They’re seeing there’s plenty of capacity out there. Demand isn’t going through the roof. And so I think that the recovery of the restocking is going to be gradual, it’s going to be throughout the year. And it’s not going to take place as fast. I wish it would to some degree. But then again, if it did, Frank, as you know, there’ll be a tremendous amount of volatility. If we saw the restocking take place as fast as the destocking prices margins would go back up and probably collapse just as much. So I hope that there’s a little more reason that reasoning that goes into this restocking. I think it’s going to be gradual, and it’s going to be throughout the year.
Frank Mitsch : Understood, understood. You did highlight, obviously, the high cost of benzene, but we’ve certainly gotten a nice respite on natural gas, not only here in the States, but also in Europe. What’s the impact on Huntsman? What can we expect to see with respect to that flowing through the P&L?
Peter Huntsman : Well, I think that you’ll see the impact of that throughout the second quarter, a little bit at the end of the first quarter. As you see, again, it’s not necessarily natural gas, but it’s the hydrogen it’s the CEO that is made from natural gas to hydrogen. And obviously, it’s a raw material for our utilities and our boilers and so forth. And that will — some of that will be in real time — some of it will be in pricing and the impact that will be in the next quarter. So again, it’s great to see these low prices. I wish we saw the same sort of drop in the European markets. Europe is still about five times higher in its cost today, but it’s natural gas and obviously, China is more based on coal than it is natural gas. That’s usually pretty stable and pretty low.
Operator: Our next questions come from the line of Matthew Blair with Tudor, Pickering, Holt. Please proceed with your question.
Matthew Blair : Thank you. Good morning. Peter, one of your five goals was to improve free cash flow generation. And in the prepared remarks, list out a few different levers here, things like reduced incentive comp but higher turnaround spend. I think your free cash flow conversion in 2023 was only in like the low single digits. Do you have a target for 2024 that you could share on free cash flow conversion?
Peter Huntsman : Yeah. I would just say that when we talk about the improvement in our free cash flow, I’ll let Phil quite interest to make a comment here. But when we talk about the incentive pay, I didn’t say that we would be cutting incentive paid to help cash flow. I said that our incentive pay would be tied to the generation of cash flow. So I hope that came out clearly. This is the highest portion of our incentive pay for senior managers this year is going to be on achieving our cash flow targets and objectives.
Phil Lister : Yeah. So free cash flow is clearly going to be better in 2024 than 2023. Therefore, consequently, the conversion ratio is certainly going to be better year-on-year. And I think we highlighted some items to consider CapEx will be $30 million lower, restructuring cash will be $30 million lower between pension and incentive comp that we pay out in ’24, the ’23 performance combined will be about $35 million lower overall. We still do have outstanding the Praxair lawsuit that we won quite a while back against Linde. And so look, we’re just going to be very disciplined when it comes to cash flow. Hitting the cycle average 40% free cash flow conversion ratio that we’ve targeted. That’s going to be difficult in ’24 as we continue to recover overall. But quite frankly, again, we’re going to be clearly better than we were in 2023.
Peter Huntsman : Yeah. And I would just say, when we look at on a normalized basis, that 40% free cash flow conversion rate, I would still say that’s where this company ought to be doing a normalized economic period. I don’t see that number haven’t changed.
Matthew Blair : Sounds good. And then regarding the U.S. construction market, at least from paper Housing starts were pretty good in the fourth quarter of 2023, up 6% after some big declines earlier in the year. Did you see that come through in your Q4 results? And Paul, urethane, so just pretty soft due to weakness in other regions? Or should we be thinking about a lag, if housing starts improve in 1 quarter, maybe it takes like one or two quarters for that to flow through to Huntsman?
Peter Huntsman : Yeah. Let’s remember that the time from permitting to purchasing, to building inventory the impact of that entire supply chain is not an instantaneous issue. And companies today are looking at where they’re going to be in second quarter and in some cases, third quarter, they’re looking at what the demand is going to be and projected to be. We’ll see things like mortgage rates will have an impact on how much inventory and pre-buying OSB and installation customers will be doing. So there are a lot of variables. But again, as we look at it, if we step back and we look at it from a macro point of view, from what we’re hearing from our customers, the early indications that we’re seeing our indication internally as Tony said, it’s time to restart our line in Geismar and gradually start bringing that into the market. And we believe that’s going to be needed to satisfy demand. So that should tell you as much of our view going forward.
Operator: Next question is from the line of Hassan Ahmed with Alembic Global. Please proceed with your question.
Hassan Ahmed : Good morning, Peter. In the sort of prepared remarks that you guys posted overnight for the polyurethane segment, you guys talked about I believe it was like a 6% volume gain in Europe, and you talked about some market share gains out there as well. Can you talk about the dynamic that’s transpiring over there with regards to this?
Peter Huntsman : Yeah. I would just remind you that we had our facility down earlier in the year, so we talked about where we were a year ago and where we were even a quarter ago. It’s pretty easy comps to beat. So I’d like to think that Europe is expanding GDP 6% per quarter. It’s going to continue like that. But again, there’s — I think there’s some fundamental issues around Europe on the broader economic perspective when you look at energy and industrial policy. But as we look at our customer base in Europe, we don’t see it getting any worse. We see, if anything, there’s perhaps a building tendency for restocking. And as we look at our facility there, it’s running well. And we’re continuing to see stability and gradual improvement there. And hopefully, effective March 1 here, we’ll be successful in price increases.
