Good day ladies and gentlemen, and welcome to the Second Quarter 2009 Huntsman Corporation Earnings Conference Call. My name is Lisa, and I'll be your coordinator for today. At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of today's conference. (Operator Instructions). As a reminder this conference is being recorded for replay purposes. I would now like to turn the presentation over to your host for today's conference Mr. Kurt Ogden. Please proceed sir.

Thank you Lisa, and good morning everyone. I am Kurt Ogden, Huntsman Corporation's Vice President of Investor Relations. Welcome the Huntsman's investor conference call for the second quarter 2009. Joining us on the call today are Peter Huntsman, President and CEO; and Kimo Esplin, Executive Vice President and CFO. A recorded playback of this call will be available until midnight, August 13, 2009. The recorded playback maybe accessed from within the U.S. by dialing 1-888-286-8010 and internationally by dialing 1-617-801-6888. The access code for both dial-in numbers is 50208849. A recording of this call may also be accessed through our website. This morning before the market opened, we released our earnings for the second quarter 2009 via press release and posted it on our website, huntsman.com. We also posted a set of slides on our website, which we intend to use on the call this morning in the discussion of our results. Before we begin a discussion of our earnings, I would like to say a few words about forward-looking statements. During this call, we may make statements about our projections or expectations for the future. All such statements are forward-looking statements and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future and are not guarantees of future performance. You should review our filings with the Securities and Exchange Commission for more information, regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. In addition, we may also refer to non-GAAP financial measures. You can find a reconciliation to the most directly comparable GAAP financial measures in our earnings release posted on our website at huntsman.com. I'd like to outline the…

Kurt thank you very much and thanks to all of you for joining us this morning. Now let's turn to slide number 4. Like most of our industries our Polyurethanes demand was down from where we were a year ago due to the drop in global economic activity. As mentioned during our last quarterly conference call and we believe that we have seen the worst of this recession. Demand has started to recover in certain markets and demand destruction appears at this time to have stopped falling from what we were experiencing during the end of the fourth quarter and throughout most all of the first quarter of 2009. And Polyurethanes during the second quarter we saw our sales volumes increased by 14% over the first quarter. While we are down 18% over the second quarter of the previous year, we are encouraged by many of the signs we are seeing around the world. We remain diligent in our efforts to manage fixed costs within this business, without sacrificing service to our customers and longer-term growth. We have reduced inventories and rationalized operating rates to align our -- customer demand. This is been achieved by idling certain of our production lines, while also operating others at reduced rates. We believe our three strategic global manufacturing sites located in North America, Europe and China, are among the most cost efficient MDI production site in the world, which will enhance our the ability to prosper-- as global economies improve and return to strong demand for MDI based Polyurethanes products. Propylene oxide and its co product MTBE performed very well in the quarter. Propylene oxide along with MDI, are the key products driving growth in providing Polyurethanes solutions to our customers. MTBE delivered solid margins primarily as a result of seasonal effects and…

Thanks Peter. Let's turn that slide number nine. Similar to the rest of our industry, our revenue decreased in all regions and across all segments of our company, as volume decreased 18% and average selling prices decreased 22% compared to the previous year, primarily as a result of the economic slowdown. The global impact of the slowdown is visible as you consider sales decreased 42% in Europe, 39% in U.S., Canada, 27% in Asia Pacific and 26% in the rest of the world countries. On a more encouraging note, as we look at our second quarter sales compared to first quarter, volumes increased 11% as average selling prices fell 1%. Much of the increase in demand is attributable to seasonality; however, we are encouraged by the order pattern in overall monthly year-over-year sales volumes. On a regional basis, Asia Pacific is leading the demand recovery along with our rest of world region, while U.S. and Canada has shown modest improvements. European demand remained sluggish. Although, year-over-year price and volume were down in the second quarter, contribution margins actually improved, as raw material cost decreased and the benefits of our restructuring efforts began to appear. Simply put, if our business had the same volumes just to previous year, our adjusted EBITDA would have been better than the previous year. Let's go to slide 10; as we consider our quarterly year-over-year sales volume, which reflect seasonal fluctuations, demand bottomed out in the fourth quarter last year at negative 21%. Since then, quarterly comparisons have been incrementally become less worse as first quarter was negative 19% and second quarter was negative 18%. Although the absolute comparison isn't favorable the trend is encouraging, and we are guardedly optimistic that it will continue as we recover from the global economic recession. Let's turn to slide…

