the economics that we've provided to you.
And that was was a very specific issue. It had nothing to do about the design of the planned toward the scope of the plant and what we're trying to do.
When we got into these issues here in the last six months.
<unk>.
Speaker 4: And the way we're approaching the next two projects we're taking a very different approach using very large contractors.
And.
The way we're approaching the next two projects were taking a very different approach using very large contractors.
Speaker 4: that are very capable of controlling those costs in a much better way than what happened here. So we feel, you know, we're in a far better shape. Also, we're not trying to build a new plant, right? So this is the new first, you know, time, 100,000 ton plant that we're building.
Yeah.
Capable of controlling those costs and a much better way than what happened here. So.
So we feel we're in a far better shape also we're not trying to build a new plant right. So this is a new first.
<unk> hundred thousand tonne plant that we're building.
Mark Costa: So we feel really, really good about that. You know, it's an exciting time right now with the method also is planning coming being completed and starting up. We have a phenomenal number of people working hard and making sure that startup process goes well. You know, back to French comment that the video is is a great marketing tool with customers. It's an outstanding story when you see these huge piles of garbage, you know, multi colored garbage, all kinds of types of garbage that we're taking and running through our process and coming out with a clear pellet customers are very surprised and impressed by the low quality material that we're using.
Speaker 9: You know, the plants that we're going to build in France and in the second one, the US are basically.
The plants are going to build in France, and the second in the U S are basically.
Speaker 4: You know, the same plant we built here, you know, with some some sort of modest improvements.
At the same plant, we built here with some some sort of modest improvements so.
Speaker 4: So we're not, you know, going into this without already knowing what the capital cost is, you know, for the methanolysis unit and the, you know, polymer lines.
So we're not going into this.
Without already knowing what the capital cost is for the methanol unit in the <unk>.
Polymer lines.
Speaker 4: You know, are built all the time well established understand what those capital costs are going to be infrastructure is also pretty straightforward that surround the plant so we feel good that we can come up with a high quality estimate for the next two projects and we can manage the construction process far better than what happened in Kingsport.
Our built all the time well established understand what those capital costs are going to be.
Mark Costa: That is headed to, you know, cannot be reused with mechanical recyclers at all. You know, this is going to go to landfill or incineration or really low end applications and and they're just very impressed that we can take that garbage and turn it into a clear food grade quality pellet. And so the customer engagements around that that story of getting things truly out of landfill and incineration. You know, not just using a clear bottle on that, you know, you know, it was from a that could have been mechanical recycled is is driving a lot of engagement.
The structure is also pretty straightforward that surround the plant. So we feel good that we can come up with a high quality estimate for the next two projects and we can manage the construction process far better than what happened in Kingsport.
Speaker 4: And so, you know, we're still working those numbers. They're still in line with what we expected to deliver a 12% return or greater for the France and the second US plant. Remember the first plant here is greater than 15%. Even with the higher capital costs.
And so we're still working those numbers they are still in line with what we expected to deliver a 12% return or greater for the France and the.
And the second U S plant remember the first plane here is greater than 15%, even with a higher capital cost.
Speaker 9: So we feel good about sort of where we are on the capital side of this. And of course, we're pursuing these additional incentives.
So we feel good about sort of where we are on.
On the capital side of this and of course, we're pursuing these additional incentives.
Speaker 4: For both projects as I discussed earlier, and obviously if we get those, you know, that's going to help manage, you know, capital risk as well as improve returns.
For both projects as I discussed earlier, and obviously, if we get those.
That's going to help manage.
Capital risk as well as.
Improved returns.
Yeah.
Mark Costa: The other thing that's important to keep in mind is a lot of the applications for targeting with this recycle content, both in especially, but especially in the PT. Our applications were mechanical recycling is not really able to meet the specifications in performance because the quality is just not good enough right our product is identical to virgin material made from fossil fuels mechanical is not it's got integrity issues color issues. So, you know, we are really targeting those applications were mechanical is not a choice. That allows us to, you know, command a better premium than mechanical and in support or economics.
