Operator: Thank you. Our next questions come from the line of Aleksey Yefremov with KeyBanc Capital Markets. Please proceed with your questions.
Aleksey Yefremov: Thanks. Good morning, everyone. Pretty impressive volumes in polyurethanes in North America and Europe. Can you just tell us where are your volumes today in these two regions versus what you would consider a normal volume level?
Peter Huntsman: Well, I think, again, I’m very happy to see the volumes growing where they are, but they are where we were basically a year ago. And so, we really need to — we needed to see continued growth and continued movement on pricing. Again, I don’t expect volume improvements to be a 25% sort of improvement, but certainly the housing and the construction markets are one that we’re starting to feel is loosening up, and we ought to see some improvements there. Now, if mortgage rates go down, I think that’s going to have a near instantaneous impact on the business, and I think that would be the single biggest variable in our North American markets.
Phil Lister: And Aleksey, I mean, you can do the math, 35% down year-on-year, this time last year, as we said, and then 25% up. So, we’re still about 10%, 15% below where we were. And so, we still need to see that trend continue to get back to where we started.
Aleksey Yefremov: Okay, thanks for that. And then I wanted to ask you about your spray foam business. How is it doing in Q1 and heading into Q2?
Peter Huntsman: Well, spray foam continues to be a competitive market. The single biggest application for spray foam is our new housing builds. And as we look at that, that for us continues to be an area that’s a competitive market. If you look at the mineral fiber with a low cost of energy and so forth, yeah, we’re going head to head. But we still grew our volumes there versus the prior year, just under 10%, 8% growth in that business. And so, we continue to see growth. But again, growth is great to see, but we’ve got to see pricing, we’ve got to see margin expansion take place as well.
Operator: Thank you. Our next questions come from the line of Jeff Zekauskas with JPMorgan. Please proceed with your questions.
Jeff Zekauskas: Thanks very much. Can you talk about the relative prices for MDI in both crude and I guess more specialized in Europe, China and the US? And can you say something about your relative margins in each of those areas?
Peter Huntsman: Yeah. As we look at our polymeric MDI, they’re all basically selling it I’d say within $100, $200 of each other per ton, and it’s around $2,000 per ton. It’s a pretty flat market right now. There’s not a kind of an incentive at this point to be moving a lot of volume from one region to the other. And I think that when you see demand, which has been kind of sluggish this past year, that would tell you that you’re going to see pretty flat pricing. I will say, though, that as I look for some optimism in those areas, as I looked at capacity utilization, I believe the industry today is running at about somewhere in the mid-80%s on capacity utilization, and where we’re seeing growth in demand and so forth, we’re seeing quarter-on-quarter growth for the first time in — excuse me, year-on-year growth on a quarterly basis for the first time in two years.
There have been a number of operating outages that have recently been reported in the media and so forth. So, I don’t want to paint a picture that we’re expecting to see prices go up to the roof. We’re kind of getting into those dynamics of where demand and capacity utilization moving into the mid-80%s, you’re starting to get into some areas where I think you’re probably going to start seeing some regional divergences and higher prices in some of these areas. Again, hopefully.
Jeff Zekauskas: I guess, for my follow-up, can you comment on the liquidation of the SLIC joint venture and how that may affect debt or cash flows in 2024 and ’25?
Phil Lister: Yeah. Jeff, a couple of comments on SLIC. As you rightly point out, so we closed on that deal during the first quarter, minimal impact, net income, cash flow perspective, EBITDA perspective. I think we said on the last call, you then go through a process with the Chinese authorities, which will probably last into 2025, where we need to liquidate that joint venture. What that means is that we put approximately $200 million of cash from our consolidated joint venture into SLIC, into the unconsolidated joint venture. That cash then gets liquidated out in 2025 back directly to the partners. So, you think of Huntsman getting about $100 million of that back, and our joint venture partner SCAC getting the remainder directly.
So, what you’ll see is, is cash, cash goes down because it’s off our balance sheet for a period. It effectively gets trapped in SLIC, and then it comes back up in 2025. It has a nominal impact on leverage, probably about 0.2 times on leverage as we progress through that process.
Operator: Thank you. Our next questions come from the line of Michael Sison with Wells Fargo. Please proceed with your questions.