Thank you Kimo. During the last conference call I answered a question about our litigation with the banks and stated that it was objective to improve our balance sheet. I am very pleased to report that we've accomplished our objective with the settlement that we reached with Credit Suisse and Deutsche Bank. In the past 12 months, we've collected over $2.7 billion in cash and settlement payments. These time consuming and expensive battle is behind us. We are now focused on our future. We have no doubt that in light of with the current global economic situation and the prospects of years of risky resources consuming appeal, so we've made the right decision. We are one of the few companies that can report a stronger balance sheet today than we have 12 months ago. Our liquidity is strong as its ever been, our covenants flexible and we have prepaid our debt and have no meaningful maturities for years to come and our dividend is secured. I am immensely proud of our team and Board for accomplishing what no other companies done during a time with so many failed deals. As we look at the global economy, we are focused on growth and taking advantage of our international market. We are seeing our Asian business improve nicely and we are seeing early signs of recovery in some sectors in Europe and North America. Our monthly order patterns continue to improve while many of our competitors are struggling with direction or which businesses to keep, we are well focused on expanding our market share around the world. We are also seeing signs of our previously announced cost reduction program. As we announced earlier, we intend to eliminate $150 million from our cost structure by the end of this year. Early signs of our cost reduction program and increased volumes are showing in our results as our EBITDA nearly doubled from 50 million in the first quarter to $96 million in the second quarter. We've also been focused on managing cash and working capital more intensely over the past six months. As was mentioned earlier, our reported, which as mentioned earlier, reported EBITDA could have been a $130 million for the second quarter but we chose to manage working capital and reduced production with the cost of EBITDA in some of our divisions. The result of this focus is apparent and that in spite of these challenging market conditions, our business generated free cash-flow from our operations with approximately a $160 million during the second quarter. In short our balance sheet in strong. Our business is improving and we are technologically and geographically well positioned to take advantage, as the global economy continue its recovery. With that, I'll turn the call back over to Kurt.

Thank you Peter. Lisa that concludes our prepared remarks. Could you explain the procedure for Q&A and then open the line for questions.

Yes. (Operator Instructions). Please stand by for your first question. Your first question comes from the line of P.J. Juvekar with Citi. Please proceed.

Yeah. Good morning Peter and Kimo.

Hello P.J.

In performance products, that business had held up well so far, and sort of the decline in 2Q. And I think Peter you mentioned that some of that stuff is contractually tied to raw materials. Can you tell us how much of those volumes are contractually tied to -- and just give us some idea about what happened to that business?

It varies from the businesses that are within that business. But roughly about half of sales that we have within that division are tied in some form or the other to raw material pricing. And again in specialty, some of the specialty applications so forth you might have lower number than that in some of the more commodity areas that are more dependent on raw material, values and so forth. You are going to have a higher number than that. Does not category the, across the board that way. So I think that again we, we saw volumes pretty flat out. Remind you that a big chunk of this business is going into the consumer end user applications, soap, detergents, and so forth. What we dint see is much of a follow off in the first quarter, as we did in some of our businesses and likewise we probably won't see as robust a bounce in the second quarter where we are seeing some of our other businesses come back stronger. So, to answer your question directly it's about 50%, but that business should continue to do well through the year, yeah.

And it is a good question on polyethyleneamines and MDI which probably was 90% of your total EBITDA. What are the trends in the three regions, U.S, Europe and Asia and what are the operating rates in each region? Thank you.