Speaker 2: Thanks Mark, and you've pre-processed the fair amount of materials for the King Sport plan. Any lessons so far versus your initialized expectations in terms of how the front end technology works and what the costs are.
Thanks Mark.
Free process that fair amount.
Materials for the Kingsport plan.
Mark Costa: Thank you.
Any lessons so far versus your initial expectations in terms of housing it's front end technology works and what the costs are.
Speaker 4: So far, the processing has gone well. I mean, there's always hiccups. It's a proprietary new process that we developed that takes a lot of steps out of the sortation compared to a mechanical recycler. So we're excited about taking that approach. Chemical recycling allows you to do that, because you're not needing perfect, clear material to sell back to the market, as the big pile suggests in the video.
So far the processing has gone well I mean, theres always hiccups, it's a proprietary new process that we developed.
That takes a lot of steps out of the sortation compared to a mechanical recycler. So we're excited about taking that approach.
<unk> recycling allows you to do that because youre not meeting perfect clear material to sell back to the market.
As the big pile suggest in the video.
Mark Costa: Our next question that comes from Aleksey Yefremov of Keybank Capital Markets, Aleksey, please go ahead. Thanks, good morning. And I'm saying was not an all so there have been many projects in the industry where capital cost estimates have been revived higher, you know, the last year or two and I believe you presented your return on capital objections. For the two additional map analysis plans a couple of years ago. So is it reasonable to assume cat facts probably need to go up versus your initial expectations and if so, how are you mitigating return of capital map?
But the process is up and running.
Speaker 9: But the process has up and running and working well at this stage.
Working well at this stage and.
Speaker 4: And we feel good about, you know, how that's going to work. Our overall cost when we think about sourcing material and processing it into the front of the plant.
And we feel good about how that's going to work our overall cost when we think about sourcing material and processing it into the front of the plant.
Speaker 9: is a little bit better than we expected. So we're feeling really good on the feedstock side here. Feel great about having 70% of the feedstock already in long-term contracts in France as well. So I know feedstock was a big question in the beginning of this whole process as a risk. We've actually managed that one reasonably well.
A little bit better than we expected. So we're feeling really good on the feedstock side here feel great about having 70% of the feedstock already in long term contracts in France as well.
So I know feedstock was a big question in the beginning of this whole process as a risk we've actually manage that reasonably well.
Speaker 4: Customers are going well. Now the final step is starting up the technology, improving its economics and its effectiveness as sort of the final big milestone in front of us here over the next two months. So we're really excited to sort of check all those boxes, keep going forward with this plan, use it to help improve earnings next year in a difficult environment and get these next two projects underway and create a lot of value for our owners.
Customers are going well now the final step is starting up the technology, improving its economics and its effectiveness is sort of the final big milestone in front of us here over the next two.
Mark Costa: Yeah, so it's an important question and one we're very focused on, you know, the capital head ones that we encountered. In the project here in Kingsport, we're really isolated to construction quality and productivity issues around pipe installation and that was was a very specific issue. It had nothing to do about the design of the plant or the scope, you know, the plant in what we're trying to do, you know, when we got into these issues here in the last six months.
Two months.
So we're really excited to sort of check all those boxes keep going forward with this plant use it to help improve earnings next year.
In a difficult environment and get these next two projects underway.
And create a lot of value for our owners.
Makes sense.
Let's make the next question the last one please.
Mark Costa: And, you know, the way we're approaching the next two projects are taking a very different approach using very large contractors that are very capable of controlling those costs in a much better way than what happened here. So we feel, you know, we're in a far better shape. Also, we're not trying to build a new plant, right? So this is the new first, you know, time, 100,000 ton plant that we're building, you know, the plants are going to build in France and in the second when the US are basically, you know, the same plant we built here, you know, with some, some sort of modest improvements.
Speaker 2: Let's make the next question the last one please.