Hassan Ahmed : Understood. Understood. And just sticking to the Polyurethane segment. I mean, obviously, EBITDA margins in Q4 were around 1.5% call it near breakeven. And you guys are relatively sort of low cost, downstream integrated and the like. Could you talk a bit about the global cost curves I mean, I’d like to think that a large chunk of the industry is loss-making right now. I mean how sustainable is that really, should we be seeing sort of curtailments now and pricing increases in theory that would ensue thereon after?
Peter Huntsman : Well, it’s — I mean just going around the world, the lowest-cost producers globally right now are in China. And you’ve got low energy costs in China with the amount of coal that’s being consumed and the coal-based economy largely. And that’s going to be where you’ve got the largest newest facilities, and so you’re going to have the lowest cost coming out of China. Second on that cost curve is going to be the U.S. I believe our positioning in the U.S. is that — I’m not going to sit here and say that we are the lowest cost producer in North America, but I would be surprised if anybody is lower than us. I don’t know the exact economics of our competition. But I think between our reliability and the size of our facility and so forth, we would be among the lowest cost producers in North America.
And I would say that when I look at the profitability in North America, while it’s improving, these are not long-term sustainable margins. We need to see better market conditions, pricing and demand. And then when I go to Europe, Europe is one cold winter or one sold pipeline or on import terminal problem away from an energy spike as we saw in the summer before Putin’s invasion as we saw in the winter of Putin’s invasions, we’ve seen since then where energy prices can spike up 5, 10 times in a very short period of time. So Europe needs to figure out what their energy policy is going to be and it have an economy of that size based on the means of propulsion that Columbus used 700 years ago is insane. And they’ve got to figure out what they’re going to do from an energy point of view and from an industrial point of view.
And whether they can do to compete. When you look at the margins over the last two years, in particular, I think that I publicly have said it if I haven’t, then I should, we haven’t made we haven’t made strong cash flow out of Europe in almost two years. That’s unacceptable, and it’s unsustainable. So if we’re in that position, even if our competition, I believe, again, in Europe, we may not be the lowest, but I bet we’re very close to the lowest cost producer. There’s no way that an MDI company is operating a European market economics today and says we’re making a strong return on capital, and we’re proud of what we’re doing today. Europe, just — so yeah, Hassan, I’m happy to where the direction that the markets are going, demand is picking up, pricing is picking up.
I don’t mean to get on tire here, but we’ve got a long way to go, and there’s a lot of work that needs to be done. I think we’re heading in the right direction. But I still – Europe probably ask me more worried than the U.S. and Asia.
Operator: Our next question comes from the line of Salvador Tiano with Bank of America. Please proceed with your question.
Salvator Tiano : Thank you very much. I just want to come back to the U.S. MDI market first. So firstly, it seems like you have some pretty steep price increase you mentioned correctly. If I heard correctly, around $400 a ton in the U.S., but some trade publications even last night are still differentiating between U.S. and European and Asia conditions saying the demand and supply are much, much looser here. So what are you seeing that’s making you quite more optimistic than, I guess, trade consultants here? And also on the Geismar startup in Q2, can you discuss a little bit what would be the cost associated with that? And what is the minimum operating rate that you need to run in order to be profitable on an EBIT or an EBITDA level?
Peter Huntsman : Yeah. When we talk about the $400 a ton, I will just remind you that’s what we’re shooting for in our HPS business. So we take our own MDI internally, we transfer it to HBS, we price at market and then we sell that to customers. And we’re seeing — we’ve been public. And I only want to talk about price increases that we have that are public. As we think about what the trade is saying versus what we’re saying, well, the difference — you asked what the difference is between those one sells paper and one sells product. And we sell product. And so I can only comment on what we’re seeing, what our customers are seeing, the feedback we get from our customers and reality on pricing. Trade publications, I think, are a good snapshot on the macro basis.
But I wouldn’t say right now that MDI in the U.S. is long and sloppy in pricing. I’d say it’s that were the case, we wouldn’t be shooting for the price increases in pushing for the price increases that we are. And I apologize, I forgot the latter part of your question.
Phil Lister : I think it’s just confirming I think just — sorry, go ahead.
Salvator Tiano : So just it was the second even to Geismar, if there will be any costs in Q2 associated with the start-up. And if — and what’s the minimum operating rate that needs to be — that you need to be profitable on an EBITDA or EBITDA basis.
Phil Lister : We will just — as we said, we’ll just bring that on slowly, make sure that we operate appropriately above 50% levels. So I mean you know these plants below those levels, then they tend to blue up. So to operate them efficiently, we’ll bring those on, but we’ll bring it on slowly. And we’ll make sure that we’re profitable and what we put into the market.
Salvator Tiano : Great. Thanks very much.
Operator: Our next question is from the line of Patrick Cunningham with Citi.
Eric Zhang : This is Eric Zhang on for Patrick. You’ve done a lot with polyurethanes on the cost optimization front. What do you think EBITDA margins can get to this year with maybe a modest volume recovery and store work prices? Thank you.
Peter Huntsman : I’d be reticent to throw out a margin number because I know whatever I say, I’m either going to be too high or too low. But I do think that we’ll be moving throughout the year, hopefully, again, unless we see a massive amount of restocking that happens very suddenly, which I’m not anticipating, but I think that we’re going to see a gradual improvement throughout the year. And I hope that we finished the year much closer to our normalized levels of EBITDA than when we started the year. I know that’s a superfluous answer, but I think at this point, again, we’ve got the results of January and just simply too early in the year to make a year prediction.
