Huntsman Corporation (HUN) Q4 2024 Earnings Report, Transcript and Summary

Greetings, and welcome to the Huntsman Corporation Fourth Quarter 2024 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions]. As a reminder, this conference is being recorded. It is now my pleasure to introduce Ivan Marcuse, VP of IR and Corporate Development. Thank you. You may begin.

Thank you, Darrell, and good morning, everyone. Welcome to Huntsman's fourth quarter 2024 earnings call. Joining us on the call today are Peter Huntsman, Chairman, CEO and President; Phil Lister, Executive Vice President and CFO. Yesterday, February 17, 2025, we released our earnings for the fourth quarter 2024 via press release and posted to our website, huntsman.com. We also posted a set of slides and detailed commentary discussing the fourth quarter 2024 on our website. Peter Huntsman will provide some opening comments shortly and we will then move to a question-and-answer session for the remainder of the call. During this call, let me remind you that we may make statements about our projections or expectations for the future. All such statements are forward-looking statements and while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. We will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted net income or loss and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website, huntsman.com. I'll now turn the call over to Peter Huntsman.

Ivan, thank you very much for that exciting preamble, and thank you all for taking the time to join us this morning. The purpose of my taking a few minutes to begin these calls is not simply adding more to our script. It is to make sure that we're sharing with you the most recent data and for me to share our views as to the direction of our company and key markets in real-time. We've given you an outlook on first quarter on a divisional basis. We're often asked why we don't give yearly guidance. As I look at markets and the geopolitical scene over the past two weeks, I think this provides ample reason why we are reluctant to try to plan much beyond three months to six months as it relates to market conditions. I'll come back to those most recent conditions in a moment. I would also like to give some further clarity on the often used phrase we will focus on the things, which we can control. On our earnings call in October of 2022, reporting on the first quarter to see the full impact of Putin's invasion of Ukraine and Europe's failed energy policies, we stated that a new normal in Europe would include higher gas prices and recessionary conditions. To offset these actions, we announced initiatives to cut costs in excess of $40 million. We delivered those savings in less than 12 months. As it became clear that Europe's focus on deindustrialization was going faster than anyone expected, many global markets were slowing. We took further steps and we've continued to do so through 2023 and 2024. These include the closure and relocation of our Everberg, Belgium R&D and European headquarter office, offices in the UK, Brazil, Argentina and Chile. We closed or sold polyurethane system houses in Malaysia, Thailand, Indonesia, Italy and today announced the closures of our Deggendorf, Germany and King's Lynn, UK locations. We've opened global business services hubs in San José, Costa Rica and Kraków, Poland. We expanded our Kuala Lumpur, Malaysia site, now have approximately 600 positions at these locations as we have reduced headcounts and costs in Basel, Brussels, and the Woodlands. In our Advanced Materials divisions, we've closed our BLR capacity in Alabama and sold our Harrison City, Pennsylvania facility. We also announced today that we'll be taking actions with regards to our Moers, Germany, maleic anhydride facility. Also in early 2023, we closed on the sale of our Textile Effects division. We're not sitting about wondering what to do about Europe and other troubled areas. Decisions executed have more than offset over $150 million of global inflationary costs since 2022 and seen our SG&A drop by more than 6%. We continue to assess our global assets in all of our divisions, as I believe this industry will continue to see consolidation, divestitures, and acquisitions. We will not only look at our cost structure but also our asset footprint. I believe that we're well-positioned to benefit as demand and pricing recover. Lastly, I'd like to comment about our 2025 outlook. Rather than try to predict our earnings outcome a year from now, we need to focus on capitalizing on today's market forces. Just in the past two weeks, two such forces have emerged that have potentially longer-term ramifications. The first of these are the recent announcements on tariffs. By and large, the vast majority of what we produce in Europe, the U.S. and China stay within those regions. In fact, actions to-date that have focused on imports into the U.S. will likely help our earnings. Needless to say, these tariffs are changing almost daily. But I feel we are quite well situated that we can ship as we ship very little across the Atlantic or the Pacific Oceans. The second shift we are seeing is around recent price announcements in many of our products. I believe that MDI was among the first of the major chemical chains to drop in demand and margins. This was due to the simultaneous rise in interest rates that slowed North American construction and the collapse of the Chinese housing market. Europe's industrial decline and overcapacity as projects announced pre-COVID came on stream; I think Huntsman remained incredibly disciplined with respect to pricing. We previously announced lost volume due to this. We've stated on past calls that demand needs to return before pricing picks up. As we have reported in the past few quarters, we've seen volumes improve as de-inventorying has ceased and demand has tepidly returned. I believe that we're seeing some early signs of recovery in pricing and margins return. As of today, we are seeing publicly reported polymeric MDI prices in China at a three-year high. Huntsman has also announced a series of price increases in North America as well. Again as publicly reported, we have seen others pushing for similar actions. It is challenging to say if these actions will be successful and how soon and to what segments they will stick. However, as we sit here today, it is fair to say that there are more positive than negative movement in the MDI industry. My personal feeling is that MDI was one of the first major chemical chains to drop and may well be among those that show signs of recovery earlier than other chains. 2025 will be a year wherein we will continue to minimize our cost structure, optimize our asset footprint, and aggressively push for margin expansion across the Board. In short, we will not be sitting still this year. With that operator, let's open the lineup for any questions.

