Sean Keohane: Yeah. It’s more about customer adoption because it is a high performance, but a novel technology, new technology that does require some change in the customer’s production process. You’re basically making some changes to the front end of their plant, the mixing part of their plant. And so, it’s really about the customer adoption time more than anything else. Now, we have seen very clear adoption in the market segment for off-the-road tires. These are large earth-moving tires, and that’s where particularly the wear and cut and chip performance of this enhanced compound really plays very strongly. So that’s the first place where you’re seeing customers commercialize. There are a lot of commercial tires out there right now in this space.
I think the next place would be in the truck and bus tires, where they’re trying to improve both the wear characteristics, but also balance the fuel economy or the rolling resistance. And our elastomer composites materials play well there. And so those, we have a number of customers that are in extended road tests right now in that application. So, it’s a conservative market, understandably, from a qualification standpoint. But the driver here, I think, is really just that. I think the compelling nature of the value proposition has been becoming more evident here over the last several years. And so I think it’s about them working through their adoption cycle.
Laurence Alexander: Thank you.
Operator: Thank you. One moment for our next question, please. Our next question comes from the line of Chris Kapsch with Loop Capital Markets. Your line is now open.
Chris Kapsch: Yeah, good morning. I had a question just on the pricing and mix gains that you mentioned in Reinforcing Materials. Just curious how balanced that was across regions, or was there more of an affirmative step change in Europe given the sanctions that are happening against the Russian-sourced carbon black this year?
Sean Keohane: Yeah. Good morning, Chris. So in the prepared remarks, you’ve got the net impact, which we’re very pleased with. But let me try to give you a little bit of color here by region and see if that helps. I would say, first in terms of Europe, definitely the upcoming ban on Russian supply to the EU drove strong demand from customers to secure supply. And we engaged with our longstanding partners here first, followed by other customers looking for security and local supply from within the regions. And I think customers have recognized the long-term value of Cabot’s stability. And I think the contract outcomes there affirm that view. So, we definitely saw impact from that phenomenon that you raised. In the Americas, even with a bit softer demand in the second half of 2024 due to the sort of transient destocking that occurred in the replacement chain, I think the outlook for tight supply/demand fundamentals remains in the Americas.
And we realized price increases in this region as well, across the board. And I think, again, our customers continue to recognize the value proposition of regional supply and consistent quality and our sustainability leadership. And related to that, our need to pass along higher operational costs associated with environmental compliance and the need to earn a return on that capital. So that’s the Americas. And then, in Asia, as you know, the majority of our business is negotiated on a monthly or quarterly spot basis. For those global customers where we do negotiate annual agreements, we achieve price increases in this region as well. So, really across the board with probably a little bit stronger outcomes in the European region because of the Russia sanction phenomenon.
Chris Kapsch: That’s helpful. And the follow-up was, I guess, sort of bigger picture because the company’s performance has done well, the returns are improved. It sort of validates this structural improvement for the industry. Yet embedded in the valuation of the stock is some skepticism, I guess, that there’ll be some reversion. And I’m just curious about your comments about the barriers to entry and the 2x multiple to stand up new capacity. Just wondering if you — what your thoughts are on the skepticism, I guess, by the market about the structural improvement in the industry? And also juxtaposed against, there was an example fairly recently, one of your competitors did announce some small additions, granted they’re targeted it looks like Southeast Asia and where the growth rates are higher. So wondering if you could just comment overall on just the competitive landscape and the structural thesis about the industry. Thank you.
Sean Keohane: Sure, Chris. So, well, in the prepared remarks, I commented on the long-term execution of our strategy and how we have now, over a very long period of time, demonstrated quite strong earnings growth. And so I think there are a lot of proof points there that the structural dynamics are very different, particularly in Reinforcement Materials. And as I’ve said in the past, I think if you go way back in history in this business, you did see a different set of structural dynamics, primarily because there was a tire migration out of the West and to China, and that tire migration has been over now for a number of years. And so that demand picture in each region is much more stable, I think number one. Number two, there have been a number over that period of time of supply side reductions in capacity that have consistently tightened up the balance.