Thank you. The operating rates in the second quarter we were about a 66%, the industry was operating at about 60, 65%. Fair to say that in Asia we were operating in the high 90%. We were essentially sold out in Asia. We are seeing strong demand coming from the automotive, from the infrastructure, demand in infrastructure and the insulation. In North America throughout the quarter we saw a pick up that was due in part -- two are focused on spray on foam applications. So these are applications we are seeing in North America where you are able to spray on a liquid, we are all saying that it goes into a form and this is particularly around re insulating older buildings. Europe we are seeing a bit of a increase that's taking place in the insulation markets as well. So I think that as you look across the board and you figure that in Asia we're operating in the high 90% and U.S and Europe it would been around 50 to 60% as we are trying to reduced inventories at the same time. So certainly we saw the capacity utilization rates improved throughout quarters well from the beginning of the quarter till the end of the quarter.

Just to follow up on Peter regionally for polymer I think, I think its interesting. When you look at year-over-year regional MDI volumes, Asia was up about 5%, Europe was down 20%, Americas was down 30%. To give you sense, but when you look at it sequentially, Asia up 55%, Europe up 10%, America is up 17%. So sequentially we're seeing some good strength particularly in Asia that's not surprised anyone. To give you a sense for seasonality, first quarter to second quarter, we typically don't see that kind of seasonality. First quarter to second quarter in Asia for example last first quarter to second quarter, we were only at volume metrically 15% and here we are up 55% in Asia. So really, really strong Asian results.

It's safe to say, P.J. that we're also seeing these results continue into July, but this is more than just destocking a restocking excuse me that's taking place. So, I think that we are, we certainly have turned a corner here and I look forward to stronger markets coming back in Europe and U.S certainly Asia is very strong right now.

Thank you very much.

Your next question comes from the line of Mike Judd with Greenwich Consultants. Please proceed.

, Yeah so just looking at your chart 11, I guess the, the application there is that your inventory to sales ratio is down to around 15% versus around 20% at the end of March. Is that about right?

Well I don't have that calculation in front of me, but that could be right.

It sounds about right.

Okay. And then in terms of, how you expect to manage your inventories to the remainder of the year. Could you just comment on any plans there please?

That's going to be again depending business-by-business. Depending on inventory levels and so forth. I think that you'll start seeing a slowing down of reducing of inventories by the end of the third quarter. Some of these businesses have objectives between now and the end of the reduce inventory. So kind of tough to say exactly where will be, where demand will be between now and the end of the year. But we certainly believe that there is continued room for to be able to manage our working capital and to continue to get cash out. Again assuming that there is no a severe drop off in demand or change in raw material prices.

We manage our inventories based on our forward look, as supposed to a financial calculation which is a backward look. So we obviously think a lot about where demand is and where we are going. And also we manage it on a volume metric basis. So its pounds, if you see raw materials move up, you are going to see obviously working capital move up a bit. But that we still think we have some room to go. With stronger demand, we are going to build little bit of working capital.

Thanks.

Your next question comes from the line of Laurence Alexander with Jefferies & Co. please proceed.

Good morning.

Good morning.

Good morning.

I guess, couple questions first. In terms of the normal seasonality, what you know normally see in North America like you mentioned and North America volumes were up above 4% sequentially. And what you normally have seen?

In terms of volumes, we would typically see first quarter to second quarter in a 7-8% range, in terms of seasonality. Second quarter is always our strongest sales quarter. Third quarter is the second best quarter. Obviously, and I am speaking globally yeah I think your question was specifically on North America. I don't know but my North America only so of first quarter, second quarter is, typically you'll see 7 to 8% stronger volumes in the second quarter globally. Obviously, first and fourth quarter are little slower particularly in Europe where the holiday seasons are as well.

European does well with holiday seasons in the third quarter as well in August time frame, so they which we definitely not see in North America so, they do much better than we do in that regards.

And then could you discuss on some raw materials. I mean what you saw this quarter was this quarter, was there benefit for headwind and then particularly what you are thinking next for the few quarter is particularly, propane and benzene?