Thank you. We will now be conducting a question-and-answer session. [Operator Instructions]. Our first questions come from the line of Patrick Cunningham with Citibank. Please proceed with your questions.

Hi, good morning. Thanks for taking my questions. So in the midst of the restructuring actions, it seems like the downstream piece is a big part of this. But in the past, you kind of talked about this being part of the business you like. You've already gone through a lot of fixed cost takeout. First, can you help us understand the size and scope of these actions? Why is this an area of focus if not and if there's any concern in, being able to fulfill that demand improvement when it does come?

Yes. I think that as you look at this across the Board, we are going to calibrate our business around what customers need and what they're willing to pay for. And as we see some of our customers locating or relocating, I should say, out of Europe and moving manufacturing footprints and assets to Asia and the U.S., we obviously are going to be following them and manufacturing further downstream capacities in those areas. We've also announced in previous calls that we've been able to consolidate some of our system houses by multi -- well, multi-using assets in these various system houses. It used to be that you would build a system house that was built around the automotive industry, or one that was built around the insulation industry, or one that was built around a particular region or customer cluster in Europe, for example, where we have perhaps the most developed downstream business. We -- I think over the years have done a much better job in being able to utilize one location to do what used to be two or three locations and expanding the capacity of that location both from a technical and from a volume point of view. So we've seen the market change. We've seen fewer customers that are demanding the formulations and the products coming out of system houses. And frankly, if customers are not going to pay for the services that are rendered from those, we'll make decisions and we'll be cutting back. So I think it's a combination of all of those areas and you're going to see a preponderance of that taking place in Europe. But we've also announced where we've withdrawn from some of the Southeast Asian markets. We find that it's our margins of supplying raw materials out of China. For us at least, that was a better value proposition than moving downstream in some of these countries that were. We had to have quite a bit of local expertise and cost to be able to handle those. So it really will vary region by region.

Understood. Very helpful commentary. And I know you don't guide for the full year, but in Performance Products, you seem to talk about margins improving earlier this year. I know you have some investments there that are adding to the EBITDA online. But what are the markets driving this volume improvement or is it a significant mix improvement, just anything underpinning that level of confidence in material margin improvement?

I do think that Performance Products will be gradually improving throughout the year and we're going to see that mostly come about through the recovery in the construction area as it pertains to the maleic business and in our means business, it's going to be everything from polyurethane spray foam catalysts to the raw materials going into the ag industry to our most recent expansion in Conroe, Texas, where we'll be servicing the chip industry with solvents and cleaning solutions and so forth. That expansion is complete and we're in the process right now of getting qualifications from customers. So we've actually booked sales coming from that. But I wouldn't expect to see us running at that run rate that we've given earlier forecast on until later in the year when we're fully qualified in a broader customer base.

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

Thank you. Good morning. Peter, on your maleic announcement today, can you provide some more color as to why now, given maybe a potential rebound in European construction? How much is that business? I assume a negative EBITDA. How negative is it, what's the potential cash cost for shutting that business down? Thank you.

David, always good to hear from you. Yes, we've received a couple of different inbound inquiries on that business. As you can well imagine, in a world that's rapidly changing with tariffs and trade patterns and so forth. We're going to pursue those calls and we're going to see where values are and what we want to do with that site longer-term. Longer term, as we've looked at maleic and we've looked at the downstream UPR industry, we've seen Europe become a far more competitive area with imports coming in, particularly from China, from Turkey and places in Eastern Europe where I think you're pricing a lot of Russian materials and downstream products in Russia that, that find their way into the European market in spite of sanctions and so forth. And I think where we look at where we've got a cost advantage, where we've got a strong market position so forth is in North America. So we're going to weigh those issues and see if we're the best owner for that facility longer-term. We're going to see what -- how we feel about Europe from an industrial basis. Maleic, as you know, is very sensitive to raw material costs on butane energy byproduct values and so forth. And all of these things have to be taken into consideration. So that's what we're doing. We're not going to be sitting here a year from now wondering what to do with that site. I think that we'll make a decision here in pretty short order.

Very good. And just on polyurethane, you mentioned some share gains as well as additional growth from the splitter in 2025. Can you provide some more color as to what's driving those share gains and potential uplift from those actions in 2025?

I think in 2025, particularly in North America, I think we certainly want to be able to grow with the market. As we look at the nice gains we've had over the last year or two in capacity utilization, so forth, we are still below pre-COVID numbers in MDI demand. We still have room for expansion. I think that that will include perhaps a minority of what I believe that we need to be -- where we need to be expanded 2025 needs to come about through market growth, but there's also some applications and customers and so forth that, that we lost over the last year over stands that we took on pricing, on trying to maintain pricing and so forth. And we are very hopeful that we'll be getting some of that back. That's not something that happens overnight, and it's not something just because you drop the price, you get the business back. So it's going to be because of service, technical support, full value proposition. That's not something that happens in a single quarter. So I believe that we'll continue to make further progress through 2025.