Speaker 1: Thank you. Our next question, our final question comes from Duffy Fisher of Goldman Sachs. Duffy the line is yours.
Thank you our next question.
Final question comes from Duffy Fisher of Goldman Sachs Duffy the line is yours.
Speaker 5: Yeah, good morning, guys. If we could, let's stay on methanolysis. If we assume we're kind of at the run rate of our 450 million EBITDA from the three plants, how volatile would that 450 million be over, you know, a typical, let's say, seven-year cycle? And then talk about the volatility you may see on the pricing side and, you know, the volatility you may see on the feedstock side over that seven-year cycle.
Yes, good morning, guys.
If we could let's stay on methodologies.
We assume we're kind of at the run rate of our $450 million EBITDA from the three plants.
How volatile with that $4 $50 million over a typical let's say seven year cycle and then talk about the volatility you may see on the pricing side.
Mark Costa: So we're not, you know, going into this without already knowing what the capital cost is, you know, for the method analysis unit and the polymer lines, you know, are built all the time well established, understanding what those capital costs are going to be. Infrastructure is also pretty straightforward that surround the plant. So we feel good that we can come up with a high quality estimate for the next two projects and we can manage the construction process far better than what happened in Kingsport.
And the volatility you may see on the feedstock side over that seven year cycle.
As a great question Duffy and one that's been a big focus for US as we've told you from the beginning the approach we're taking with this plant has to be more of a.
Speaker 9: I have a great question, Duffy, and one that's been a big focus for us. As we've told you from the beginning, the approach we're taking with this plant is to be more of a industrial gas type project in how we deliver very stable margins and attractive margins when you look at the economics for these projects. So on the PT side, we're doing contracts that
Industrial gas type project.
And how we can deliver very stable margins.
And attractive margins when you look at the economics for these projects. So on the PT side, we're doing contracts that.
Mark Costa: And so, you know, we're still working those numbers. They're still in line with what we expected to deliver a 12% return or greater for the France and the, and the second US plant, remember the first plant here is greater than 15% even with the higher capital costs. So we feel good about sort of where we are on on on the capital side of this and of course, we're pursuing these additional incentives for both projects as I discussed earlier and obviously if we get those, you know, that's going to help manage, you know, capital risk as well as improve returns.
Speaker 9: pass through the changes in in feed stock and energy costs delivering stable margins for us. You know we have no intention of getting back into you know the merchant pt market in going forward and if we don't get those contracts as we've said we won't build the plans but we're getting the contracts and we're feeling good about.
Pass through the changes in feedstock and energy costs delivering stable margins for us we have no intention of getting back into.
The merchant <unk> market.
And going forward and if we don't get those contracts as we've said we won't build the plants, but we're getting the contracts and we're feeling good about it.
Speaker 4: So those margins will be stable in the PT side. On the specially side, you know, we have demonstrated great pricing power around our specially products and managing, and managing the price of variable cost ratio really well.
So those margins will be stable.
And the PT side on the specialty side, we have demonstrated great pricing power around our specialty products and manager and managing.
The price to variable cost ratio really well.
Speaker 9: and keeping those ratios stable. From a demand point of view, what I'd say is,
Mark Costa: Thanks, Mark. And you've pre-processed the fair amount of materials for the Kingsport plant any lessons so far versus your initial expectations in terms of how the front end technology works and what the costs are. So, so far the processing has gone well. I mean, there's always hiccups. It's a proprietary new process that we developed, you know, that takes a lot of steps out of the sortation compared to a mechanical recycler. So, you know, we're excited about taking that approach or chemical recycling, you know, allows you to do that because you're not meeting, you know, perfect clear material to sell back to the market, you know, as the big pile suggests in the video.
And keeping those ratios stable from.
From a demand point of view, what I'd say is.
<unk>.