Michael Sison: Hey. Good morning. Nice start to the year. Peter, where are industry operating rates now for polyurethanes, MDI? And just curious where you think those need to get to, to establish a little bit better pricing and margin going forward?
Peter Huntsman: Well, typically, given the fact that this industry, the number of outages that you have to have for your maintenance of your facilities, typically it’s about 90%. I like to think somewhere around 90% is kind of a sold out position. As we said in the past, leverage — pricing leverage typically comes at about 85%, somewhere in the mid to upper 80%s. You start to see that pressure at 85%, as you move through that. So, as I would think about your capacity utilization right now, and I’m talking about today in the second quarter, not necessarily in the first quarter, I believe in Europe, you’re probably in the high-80%s, 87%, 88%. The US, you’re running over 100%. US needs imports to be able to satisfy demand. In China, you’re probably somewhere in the mid to upper 70 percentile.
You add all that up and you’re probably about 85% capacity utilization today, which is at the very low end of what I would say is where you start getting into your pricing improvements. Now, again, as you start having outages or better than outages, you start seeing demand improvements come along, that’s really what we need. So, given where we’ve been in the past, where we’ve been talking about global operating rates around 80% to 81%, 82% being at 85%, 86%, the idea that a plant or two going down or 2% or 3% sort of growth in the industry, all of a sudden puts you up there in that 88%, 89%. Sorry, I’m getting overly technical here with a few percentage points one side or the other. But point is, I think that we’re in much better position than we’ve been any time the last two years.
Michael Sison: Got it. And then I know it’s a little bit early to look to the second half, but what do you think needs to happen to get better EBITDA sequentially in the third and the fourth? And do you think the third and the fourth quarter run rates for EBITDA would be sort of a good base to think about how earnings can grow into 2025?
Peter Huntsman: Well, it certainly where we end the second half will certainly be a trajectory as to where we go in ’25. I’m getting more bullish. I mean, again, I just go back to the nightmares where we were a year ago this time when we were saying, we’re going to have a rocky beginning of the year, and the second half of the year is going to recover very strongly and erase all of our sins. That didn’t happen, and the sins just multiplied and got worse and worse and finally found ourselves in hell. So that’s probably not a very good metaphor to use. But anyway, as we look at the beginning of this year, we’ve — I think we’ve seen a good, reliable and consistent growth and recovery. And I think the second half, what we need to see is, is that continued growth, and again, I know I’ve said this before, but movement in pricing. And so as we look at where we’re moving, the direction we’re moving, I like the direction of which we’re going.
Operator: Thank you. Our next questions come from the line of Hassan Ahmed with Alembic Global. Please proceed with your questions.
Hassan Ahmed: Good morning, Peter. Peter, I just wanted to revisit some of the commentary that you made on polyurethane volumes. Obviously North America, on a percentage basis, ridiculously strong, you know, up 25%. But you alluded to the fact that we’re still not really at normal volume levels. Europe up 9%, again, it seems from deflated levels. And Asia, relatively flat. So, could you just help me understand the trajectory from here? I mean, we’re obviously below normal in North America, Europe it seems well below normal, and same thing with Asia. So, I mean, how should we be thinking about near-term as well as medium-term volume growth trajectories by region?
Peter Huntsman: Well, I think that we’re going to continue to see probably stronger than average growth in Europe and in the Americas. I look into the second quarter, it’s early right now at the order books, but we’re going to see — continue to see modest underlying growth. We’re dealing with easy comps from a year ago. So I’d be focused more on quarter on quarter versus where we were a year ago. And we’ve obviously, this last year, we got in a deep hole. And I think we first need to get out of the hole, and I think that we’re just about out of that hole, and we need to start growing from that point on. And I think that’s where we are and that’s where we’re heading.
Phil Lister: And Hassan, as we indicated, sequentially, when you go Q1 to Q2, typically you’ll get about a 5% improvement in volumes. And we highlighted in the prepared remarks that we would expect to get more than that this year. So the trajectory is in the right direction.
Hassan Ahmed: Fair enough. And as a follow-up, continuing with polyurethanes, just on the cost curves, obviously there was margin improvement, call it, 1%, 1.5% EBITDA margins going up to like 4%. But I mean, you guys being on the lower cost of production side of things, I’d like to think that a chunk of the industry is still in the red. And further to that thought, I would imagine that unto itself, as the recovery is happening, would be a big positive in terms of you guys or the industry getting pricing power again?