And David, you can assume if the market develops as we think about a $15 million benefit year-on-year from the splitter at Geismar.

Thank you. Our next questions come from the line of Frank Mitsch with Fermium Research. Please proceed with your questions.

Hey, good morning. At the risk of playing an armchair psychologist, Peter, it sounds like you're more optimistic than we've heard you in quite some time. So I'm curious as to what might be more specific in terms of what's driving that optimism, if I'm reading that correctly. Is it what you're seeing out of China post New Year's? I mean, any sort of color there would be helpful.

Yes. Frank, always good to hear from you. Yes. And you're not the first person that, that has tried to provide free psychiatric counseling to me. And I appreciate that. As we look at the markets right now and again, I don't want us to be over reading this. Pricing actions that are taken in the first quarter of 2025 will at quickest be felt at the beginning of second quarter, right? So let's get -- I mean, we go out today and we say we're raising prices today. And I'm just speaking from Huntsman's perspective, the Huntsman's customer not speaking about our competition, what they may or may not be deciding on here. China is a very large polymeric MDI consumer. And the published price in China is one that is quite public. And the published price by and large is fairly accurate to a very large chunk of the market in China. Those prices where we have seen them over the last two quarters have been remarkably stable and they've been at about a three-year high. So again, in a place where you would think that with the capacity that comes on, so forth, there seems to be fairly good macro demand and discipline. I would note that, that we are not seeing any, I would say, material stimuli in China that's pushing greater demand and so forth. We keep hearing rumors that that's forthcoming, that it was going to come right at the end of the Chinese New Year. So far I haven't seen any. But China, as we said probably about a year ago, we think China is going to see a very gradual recovery and I think that's going to continue through 2025. As I look at the U.S., we are -- and again, this is in the public domain, we have gone out with a series of price increases and I want to just emphasize the U.S. market, you'll have price points in the U.S. market because you've got a very commoditized polymeric all the way down to downstream, adhesions, and so forth. You have price points all over the place. So when we talk about a $0.10 per pound or $0.15 per pound, that may not be effective immediately, it may not be effective across the Board. I'd also remind you in the U.S., we also have a number of contracts, especially in the building and trades where you'll see pricing pass-through or we'll agree on a price and the price will only move with raw materials. Now those have reopeners usually every 6, 12 months depending on the contract and so forth, where we can go in and negotiate an expansion on the margin component of that. My point in the U.S., Frank, is that pricing is in the contracts. Timing variability is all over the place. What I am seeing in the U.S. that I have not seen for at least the last two years or so is -- are multiple players at the first time announcing price increase in multiple segments. Again, it's not all the same price, it's not all the same segment, it's not all the same timing, but I've not seen that for about two years or so. So it tells me that with the end of de-inventorying a gradual recovery of what we're seeing, kind of getting back to that million plus homes, the continuity and consistency and frankly just having operated for the last two plus years at below, well below a cash cost reinvestment in North America, it feels like there's more stickiness to the price discussions we've had thus far. And within -- when you're dealing with out there pushing for a price increase, it's pretty lonely. I don't feel that we're the only ones. Why I don't feel? I know we're not the only ones out there pushing for a price increase right now. So those -- a whole variety of factors in Europe, I would say that Europe's going to continue to be a struggle. They've got a lot of imports coming in. They're not -- they haven't decided yet. Do they want to try to protect industry? Do they want to do anything on energy costs? Do they want to do anything on tariffs? I think everybody in Europe just trying to wait to see what tomorrow brings.

That's very comprehensive. Thank you. If I could follow-up on the U.S. and MDI and China, the U.S. is looking at a preliminary anti-dumping probe on Chinese MDI coming in. I'm curious if you have any thoughts as to how that may play out and what might be the impact and when might be the impact for you guys?

Well, I -- we are participating in that as we have been given a request from the USITC, which then will take its recommendation to the Department of Commerce who then gives it back to the ITC, then probably gives it back to the Department of Commerce and it then is decided by somebody who's getting -- apparently getting a check who's 134 years old from Social Security. My point is, Frank, in these sort of things, by the time there's a final adjudication, it probably won't be any sooner than a year or so from now. But given where the U.S. is and given some of the potentials that are out there, I don't think that it would be a negative if the Commerce Department were to rule there is dumping that is taking place here. We certainly, I believe, would be a better factor of that.

Thank you. Our next questions come from the line of Jeff Zekauskas with J.P. Morgan. Please proceed with your question.

Thanks very much. I think your EBITDA projection in Performance Products is about is 25% to 35% for the first quarter, so call it 30%. And last year you did 42%. So why are we down 30% in Performance Products and are we going to continue at that level in 2025? Can you analyze the EBITDA decrease for the first quarter?