Speaker 9: You know, the PT market, the packaging market is a lot more stable than some of the other, you know, more discretionary markets. So we, you know, think that will actually add stability from these projects, as well as to the company portfolio. The other thing I'd note is, you know, it's a regional business, right? So when you're, you know, taking packaging waste out of the environment, you know, the brands and even more so the regulators want to solve the local packaging waste issue in Europe or the US.
The PT market the packaging market has a lot more stable than some of the other more.
More discretionary markets.
I think that will actually add stability from these projects as well as to the company portfolio.
The other thing I would note is it's a regional business right. So when you are.
Taking packaging waste out of the environments their brands and even more so the regulators want to solve the local packaging waste issue in Europe or the U S.
Speaker 9: So they want that waste taken back into Polymer and then provided back into the packaging and criticals loop and food grade for fossil fuel-based PT is no longer used
So we want that waste taken back into polymer and then provided back into the packaging and create a closed loop and food grade for fossil fuel based <unk> is no longer used. So this disconnect says from China, we're not trying to solve China's waste problem in the U S or Europe, or we're trying to solve the European and the U S waste problems.
Mark Costa: But the process has has is up and running and working, you know, well at this stage, and we feel good about, you know, how that's going to work our overall cost when we think about sourcing material and processing it into the front of the plant is a little bit better than we expected. So, we're feeling really good on the feedstock side here. You know, great about having 70% of the feedstock already in long-term contracts in France as well.
Speaker 4: So this disconnects us from China. We're not trying to solve China's waste problem in the US or Europe . We're trying to solve the European and the US waste problems. So it becomes more of a regional business. The brands will have to be really careful about making sure they're focused on solving the local impact to protect their brand equity. The regular is running policy, especially in Europe . It's already written.
So it becomes more of a regional business.
The brands will have to be really careful about making sure. They are sort of focused on.
Solving the local impact to protect their brand equity the regulators are writing policy, especially in Europe is already written that the polymer has to be made from packaging placed on the European market. So.
Speaker 4: that the polymer has to be made from packaging placed on the European market.
Mark Costa: So, you know, I know feedstock was a big question in the beginning of this whole process as a risk. We've actually managed that one, you know, reasonably well. Customers are going well. Now the final step is starting up the technology, improving its economics and its effectiveness as the final big milestone in front of us here over the next two months. So we're really excited to check all those boxes, keep going forward with this plan, use it to help improve earnings next year in a difficult environment and get these next two projects underway and create a lot of value for our owners. Thanks, next time.
Unknown Executive: Let's make the next question the last one, please. Thank you.
Speaker 4: You know, that regional aspect of this business has been a core reason, you know, we've been interested and excited about making these investments.
Those that regional aspect of this business has been a core reason, we've been interested and excited about making these investments.
Speaker 4: So, you know, it's not perfect. You still have macroeconomic demand on certain DBET, but it's going to be very stable EBITDA.
So.
<unk>.
Not perfect.
You still have macroeconomic demand uncertainty, but.
But it is going to be very stable EBITDA.
Great and then just one technical question about your acetic acid sale did you sell the technology for a ceded to them as well or if you chose to you could build a plant or you could do something like that Sip Kim licensing deal that you did before will you actually kept the technology.
Speaker 5: And then just one technical question about your acetic acid sale. Did you sell the technology for acetic to them as well? Or if you chose to, you could build a plant or you could do something like that. Sip chem licensing deal that you did before, where you actually kept the technology.
Speaker 6: Duffy the fill of the Texas City facility is, you know, that is not part of, but the strategic focus for Eastman as Mark has highlighted. We're about in hydrod and in hydrod derivatives and so you'll know stick.
Duffy the sell of the Texas City facility is that is not part of.
Duffy Sischer: Our next question, our final question comes from Duffy Sischer of Goldman Sachs. Duffy the line is yours. Yeah, good morning, guys.
But the strategic focus for Eastman.
Mark has highlighted whereabout anhydride anhydride derivatives and Cellulosic. So the key thing here is.
Speaker 6: So the key thing here is, this is great.