I think that if we look at raw materials, on average if you look from the first quarter to the second quarter and you look at something like crude oil, again we don't buy crude oil, but there was a 40% increase in crude oil. There is a 18% decrease in natural gas. And so we're buying raw materials that are somewhat attached to both of those products in somewhere in between. So its really a hard spot, bright? I think if we look across the board from first quarter to second quarter and we look at some of our larger raw materials of that Rapaflo hydrin, ethane, nitro-butane, methanol, propane, benzene, most all of these products are up in the second quarter and I think that in the third quarter, if you look at what we've seen that's far in July and in the early August, they look like they've kind of plat code a little bit but I wish I was seeing some downward pressure on raw materials. As I look around the globe right now, and I see the improvement in Asia and I see an improvement in demand. I see an improvement in optimism with our customers. I see the improvement in our balance sheet. The only storm clouds that I really see from my perspective right now as I look at over the next couple of quarters, the necessities the uncertainties around raw materials. They frankly might be they still won't make any right reason as to why they would have doubled from the low during the last six months, but that is something we've been very aggressive with price increases and we'll continue to watch that very closely.

Let me just point it back to slide three, in terms of year-over-year comparisons, on slide three, direct costs decreased 318 million and prices decreased $243 million. So contribution margins expanded on a quarter-over-quarter basis. Direct cost which is again for our business, you should translate into utility costs and the raw material costs. Prices versus direct cost were about the same. So, contribution margins were very similar to the previous quarter.

And then lastly on which areas in particular do you think you can make significant market share gains? And how does this tie into your M&A strategy going forward?

I think that right now, if I look at, what we're seeing is with the number of our customers that are starting to looking at increasing demand and so forth, there is a number of questions our customers' have around, who is going to be in a supply position here for the next few years. Who can we rely on, on longer-term contracts, on specking and materials and so forth. I look across the entire kind of the entire range of customers and I'm speaking more globally here in across all of our businesses. Unlike any time that I've seen in last 20 years or so, a lot of our customers are really questioning where is the chemical industry going and who is going to be here in the next year or so, and there's never been a time we've seen to do some of the larger chemical companies questions what divisions they're going to keep, where they're going to sell off, what is going to be the dispositions of those assets and so forth. So I think, not only do we have an opportunity to keep what we've got, but I think with the strength of our balance sheet and our direction going forward, I think that we've got an opportunity to not recklessly what we are doing it by buying in volume and lowering prices. So buying and get -- earning added volume, because we've got a great story to tell. And I think that across the board I would hope that our businesses would be able to grow better than the underlying GDP growth in those particular areas. So, again I think that we are looking to be very aggressive in that area as a company.

And does that customer try to reach you being more aggressive on M&A?

I think that we'll look at M&A on a case-by-case basis is an opportunity may arrive, but we're really focused really the core business at hand today.

Generally in these down turns, we have seen great discipline from all players not to build inventories, and as we've talked about the relationship between price and raw materials has been maintained year-over-year from a contribution standpoint. So, we haven't seen prices deteriorate significantly relative to raw material.

Okay. Thank you.

Your next question comes for the line of Frank Mitsch with BBT Capital. Please proceed.

Hi, good morning fellows.

Hey Frank.

Hey Frank.

Just a couple of clarifications in talking about the performance products area and the half of businesses tied to raw materials and the price increases that you have been looking to push through. Is it fair to say that as we stand here through July and into August, those contracts have reset for the third quarter that we are in fact looking at higher margins than we were in the second quarter?

Good question, Frank. It's really hard to tell, because typically those contract prices is lag about a quarter. And so, you will see an opportunities on the first quarter, we saw raw material prices falling very rapidly. And in the sales prices or the -- certainly, the beginning of the first quarter, we didn't see the certain fall off in raw material prices that we were -- that we saw by the end of the first quarter. And the prices subsequently fell in the second quarter now. Prices have kind of bottomed out and some cases are going back up. Those contractual prices will start resetting as we get in near the end of the third quarter and throughout the third quarter here. So, really it's too early to tell Frank, but I think that we certainly are taking very aggressive stand on price increases and holding the line there.

Okay, great. And if I could also follow up on the industry consolidation question, obviously with your improved balance sheet and the fact that you pushed out your nearest maturities several years. It would stand the reason that you guys could be a meaningful consolidator in the industry. So, how would you look at the areas that might have the most interest in terms of Huntsman playing the role of a consolidator and where would TiO2 rank on that list?