Sure, I'll comment. And most of that is going to come around the drop off that we've seen in profitability with our maleic facility in Europe. And do we intend that would be the LION's share of that? Do we intend to continue at that sort of a run rate? Absolutely not. We're taking cost initiatives and cost measures throughout 2025 that will be announced throughout the year. We've got capacity that will be coming on in Conroe. We got capacity that will be coming on to further our catalyst chemistry in Pétfürdő, Hungary. They'll be coming on in mid-year. I don't like forecasts that show the second half of the year hockey sticks, but we do have capacity that will be coming into the market at the end of the first half and that volume will be coming into the market in the second half. And I believe that as we've seen the de-inventories, we've been -- I hopefully quite clear on past calls. I think Performance Products and a lot of the amine chemistry in particular really saw a de-inventorying that took place on that supply chain later than polyurethanes and even Advanced Material. And I think that we'll see a gradual recovery of that taking place throughout the year.

And in polyurethanes, what's the year-over-year volume growth either that you expect in first quarter of 2025 or that you've experienced year-to-date?

I would think that that's going to be around about 5% as we look at the first quarter versus first quarter, first quarter 2025 to first quarter 2024, so somewhere in that low-single digit and -- mid-single-digit.

And relatively consistent, Jeff, with what we saw in 2024, continued growth, which is obviously important for the color that Peter gave around pricing.

And I would just know that's based on recovery, not on growth. That may sound like an oxymoron, but again I think these markets are still recovering. I don't believe that we're seeing real growth taking place yet from the pre-COVID levels.

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

Thank you, and good morning, everyone. Wondering if you could speak a bit more to volume expectations in the European market. You had some recovery there last year and just obviously with all the uncertainty there, just wondering what you're expecting in Europe.

Yes. I'd like to be more optimistic about Europe. I think it's going to be rather flat and a lot of the volume pickup that we saw this year versus last year, we had a pretty bad comparison last year as we had an electrical outage at our Rotterdam facility that, that cost us some volume. So as we look at that, it's going to -- the comparison probably makes it a bit skewed. I'd also just remind you that at the latter part of this quarter first and beginning part of next quarter, there's a 40-day turnaround. And just to remind everybody, this is a cluster turnaround that involves a number of our raw material suppliers and even some of our downstream customers. Everybody that's kind of involved on that entire ship channel in Rotterdam, they all come down once every four years in an effort to try to do all your maintenance, everything. And the key is coming back up, you can only come up as fast as the slowest, least competent operator can bring their facility up and running. So hopefully that will be 40 days or less with probably slightly more than 50% of that in Q1 and the rest of that being in Q2.

Okay. And then, if I could just ask on a follow-up on all of your pricing commentary, which was very helpful. If I heard what you said correctly, it sounds like you're suggesting it's possible that, that there could be some good price achievement this year that would not come at the expense of volume, meaning that the volume needs to go up with sort of just the overall recovery in the market, but that you might still also be able to get price, so that there wouldn't be any trade-off between the two. Is that a correct interpretation of what you said?

Yes. That would be a correct interpretation. If we are sitting here reporting in first quarter that we've lost market share and we're giving up volume in order to get pricing, I will not be happy.

Thank you. Our next question has come from the line of John Roberts with Mizuho Securities. Please proceed with your questions.

Thank you. Do you think the reciprocal tariffs will change the trade flows for your customers that could impact you, or do you think it's just going to change price and there'll be minimal change in trade flows at your customers?

I think, John, it's really too early to tell exactly how that is. We -- I'm always surprised when tariffs are in. They usually are not as damaging as people expect them to be. On the other hand, where we do see changes that usually comes from areas that we're not expecting either. I know that sounds like a nebulous answer, but oftentimes decisions will also be made months before tariffs in anticipation of them coming, people will be building up stockpile. You'll see buying habits changing and so forth. In this particular round, I'm not seeing a lot of inventory build from our customers. Again, I can't speak for others. But from our customers, I'm not seeing a big of what I would call a tariff buildup. So maybe that's because again, they're changing almost on a daily basis as to what's valid, what's not and who's getting nailed and who's not. So I'm not sure that, that would be a pretty tough gamble to take saying we're going to build inventory and tie up working capital today for something we think may be coming in May or June of this year in tariffs.

Okay. And then, the 2025 supply chain financing program, is that a standard factoring program? So the free cash flow increase is temporary until you decide to end that program?

John, it's Phil. I'd characterize it as a standard supply chain financing program. And I think we'd indicated that we're targeting about $30 million benefit from that program. You're correct. If we chose to end that program, then theoretically, that would go away. That's not how we're viewing it with being it as a structured program for the future for the company.

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

Yes. Thank you very much. I wanted to follow-up a little bit on tariffs and get a better understanding, specifically because the China tariffs should already be in effect. So is there anything you're seeing with regard to, for example, imported MDI or that you would expect in the weeks ahead because this is not theoretical scenario is something that already is in place? And secondly, as we talk about potential anti-dumping duties for MDI and also for boxes in the U.S., how do you think this will play out together with the standard tariffs, meaning would this be implemented on top of the tariffs? Would it be one or the other? So the 10% China tariff goes away if the U.S. goes with anti-dumping duties. How do this work out?

