And so I think that getting back to what I would see as mid-teens — plus mid-teens sort of margins. I personally don’t think that it’s going to take a great deal of change just from the sense that I don’t see any fundamentals in the business that have changed the broader outlook of MDI. When U.S. housing comes back, that’s obviously a very large component of MDI demand. When people buy a new home, not only did the product that goes and build the home, but also to furnish a home and — means of furniture, bedding and paints and coatings, electronics and so forth. When you look at the automotive industry, particularly this last quarter, while we weren’t directly hit with strikes that we saw in North America, our customers weren’t hit by that.
That did put more MDI on the market than you otherwise would have seen, probably having a detrimental effect. And as we look at the global energy conservation and insulation areas around spray foam and insulation materials again, I look at those big macro issues. I see no reason why MDI shouldn’t recover. And when it recovers, I gladly predict — when it recovers, I think it’s going to surprise me how quickly it does.
Michael Sison : And as a quick follow-up. You referenced a Chinese MDIs in the prepared remarks. Where are we in the U.S. and Europe? And how much lower do you think will go into the fourth quarter on those prices? And do you think — what’s your thought about ’24? And what needs to happen to shore up all the regions?
Peter Huntsman: Well, fundamentally, in ’24, people need to stop tolerating losing money. And I think that, that fundamentally has to be a broad issue. It’s the age-old issue of any product that’s being bought and sold at very low margins, is that what’s the discipline of an industry to be able to sell a product and set a price to return money to shareholders. And right now, MDI is not doing that. And so fundamentally, I think that there needs to be a change in the entire MDI market. Now that doesn’t just come about without economic recovery. It doesn’t come about through without customer demand returning. And those things will happen. But as I look at how close much of this is getting to fixed cost sort of return, it seems like we’re there.
As I look at pricing in Europe, we’ve been able to get some modest increases in the fourth quarter. I’d like to say that’s because demand is improving, but I think it’s more just discipline. And there are signs that I’m saying or at least feeling that we’re to the bottom. But unfortunately, I think I’ve probably said that in the past. And so I’m not ready to call the bottom out, but I think that we’re very close to it.
Operator: Our next questions come from the line of David Begleiter with Deutsche Bank.
David Begleiter : Peter, do you expect this destocking the inventory to continue into Q1? And I know it’s early, but should Q1 be better than Q4 or maybe closer to Q3? Or how do you think about Q1 right now?
Peter Huntsman: I could think that Q1 is going to end much stronger than how it begins. I don’t think that there’s this — first quarter for us, over the last couple of years, as we become larger in China and so forth and as we look at the Chinese New Year and the impact that has in the early part of the year, I can’t — I simply can’t ignore that. There’s some of our businesses that do extremely well in a lot of our downstream. The aerospace business and so forth, typically, their orders will come a little bit stronger in Q1 than throughout the years and others of our businesses, they do better near the latter part of the year. But I really struggled, Dave, to see that inventories can continue to destock much into ’24. Typically, people are looking for a year-end pop in free cash flow.
They want to end the year having covered up their inventory. They’ve gotten rid of as much of it as possible. And typically, Q1, just by and large, is typically not a quarter where people are getting rid of inventories, unless there’s an economic — a larger macroeconomic reason to do so.
David Begleiter : Very good. I know you mentioned aerospace early. Where — how much do aerospace is you up this year? And how — why would that take us versus prepandemic levels of profitability?
Peter Huntsman: I think it’s safe to say that we’re probably about 55%, 60% recovered in that business. There’s a very healthy backlog on the large jet builders, I would say, Airbus and Boeing. There’s a very healthy backlog on demand for both of those platforms. Right now, my understanding having had the opportunity to visit both of those accounts in the last couple of weeks is really around supply chain issues. You can only build a plane as fast as the slowest component that goes into that plane. I mean, when you think about it, we’re talking to them, we’re ready to go. We can supply more materials and everything. And it’s a part that most people would never have even heard of on a single plane or a delay that’s coming from a part of the world where metals and so forth might be held up.
And so it’s — the demand is there. I know the aerospace customer base is looking to debottleneck and to increase that capacity as quickly as possible. I’m very confident that over the course of the next 12 to 18 months that we’ll be back to prepandemic levels or very close to prepandemic levels. And I would say that as we look at the aerospace industry, I remind you that about 1/3 of our business there in, 30% of that business is going to be military and commercial — excuse me, military and private aviation. And we continue to see new lighter, more fuel-efficient models come out on the private aviation side. And of course, the more target drones are built and blown up, that’s obviously something that we’d like to see as well, so long as nobody is getting hurt.
Phil Lister: And David, we did see a 13% revenue increase year-on-year. So we are seeing some progress in aerospace despite the supply chain issues that Peter outlined.
Operator: Our next question comes from the line of Kevin McCarthy with Vertical Research Partners.
Kevin McCarthy : Peter, maleic anhydride prices seem like they’re continuing to slide here in the fourth quarter as they have really all year long. So I appreciate your updated views there. What do you think we’ll need to see to stabilize that market? And maybe you can comment on things like operating rates and butane costs in terms of profiling that business over the next couple of quarters here?
Peter Huntsman: Well, we’re much larger than that in the U.S. than we are anywhere else in the world. We do have a facility in Europe. And — but I think that — I’m not overly concerned about margins right now because butane prices are — have continued to be very competitive. And so as the prices have come down, raw material prices have come down as well. The larger issue around maleic anhydride my opinion is going to be none of maleic that goes into the construction markets — polyester resin and so forth, and what is demand happening there with imports coming in from areas of the world that continue to get Russian Fed raw materials and so forth. We’re seeing trade movements in that customer base that we haven’t seen heretofore.
And so look, when you get to a more normalized construction market, I think that, that will be the opportunity more so than raw material costing and so forth or manufacturing balance. It’s going to be around demand, getting back to where, I would say, there’s a more normalized sort of an environment.
Phil Lister: Remind you, Kevin, that we have quite a majority of our contracts in North America, which are on formula-based pricing. So margins, themselves, as Peter says, have been relatively stable unit margins in North America. Europe, a different story where it’s been under derepression you by noting the pricing pressure there.