I think it is -- I can't get into speculation as to what we would be doing, but we certainly would be interested in playing a roll and consolidation where it makes sense to our shareholders and where it allows us to maintain a strong position of equity and where we have a natural fit with strong synergies.

Would you then I mean partly you are saying you got advanced materials, text balls, I mean realistically or any of those more attractive or less attractive than others?

No, it all would depend on where the value is potential purchase price what we would fit the geographically would be and so forth. So, we really don't have a packing order that would say division A is going to get priority over division B or whatever. It really is an area around opportunity for the great shareholder value and long term stability.

Great, thank you Peter.

Your next question come from the line of Laurence Jollon with Barclays Capital.

Good morning. Just regarding your comments on target levels of liquidity and the 800 million to $1 billion range, I jus wanted to confirm that first. And then secondly, if I think about your -- tax payment and redemption of a two-bond issues of the $1.7 billion in cash -- sorry.

I am sorry, I only got part of that. Let me just confirm again 800 to $1 billion of targeted liquidity today. As we look to the future, I dint hear the rest question, I'm sorry.

I apologize; can you hear me better now?

A little bit, yes, please if you wouldn't mind.

I apologize. So your target levels of equity of 800 million to 1 billion, if I think about your liquidity levels post-tax settlement as well as or tax payment I should say and post redemption of the two bonds issues, I think about pro forma cash, I'll call it 1.7 billion and if you right size your revolver maybe half the size, currently as I think about liquidity, I'll call it a 1.9 billion. So, given your target liquidity levels, you have about 800 million to 1 billion of cash that you can put to work. So I wanted to make sure one that I am thinking about that correctly and then two, is that targeted towards acquisitions, shareholder dividends or continued debt repayment?

Well, we are going to weigh all of our opportunities and we would include further debt repayments and growth opportunities as Peter has indicated. We would consider about maintaining that sort of 800 to $1 billion of liquidity. As you ran through the numbers, I didn't follow exactly how you are getting to the 1.9 billion. Again if you start at the sort of $3 billion and recognize, we've taken out about $500 million of notes, round it up roughly $200 million of taxes and some fees in there. And you have the revolver right. And so the revolver is a question, how much we will need and as we have indicated, it will be much smaller than it is today going forward.

Okay, and...

We don't see anything wrong with having more liquidity than $1 billion.

I guess my concern from a credit perspective, which is the -- as the business ramps back up and who knows when that will be, we all know that Huntsman has significant working capital requirements during gross phases in '07 and '08, I think you burned 3 to 400 million of cash from working capital. So, I guess the question is do you feel like that's enough.

Absolutely. And that's how we've sort of taken a look at what our working capital needs are. And I think your 3 to 400 million is high in 2008 earnings. Certainly inventories did that; they were offset with payables and are accounts receivables securitization funding that grows as AR grows.

Okay, that's great; thanks for the color. And then just house keeping question if you don't mind: would you mind giving us the operating cash flow number for the second quarter first and then secondly to 63 million of restructuring costs in the quarter or are those largely cash in nature?

The 63 million of restructuring charges will be cashed. They are cashed at the time we take the charges. We always have a fairly robust footnote in our Q that we will walk you through it. I don't have any other number back in mind. My Q, which will be filed today. Net cash provided from operating activities for the six month's 2009 was 1.9 billion.

Thanks very much.

Your next question comes from the line of Michael Boam with BlueBay Asset Management. Please proceed.

Hi it's a Mike Boam with BlueBay Asset Management.

Hello Mike.

Hi. I just have a sort of follow up, a lot of more questions have been asked, but I'll just follow-up on one Laurence's. I just wonder in terms of the facilities that we saw in this part of the litigation supplement; are there any restrictions on the cash that's been injected by Huntsman Corporation into Huntsman International. Anyway you've been refunded shows, because I know that return loans half short-term maturity or maturity on demand such a very good prohibits the department of those special dividends?

Well, within the Huntsman International, where the debt facilities sit including the facilities we received in the settlement, they have the typical restrictions in the credit agreement, the unsecured notes have typical intensity of restrictions as it relates to dividends and other types of payment. The $632 million of cash went to Huntsman Corporation and there are no indentures of credit agreement limitations as it relates to that cash. At the end of the quarter, we have roughly $1 billion of cash at Huntsman Corporation.