Yes. I'll try to get the first part of the question and let Phil answer the second part of the question. As we're looking at -- again, I don't think that you see instantaneous cause and effect on tariffs. If you're a large European or Asian company that the chemical company is importing into the U.S., if you're a Chinese company, you've been paying 30% in products like maleic anhydride and MDI, you're now paying 40% depending on how trade negotiations go and how rulings and so forth could come with the Commerce Department, it may go higher than that. Which of those companies may say, I'm not going to produce and move product from China and maybe moving it from Europe or some other location and you might be able to divert some of those tariffs. But usually, they're going to add costs somewhere in your supply chain. So -- and that, I believe, over time, puts pressure on margins and put pressure to put prices through. So again, I don't believe that what we're seeing today is necessarily tariff-related what we may see in the second and third quarter of 2025, you may see some pressure because of that.

And Sal, MDI already had a 30% tariff, so add another 10% to that from China. So that's where we are. That's where we are as you say today. As the investigation when the ITC goes on, I mean typically, those are then additive to those tariffs, but let's just see how the actual investigation evolves over the coming months.

Okay. Perfect. And I want to follow-up a little bit on potential strategic reviews. I mean, in the past few years, including now, the focus has been on underperforming assets. I'm trying to see whether something can be divested or needs to be shut down. But what about considering options for assets that are actually performing well like your Advanced Materials division that, as you've highlighted, the margins have been stable despite the turmoil. And even where your surprises, the valuation for Huntsman, perhaps it would make more sense instead of focusing on underperforming assets to focus on realizing the value that the market does not see enhancement in your best assets is something that you would consider?

Well, I would remind you that our Advanced Materials in Europe are some of our most valuable and highest margin assets we have in the company today. Again, that's in one of the most high cost countries in the world, Switzerland, supplying European customers. So I don't want to completely write-off Europe, though, I guess, is Swiss is always argue if they're part of Europe or not. I would just say that I don't want to paint all of Europe is that we're looking at all assets there in the same thing. I will just repeat what we've said on previous calls, that if we have an opportunity to expand if we have an opportunity to exercise merger or M&A in this company, we're going to be leaning very heavily towards looking more like Advanced Materials than any of the other divisions. That's not to say we don't love the other divisions, but it is to say we do want longer-term that, that margin, the lack of volatility and a global footprint that I think is going to be more conducive to investors. So yes, we're not going to look at everything the same.

Thank you. Our next questions come from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your questions.

Yes. Thank you, and good morning. Peter, would you comment on MDI industry operating rates by region and where you see the tightest and loosest market conditions today?

Yes. I believe that you're going to see the loses market conditions today in Europe. And you're probably going to see some of the tightest market conditions in the U.S. But having said that, I think that there's factors when you factor in imports, the impacted imported material is going to take when you look at certain regions or exporting more than their importing MDI. It's tough to just say that this is just -- there's three different numbers, three different regions and never the twain shall meet. But I think by and large, you probably have the highest amount of excess capacity, and I would add the oldest and highest cost capacity is in Europe. As you look at the global operating rates, I would guess that it's probably north of 85% and south of 90% that, that mid to high-80s sort of a number. And again, that's going to depend again how many companies are shut down at any given point for maintenance, trade flows, you put both, a ship on the water, it's going to be out of action. You're going to have a large load of material there for months potentially. So they're just -- I used to give a lot more focus to that MDI capacity utilization. I think it's a number worth following, but I wouldn't read too much into it because there are a lot of variables and factors that go into that.

Understood. And then, as a follow-up, in the prepared remarks that you released yesterday evening, Peter, I think you talked about escalation of energy in Europe and specifically natural gas in the region around $15 per MMBtu. How are you and just competitors broadly handling that? In other words, do you foresee a return to some sort of surcharge regime? Are you dealing with it through normal course pricing? Maybe you could talk about the next quarter or two and how that might evolve?