Mark Costa: If we could, let's stay on methanologists. If we assume we're kind of at the run rate of our 450 million EBITDA from the three plants, how volatile would that 450 million be over, you know, a typical, let's say, seven year cycle. And then talk about the volatility you may see on the pricing side and, you know, the volatility you may see on the seed stock side over that seven year cycle. As a great question, Duffy and one that's been a big focus for us as we've told you from the beginning, the approach we're taking with this plant is to be more of a industrial gas type project in how we deliver very stable margins and attractive margins when you look at the economics for these projects.
This is great.
Speaker 9: for any of us at the field business and for Eastman as we go forward with our focus on circular and circular economy. It has no effect on our rights to use our technology or license our technology.
For any S acetyl business and for Eastman as we go forward with our focus on.
Circular in a circular economy.
No effect on our rights to use our technology or license our technology.
Great. Thank you guys.
Speaker 2: Thank you, Lovey. Okay, everyone. Thanks very much for joining us today. We appreciate that and hope that you have a great rest of your day and a great weekend.
Thank you Debbie Okay, everyone. Thank you very much for joining us today, we appreciate that and I hope that you have a great rest of your day and a great weekend.
Ladies and gentlemen, this concludes today's call. Thank you for your participation you may now disconnect.
Speaker 1: Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.
[music].
Mark Costa: So on the PT side, you know, we're doing contracts that pass through the changes in feed stock and energy costs delivering stable margins for us. You know, we have no intention of getting back into the merchant PT market in going forward. And if we don't get those contracts, as we've said, we won't build the plants, but we're getting the contracts and we're feeling good about it. So those margins will be stable in the PT side on the specially side.
Okay.
[music].
Mark Costa: You know, we have demonstrated great pricing power around our specially products and managing the price of variable cost ratio really well and keeping those ratios stable. From a demand point of view, what I'd say is, you know, the PT market, the packaging markets, a lot more stable than some of the other, you know, more discretionary markets. So we, you know, think that will actually add stability from these projects as well as to the company portfolio.
Mark Costa: The other thing I'd note is, you know, it's a regional business, right? So when you're, you know, taking packaging waste out of the environment, you know, the brands and even more so the regulators want to solve the local packaging waste issue in Europe or the US. So they want that waste taken back into polymer and then provided back into the packaging and credit closed loop and food grade for fossil fuel based PT is no longer used.
Mark Costa: So this disconnects us from China. You know, we're not trying to solve China's waste problem in the US or Europe. We're trying to solve the European and the US waste problems. So it becomes more of a regional business, you know, you know, the brands will have to be really, you know, careful about making sure they're sort of focused on solving the local impact to, you know, protect their brand equity. The regulars are running policy, especially in Europe.
Mark Costa: It's already written that, you know, the polymer has to be made from, you know, packaging placed on the European market. So, you know, those, that regional aspect of this business has been a core reason, you know, we've been interested and excited about making these investments, statements. So, you know, it's, it's, you know, not perfect. You still have macroeconomic demand, uncertainty, but, but it's going to be very stable. You've been done. Great.
Mark Costa: And then just one technical question about your acetic acid sale. Did you sell the technology for acetic to them as well? Or if you chose to, you could build a plant, or you could do something like that, sip chem licensing deal that you did. Before, will you actually kept the technology? Duffy, the fill of the Texas city facility is, you know, that is not part of the strategic focus for Eastman as Mark is highlighted.
Mark Costa: We're about an hydrod, and then hydrod derivative and say elostics. So the key thing here is, this is great for any of us at the field business, and for Eastman as we go forward with our focus on circular and circular economy. But it has no effect on our rights to use our technology or license our technology. Great. Thank you guys. Thank you, Duffy.
Unknown Executive: Okay, everyone. Thanks very much for joining us today. We appreciate that and hope that you have a great rest of your day and a great weekend. Ladies and gentlemen, this concludes today's call. Thank you for your participation. You may now disconnect.