Okay. But what I mean appreciate it or the cash flows captured in the restricted payment capacity and that cash effectively just slowed, but one of the appropriate. I guess when I was asking is was there anything in any of the Credit Suisse or Deutsche Bank facilities provided an actual restriction against those cash flows? Or are those two facilities effectively essentially exactly the same as everything else and there is no limitation on that cash flow, but...

I think you'll find the unsecured notes very similar to the subordinated indentures that we have and the terms fee facility looks just like the credit agreement in turn of the...

Okay. Then I guess let's go back to, I don't know three years. I think at one point in time, management I think, it's fair to say probably just once with the widest stock traded post the initial public offering. I'm wondering you came on publicly at that time and said was that you now more appropriate enhancements to become an investment grade related company, largely because I think you felt the leverage on the company was effectively suppressing the equity volume. I just wonder if that's still some today, because obviously with the money that you've received through these various settlements, you have a very opportune moderns to substantially reduce leverage permanently, and as you say, maintain very adequate liquidity.

Well, I don't recall the feelings or the expression that our ratings was suppressing our equity values couple of years ago. I mean, listen we are believers in the de-leveraging. We think we have more debt than we'd like right now. We feel comfortable with our liquidity and our flexibility. But obviously with this down turn, we are exploring a deeper cycle than we ever have envisioned, and I think that's probably the case with all of our competitors throughout the world. So, we are committed to de-leveraging; that's not to say we won't take advantage of opportunities that will create significant value along the way here. But you remember the 1.7 billion that we've received, the 1.1 billion is debt. Low cost coupon flexible debt. And so that will give us the liquidity we need and we are paying down other high coupon debt, but it wasn't just pure cash for de-leveraging. For the most part, it provided us greater flexibility and good economics additional liquidity.

I think that your comment also from three years ago was around the context of our strategy and our decisions to sell off some of our commodity assets, which I think looking back on a three years ago, the value that we obtained and the timing of the sell off of our olefins, polyolefins, butadine businesses and so aromatics businesses was right on. I think that we certainly had an objective then. We do think our debt and looking at improving the quality of our cash flows as well. So I think that we've accomplished those objectives largely in the last three years. And today we find ourselves in certainly different operating environments, but environments nonetheless, where we see a lot of future potential here.

Okay. And then if I can have one final question, I'd like to touch on the TiO2 subjects. I guess historically again some new set, but it's going to be something analysts said of Huntsman. In terms of portfolio, you'd look to position yourselves in high growth markets, which TiO2 suffer maybe Asia is necessarily one. And I think it's fair to say that people know that this industry needs to be consolidated given the poor pricing environment and profitability in the industry as a whole. Now obviously titanium ox (ph) is potentially off the side at the moment. If it is you could acquire that at a substantially discounted price, would you be that you would be interested irrespective of the growth prospects for the industry?

I think that we wouldn't want to comment anymore that we already have on that. If we see opportunity that will benefit our shareholders, we'll certainly look at it very closely. I think that as we said in the past, the TiO2 industry is a good industry. It's got great prospects, we believe, and we'll look at it on a case-by-case basis.

Okay, thank you very much.

Thank you. Operator, I think we've got just a few more minutes here to top the hour. So, we'll take one or two more questions.

Yes sir, your next question is from the line of Roger Smith (ph) with Bank of America.

Hi Roger.

Hi, good morning guys. In performance products your Q2, '09 margins expanded as raw material fell faster than selling prices. With raw materials, I presume now rising, have you been seeing recently your margins compressing as raw materials raised perhaps faster than your selling prices?

It's a little too early to get into where we are heading in the third quarter and I would just say that we are in that business, we are taking a very aggressive stand on pricing. And I think that we are making good headway here.

Okay, great. Thank you.

Your next question will come from the line of Bill Young with Kens Pick (ph). Please proceed.

Good morning, Bill.

Hi Pete and Kimo.