Yes. If you look at the natural gas price in Europe a week ago, it was around $16, depending on Louisiana, Texas today, we're paying around $2 and change around $3 per MMBtu. And that's an order of magnitude of 5x between U.S. and in Europe depend on where you have your facilities. If you look through China into that, China is about on par, if not cheaper, depending if they're burning coal or not, which the vast majority of their energy comes from coal is even more competitive than the U.S. when it comes to electricity and various raw material components. As we look at natural gas pricing today, it's around $14.50. So you've seen a $1.5 drop in Europe, which has gotten very little notice. You saw $1.5 drop in the U.S., it would almost be cataclysmic. Nobody would be making any money, making natural gas at a buck and change. So I -- again, we need to be looking at these longer-term trends and so forth. The simple fact of the matter is Europe does not have a energy policy that, that has anything to do with the production of hydrocarbons, the value of hydrocarbons and the importance of hydrocarbons. And I think this has been costing them for the last couple of years. They're industry. It's going to continue to cost in their industry. So as we look at that, we've seen this coming for some time. I'd remind you that -- I know it's going back in history of 15, 20 years ago, we produced literally 10x the volume, Huntsman did of volume of petrochemicals that, that, that amount of time ago, 15, 20 years ago than we do today in Europe. That's astounding to think that we've dropped. Now a lot of that are divisions we sold off, we spun off and billions of pounds of that are also parts that were just completely shut down. But the thing that we've seen a 90% drop in our chemical production in Europe tells you something about the failure of European energy policy. I'm just glad today as we look at in our portfolio today, we essentially when you think about Advanced Materials and Performance Products, and much of our MDI downstream business and TPUs and so forth, these are not heavy energy-intensive businesses that are reliant on natural gas as we used to be a couple of years ago. So what are we doing to focus, we're focusing on where we can make the most money on the least energy-intensive capacities and so forth. So we said on past earnings calls, we're going to look at our energy-intensive footprint in Europe and see if there are places outside of Europe, Middle East, U.S., other places where we can perhaps produce this product at a cheaper rate and that's a lot easier said than done, obviously. And we're going to continue to explore alternatives because the longer-term prospects without a sound plan in place just do not seem very good for energy-intensive industries for Europe.

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

Good morning, Peter and Phil. A question around volumes, you certainly sound a little more positive with regards to the destocking being behind us. You mentioned within polyurethanes. It seems pricing may have dropped out, maybe beginning to pick up a little bit. And in your prepared remarks, you talked about how in 2024, volumes were up 6% across your portfolio, but yet well below normal levels, right? So I'm just trying to get a sense of as and when the recovery happens, factoring in, restocking, factoring in market growth, what that volumetric uptake may look like, just to get us back to normal and then obviously, they'd be market growth.

Well, I think that if you go back just looking at history, you go back to 2021, that was obviously a time when we were sold-out. And most all of our production, particularly around polyurethanes, since 2021, we've started a splitter in Geismar, Louisiana. So the next go round when we're quote in a sold-out position. I would hope that we'd have even more value-added downstream components at MDI than more of the bulk commodity grades that we had. We were more reliant on a couple of years ago. And I think that when we look at it as a more sold-out position 2018, 2021, I mean these are kind of the times when you see that. And I think, but for COVID, you probably would have seen in 2018 through 2021 sort of a quasi-super cycle that would have taken place over a multi-year period. And we've obviously seen the falloff now. Our biggest issue, I believe, in most of our -- every division we have is volume and polyurethane is going to be volume and margins.

Very helpful, Peter. And as a follow-up, in a world with tariffs, certain product areas, anti-dumping duties and the like. As you look at your portfolio, I mean, it's obviously more global than your competitors. From a sort of positioning perspective in this sort of tariff anti-dumping duty environment, would you consider the geographic positioning of your portfolio as a major advantage relative to your competitors?

Yes. I really can't -- I'm reluctant to speak about our competitors, especially since I've got one, two, three, four, five, six lawyers on -- no, I've only got one lawyer at the table here. But I would -- I like the idea that over time, we followed on what ICI started 20-some-odd years ago and that is you produce where you sell and you don't become reliant on global trading, which coming from ICI probably sounds a bit strange. But anyways, it's having those global footprints, I look around the world right now, easily 90%-plus of what we produce is sold in within those respective regions. And I think that, for us, that's a very good fit.

Thank you. Our next question comes from the line of Josh Spector with UBS. Please proceed with your questions.

Hey, good morning. First, I just wanted to ask on the corporate cost for 2025. I mean the costs haven't come down in the last few years despite the cost savings. Can you just go through why?

Sorry, Josh, can you repeat that?

Yes. So just why haven't your corporate costs come down from $165 million over the last two years to three years despite the cost savings?

Yes. I mean, I think our corporate costs ultimately have come down from a high of about $199 million a couple of years ago to $175 million. They were $160-odd million today. You've got inflation running through that, Josh. Just as we said, we run at $40 million to $50 million of inflation overall. In addition to that, we've had some more LIFO losses. And in addition to that, some FX impacts as well. But in general, the underlying costs have been coming down.

Okay. Fair enough. If I could follow-up from an earlier question, just specifically around Europe and the downstream system houses that you're making some changes to I just want to clarify, what's your plan for Europe then with that business? Do you sell more polymeric and monomeric MDI and less formulations and your services costs are lower and therefore, that's how you get back to profitability? Or is there a different strategy at play to how you approach that region?

No. I think that would -- look, you've got demand is coming down. We've got excess capacity in some of our system houses and you fill out the most efficient, most flexible system houses that you've got, you fill those out and where you've got excess capacity, you remove the excess capacity. And unfortunately, in a region that has continued to de-industrialize that that pie has just gotten smaller and smaller over the last couple of years. So yes, we're going to have to just unfortunately, look at our asset base and align that with where our customers are, where they're investing, a lot of European auto companies, for example, are investing more in new products and new applications in the U.S. and in China. So some of that, that capacity and some of that work that was formerly done in Europe is going to be done elsewhere and we've got to follow the customers and where the applications are taking place. But as we have excess capacity, we also need to remove it.

