P.J Juvekar: Yes. Good morning. Jim, it seems like the European chemical capacity is now the high-cost marginal capacity instead of China and European capacity will be flexed with demand ups and downs. Would you agree with that statement? And then in polyethylene, as you mentioned, China reopening is positive. Assuming that do you expect somewhat of a snapback in polyethylene as a result? Or is it more of a gradual recovery in first half? Thank you.
Jim Fitterling: Yes. Good morning P.J. Both good questions. I would say in Europe, I would think about it in two ways. First, I would think about the crackers. And I would say from a cracker economic standpoint, yes, on a naphtha basis, they have become incrementally the highest cost on the assets that are able to crack LPGs like Terneuzen and Tarragona and where utility costs are lower like in Spain. They probably are fairly competitive with that Asian situation. So we haven’t flexed as much up and down in Europe on the cracker operations. They’ve run at pretty steady rates throughout. We did flex up and down a bit when it got into our II&I business like polyols, polyurethanes, isocyanates in Europe, where the energy cost at STADA and Germany are much, much higher.
And so what you would see there is we have some amount of that energy cost, that is very competitive and at a low rate, but then the increment is much higher. So we would run to that competitive rate. And I think that is what still continues to be in the front window and the thing that we have to address with the government. I would say on second part of the question, remind me.
Howard Ungerleider: China, China recovery.
Jim Fitterling: China. Yes. Look, I think it’s going to be positive. We had growth in the fourth quarter in packaging, especially plastics and Industrial solutions. The places that were weakest for us were anything related to building and construction, so polyurethanes, construction chemicals, coatings and monomers, although that was fairly even quarter-over-quarter. And then Consumer Solutions because of the, as I mentioned, siloxane prices and also our asset being down there. For the year, we had growth in Packaging & Specialty Plastics, Consumer Solutions and Industrial Solutions, pretty good growth. And it was really construction businesses that were the most impacted. Construction is 25% of China’s economy. It was off 40% last year.
I’m certain that the government is going to try to stimulate that and get that going again. I don’t know how fast it will happen. As I mentioned, we’re not seeing any big COVID spreads that are unmanageable right now. People are reporting into work, and I’m hearing this from other CEOs as well, people reporting into work, things are moving as expected. So I do expect we’re going to see a little bit of positive move from China.
Operator: Thank you. The next question comes from Jeff Zekauskas of JPMorgan. Please go ahead.
Jeff Zekauskas: Thanks very much. Two-part question. Your local price in Industrial Intermediates & Infrastructure was down 1%. Was that a combination of puts and takes, that is some chemicals were up and some chemicals were down? And can you talk about MDI pricing? And then secondly, for Howard, what kind of working capital benefits do you expect for 2023? Can you have a working capital inflow of $500 million or $1 billion? Can you size that?
Jim Fitterling: Good morning Jeff. Good questions. On II&I, we actually had higher prices in polyurethanes and construction chemicals and it was volume that was the offset there. And remember, that business has a fairly large footprint in Europe and the input costs are much higher there and so that was part of it. We also saw that Industrial Solutions pricing held up relatively well. And again, it was volume that slowed. So both of them had very resilient prices but saw some volume slowdown and a little bit of currency impact. I’ll let you answer the second part of that, Howard.
Howard Ungerleider: Yes. Thanks, Jeff. Look, let’s start with the fourth quarter on working capital. That was actually a tailwind versus the prior quarter, so sequentially of $1 billion and more than $400 million versus the same quarter last year. I would say it really depends on what’s going to happen with feedstock costs and revenue growth. We’re certainly expecting some volume growth as we move through the year, especially with Jim’s comments on China reopening. And overall, global GDP growth is still expected to be positive of around 1.5%, which should drive some industrial production and should drive some growth. You know that since spin, we’ve been very focused on working capital. We’re continuing to target a couple of days of structural working capital improvement.
So I would say, at a bare minimum, we’re looking at $200 million to $300 million of working capital improvement 2023 versus 2022. I’m very proud of the Dow team on their focus on cash flow. When you look at what we’ve been able to do since spin, we have actually improved our cash from ops every single year, 2019 through 2022. And last year was $7.5 billion of cash from ops and $400 million better overall than 2021. And so one of the ways we do that is work on working capital. We’re also working on other unique to Dow cash flow levers. I estimate that is around inclusive of that $200 million to $300 million working capital, we’re focused on $1 billion of pulling on $1 billion of unique to Dow levers. Working capital is certainly one of them.
The other one, as you saw in the fourth quarter, we successfully concluded 1 of the 2 big novo litigations that we have. We’re hopeful that we can solve the second one or resolve the second one in calendar year 2023. That could be another up to as much as $0.5 billion of unique Dow cash that we expect. And then we’ve got a few other projects that are in the works to round out that $1 billion.
Operator: Thank you. The next question comes from John McNulty of BMO. Please go ahead.
John McNulty: Thanks for taking my question. So it seemed like the destocking was kind of at really accelerated levels in the fourth quarter. Can you give us a little bit of color as to which of the segments do you feel like you’re largely through that? And if anything, you may be — maybe we’re even at a balance side or even a restock phase? And I guess tied to that, — can you speak to the operating rates you saw in the fourth quarter and how you expect that to change as we look to 1Q?
Jim Fitterling: Sure. Good morning John. Good Question. I would say it accelerated in December. We made announcement in October that we were going to reduce some operating rates in ethylene, polyethylene because of some logistics constraints and other things that happen. We saw better logistics in December. December was our best export month of the year for marine pack cargo, so that’s positive. But at the same time, manufacturing activity in the last half of December really slowed. And so you could see that in the order pattern. And that stayed relatively slow the first half of January. I do think we’re seeing manufacturing activity come back right now. We’re seeing that in the order book. I would not say that we’re at a restocking state yet.
But I do think as the quarter progresses, we will get there because second and third quarter are typically our highest volume quarters. And there is not a lot of excess inventory anywhere in the change right now. So I do think it’s coming, but it isn’t here as we sit here right now today.
Operator: Thank you. The next question comes from Mike Sison of Wells Fargo. Please go ahead.