Hi, Bill.

Hi. Could you for both the advanced materials and polyurethanes give us what your mix is today, say, where you to find it commodity end versus value added specialties and what your gold is say by the end of 2010?

I think that as we look at our advanced materials, I'm going to look to Kimo here to get some percentages. If we look at advanced materials, we look at our component business and our formulated business and we bought that business largely. It had a very large base resins business. And we found that we were juts competing very aggressively against Dow and Hexion, and we're really one of the industry low cost producers. Remember after we bought that business, our sales dropped as we got out of the more commoditized into that business and focused more on the components and the formulated side of that business. And I think as we look at our earnings in that business, that's probably about 80 to 85% of our earnings in that business. And I would hope that over the course of the next year or so that we will continue in our advanced material to see 80 to 90% of our -- both of our growth and of profitability coming from the formulation and components. And then that would be your induced applications in the electronic -- electrical infrastructure, the aerospace industry, do-it-yourself engines and so forth, on the polyurethane side of the business. On MDI, I kind of struggled with the question, because a lot of the bulk applications that we have in MDI, when I say bulk, I mean the product variable sellout by real count and so forth, we are going to the OSV and insulation applications at which we are very strong, and I think that our formulations and service net area are segments in that industry. And I think that will continue as we look over the next few years run energy conservation constructions coming back in the next few years. I think that those will continue to be growth drivers for our business. I don't see too much of a change in our polyurethane strategy around MDI.

When you look at advanced materials and you look at sort of what percentage of our sales are flowing into that BLR basically for the epoxy resin business, it's about 15% of our business.

Our margins are lot lower than that.

Yeah, absolutely. The base business right now is a breakeven business for us from a profitability standpoint, but the base resins are important. We consume those base resins in the formulated product downstream. It's just that roughly 15% of our sales are coming to third parties -- are going to third parties from base resins, direct sales. As it relates to polyurethanes, obviously we like the whole MDI business and the systems businesses, and we feel like those are very differentiated even when we are selling MDI directly not in a system. Obviously the propylene oxide, that MTBE business is important, because propylene oxide goes into polyolefin ultimately our system. The MTBE piece is clearly -- is a commodity. And when you look at PO/MTBE sales, they are roughly 150 to $200 million a quarter. I think in the second quarter, they were roughly $172 million. That's clearly the more commoditized part of the Polyurethanes business.

Yeah, polyurethanes is to do without MDI, Bill. I think that we have -- we really, I think, did a very effective job about two years ago, three years ago and we had a new divisional President winning in and we really set our focus on two or three major applications and a couple of sub-set applications expanding in Asia and so forth. And I think that we -- I don't see a lot of change now. I think it's the right strategy today and I think it will continue to see our polyurethanes business grow faster than our peers.

Well, what I struggle with is on the mail car shipments of MDI for say insulation or OSP, it was bulk MDI, like in the other guys emulate that and get a little more price competition.

Well, I think that you probably can emulate the being a bought product. But I think that, we put ourselves certainly on the consistency of our product, the competitiveness of our service and so forth. A lot of these products go to mills, where you are building OSP, materials, your mills are stacked and they're built around our materials. We are the material therefore start up, and so it's not just a matter of shifting from Huntsman product to be a buyer product every month whoever has got the cheapest product. As you look at the insulation grades and so forth that we are producing, those are formulated base products, where we are selling the MDI -- we're also selling the form-related components go with that. And the end-used application so forth, I think that we are unique and we are the best in the industry in servicing those applications. Now that other MDI applications, I would probably tip my hand at to be a buyer and say that they try put more effort behind those than we do.

Okay.

So, I think we're unusually strong in those areas and we'll continue to put resources of development in customer service behind that.

Okay, great. Thanks Peter and Kimo

Thanks. Operator, I think that we'd like to conclude the Q&A at this time. And thank all of you for joining us. And again I would invite anybody, who have any questions, give Kurt Ogden a call, who is in charge of our Investor Relations. If there are really difficult questions and you want call on a Sunday afternoon, call Kimo Esplin, and he'd love to take your questions. So, thank you all very much.

All right thanks.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.