Thank you. Our next questions come from the line of Aleksey Yefremov with KeyBanc Capital Markets. Please proceed with your questions.

Good morning, everyone. Peter, thanks for your commentary on MDI pricing in the U.S. And I realize that there isn't just one price out there. You described that. Nevertheless, one flaw announced a $0.15 per pound increase here. So could you may be approximately size the order of magnitude of what you are trying to achieve or what do you see your competitors trying to achieve relative to maybe that $0.15 per pound for one of the grades are we talking about $0.05 per pound, $0.10 or $0.15 that, that you're hoping to achieve by, let's say, middle of the year?

Our price increase that went out before one was, by the way, was at least $0.10 per pound. And again, that's some people were going to try to ramp that through as quickly as possible. Others you're going to have pricing protection and others certain other applications, they may see more, they may see less than that. But ours is less or at least $0.10 per pound.

Thanks a lot. Very helpful. As a follow-up, I wanted to ask you about MIRALON. So you're describing qualification initiatives. So can you maybe tell us what's been achieved with MIRALON in 2024 and whether your outlook and timeline for commercial scale-up of this product has changed?

Yes. In the past year, we have expanded to a 30-ton reactor. This gives us when this reactor will give us two things. It will give us a product that we can start producing at a commercial scale and commercial economics and it will also give us product from which we can start qualifications in a number of different applications. And so for us, we believe that during 2025, we will see production out of that 30-ton reactor that will be going to market that will be sold into the market and we'll be going to a phase that is larger than that reaction. And that, that will be started is -- that, that will be a 5,000 kiloton reactor that will be started up probably sometime next year. At that point, so I'd say a 5,000-ton reactor, not 5,000 kiloton. I'd be great if we could get 5k reactor. If we -- that, I believe is probably just from the physics point of view, as large as you can go, and then you start multiplying that size of reactor. So that will give us the same materials of the reactor we have today. It will just give us better economics than what we have today. So a bit more developmental work to do on the reactor side, but we do have products that we are taking into the market and we are working with a number of applications. First of those that we hope to get it will probably be in EV battery applications that we hope to be reporting on later this year.

Thank you. Our next questions come from the line of Michael Sison with Wells Fargo. Please proceed with your questions.

Hey, good morning. I understand difficulty in looking beyond the first quarter. But Peter, is there a potential that 2Q EBITDA sequentially should be better than 1Q or maybe the way to ask it is, what do you think needs to happen to see a sequential improvement. Are you seeing any hints from customers that demand seasonally should uplift in 2Q? So just kind of your general thoughts of how EBITDA could get better as the year unfolds.

Yes. And I know this sounds like a really simplistic answer. But seasonally, yes, we will see an improvement in earnings just because we're now starting to get that April, May, June construction time period whereas first quarter, they're not -- there's not as much construction going on. And I do believe that we will see some traction in pricing on MDI during the second quarter as well. I'm very hopeful on that. I want to be absolutely clear, we won't know until customers pay the invoice. We can make all the announcements we want until we start getting more money from our customers were not successful. So I think between seasonality and improvement in pricing in PU, Advanced Materials, again, that's not a highly cyclical or seasonal business and Performance Products that will improve as we see further acceptance of our means going into new market applications. And as you see, UPR maleic derivatives to improve during the construction seasonality as well. So yes, I would hope -- certainly hope that Q2 would be better than Q month -- than Q1 month.

Got it. And then, just a quick follow-up. I think you mentioned that China MDI prices are a three-year highs. I don't suspect that China MDI margins are a three-year high. So if they're not, maybe you can give us a thought where they are and what needs to happen for the margins to improve.

Yes. I don't want to get into the granularity on an EBITDA on a regional basis. But I would say that right now, I would be very happy if all the regions were at the same margin as China. And look, we -- what we need in China more than anything else is demand. It'd be great to see some sort of a stimulus that would -- we saw the bursting, I believe, just my personal opinion. We saw bursting of a housing bubble that probably started back in the 1980s and I think it was probably one of the longest, most sustained housing bubbles that that was formed as hundreds of millions of people went from rural into urban living and China benefited greatly during that time period. Obviously, that slowed down. And to the extent that recovers to get some traction, I think that would be a huge plus.

Thank you. Our next questions come from the line of Matthew Blair with TPH. Please proceed with your questions.

Great. Thank you, and good morning, everyone. On Slide 13, the dividend from equity affiliate guidance for 2025 shows a $75 million headwind year-over-year. It seems like a pretty large number in the context of your contribution from the China PO/MTBE plant, I think, was about $39 million of equity income in 2024. So could you help us understand the moving parts on the $75 million? Thanks.

Yes, Matthew, good question. So two items, which I see that headwind one you talked about, which is all around the MTBE margins and how those have deteriorated fairly significantly from the second half of 2024 and have remained very low here in the first part of 2025. So that's one part. The other part, you may recall that we had an approximately $40 million dividend as a result of the restructuring of our Chinese MDI joint venture, the so-called SLIC joint venture and that was a one-off, which I think we highlighted at the time. That goes away, and therefore, it's a headwind in 2025.

Great. Thank you. And then, could you also clarify on the European notes that will be repaid in the first quarter, is that going to be a straight payoff with cash? Or do you expect to refinance those notes?

No. We don't expect to refinance those. We took out a 2034 notes in quarter -- end of quarter three, quarter four of last year for $350 million, which we then swapped to about a 4.25% rate. So no, that will be a straight payoff, which we'll do in the first quarter.

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

Good morning. I have two questions. One is if the U.S. construction market recovers and U.S. MDI becomes relatively tight, if there isn't a broader inflation cycle to destroy demand or some other demand shock. What would you see as the natural break point for the regional spread in margins? Is there any safety valve, any obvious product substitution that we should be thinking about in terms of what would regulate the -- where U.S. margins sit relative to the rest of the world. And then secondly, if things do tighten back up, just extrapolating from your green shoots and maybe I'm being too optimistic and you get a return to a decent run rate on free cash flow. What are your priorities in terms of capital returns, deleveraging, portfolio shifts to reduce cyclicality going forward?

Yes, Laurence, good to hear from you. I would love to test your hypothesis and see how high we could get prices before we start to see things. And also, I think that there's three things, keep in mind. First of all, let's think about what the application is going to be some applications have pretty low content of MDI. And so you can get prices couldn't probably close to double in MDI and it's not going to hurt the downstream application all that much. But when you talk about construction per se, number two, you're looking at products that, let's just say, spray for home insulation. You've got competing products there in fiberglass, mineral wool and so forth that that you're competing against. And so the higher you push the price up for spray foam and the more competition you're going to be have coming in on your mineral fiber and so forth. As you look at OSB, I would imagine in places where it's still -- you're still able to use it, you'd see from aldehyde products and so forth. So eventually, you start hitting product substitutions. Some of that's going to be at a lower price point than not. A lot of that depends on what your overall content of MDI is going to be. The third area that I would just factor in is if margins get out of kilter, if you will comparison to the other regions. You will see amazingly, you do see people that actually produce MDI in Europe and ship it to the U.S. even in today's allows the economics. I'm not sure how that works. But according to trade data, you still have companies that are doing that. So as your margins go up disproportionate to the other two regions, you are going to attract more imports. Some of that's going to be impacted by tariffs. Others have it much less so. So I think factoring those three things, where do you have -- what is your content per end use application. What is your competitive materials? And thirdly, at what point do you start attracting imports coming in and flooding the market, if you will.

Laurence, on capital allocation. Look, as you think about a portfolio that heads back towards mid-cycle over time. Debt levels, I think I've said, we're comfortable with the debt levels of long-term debt of about $1.5 billion. I think that's appropriate for this portfolio. CapEx running today, $180 million to $190 million, probably a little light if you move towards a mid-size level of earnings; so more like think about $230 million, $240 million on a mid-cycle level. Dividends want to remain competitive from a dividend standpoint, it's a 6% yield today. That's obviously of trough economics right now. And then we'll get into -- once we are delivering excess free cash flow well in excess of our dividend, then we'll get into the debate of the share repurchase versus M&A on our Advanced Materials business, which we continue to want to build over time. So hopefully, that's the way to think about capital allocations, we move back towards mid-cycle earnings over time.

And operator, we've -- Laurence, thank you very much. And operator, we've typically like to end at the top of the hour. Why don't we take one more question, and then we'll wrap up the call afterwards.

You got it. Our final questions are coming from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your questions.

Great. Thanks for taking my questions. I guess I just wanted to ask about capital allocation. So obviously, you've undergone a review here in Europe. I think you've mentioned it in the past. Are there other kind of cleanup that you'd like to pursue? And then I guess -- maybe you can discuss leverage and the dividend. Are you still committed there? Yes, thanks.

Yes. I would just say on the dividend, yes, we are very much committed. And as we look out to 2025, we believe that, that our objective as a management team is to make sure that, that we cover that dividend and then some. So yes, I would say just speaking on behalf of the Board who met just a couple of days ago on our quarterly meeting, that, that dividend is something that is near sacred to us. Capital allocation to other areas.

I think as we said on the call, we're focused on a number of restructuring some of our asset footprint. We've talked about the downstream areas in Europe. We're going through a strategic review on maleic anhydride. Arun, Peter listed a lot of actions that we've taken over the last three years, and we'll continue to look at our portfolio on a regular basis. In terms of overall leverage, we closed at 3.6x. I do expect a bit of a kick-up in the first quarter just because of a natural free cash outflow in the first quarter. But as you look out with this portfolio over a number of years, you see that coming down as you return to more mid-cycle level of earnings over time.

Thanks.

Operator, we'd like to thank everybody for joining us this morning, and we'll look forward to meeting hopefully all of you during the next quarter here.

Thank you. That does conclude today's teleconference. We appreciate your participation. You may disconnect your lines at this time. Enjoy the rest of your day.