Huntsman (HUN) Q1 2017 Results – Earnings Call Transcript

Peter R. Huntsman – Huntsman Corp.

Thank you, Kurt. Good morning, everyone. Thanks for joining us. Let’s turn to slide number 3. Adjusted EBITDA for our Polyurethanes division was $144 million. Our MDI Urethanes business, which includes propylene oxide, recorded adjusted EBITDA of $148 million. We grew our differentiated MDI portfolio by 6% in the first quarter. We continue to focus on our strategic intent of driving down strength. With our own operating rates being high, we deselected the component business and as a result, while our margins increased, our overall MDI growth was flat compared to the prior year.

In the Americas region, our MDI business grew 3%, with strong growth in our composite wood products as the construction markets remain favorable. Growth in the Americas would have been stronger, but for restricted supply from certain of our third-party suppliers, which occurred during the quarter. We remain encouraged by the positive economic signs we’re seeing in the North America region.

Our European business delivered an 8% improvement in differentiated growth, while we deselected component business with favorable trends in the major markets of construction and automotive. Component sales were down as we managed inventory levels ahead of a planned second quarter maintenance at our Rotterdam facility in the Netherlands.

In Asia, strong automotive growth drove a 14% improvement in our differentiated sales compared to the prior-year period. However, total sales growth was limited due to capacity constraints. We see strong market demand in China and this demand, combined with competitor outages, led to shortages of component materials, leading to a slide (04:47) in prices in the first quarter.

During the quarter, our MTBE business reported a loss of $4 million of adjusted EBITDA compared to positive $8 million in the prior year. The average C-Factor, which is an industry proxy for MTBE contribution margins, decreased to $0.52 per gallon from an already low $0.67 per gallon in first quarter 2016. We expect MTBE margins to be positive as we move into the driving season.

We are in the process of completing our previously announced planned maintenance work at our Rotterdam MDI facility. We expect the economic impact to be roughly $15 million mostly occurring in the second quarter. Moving into a seasonally stronger quarter, we expect that continued strong positive volume trends and attractive margins will drive sequential EBITDA growth in our Urethanes division.

Aleksey Yefremov – Nomura Instinet

Good morning. Thank you. Could you give us any idea, some idea about EBITDA contribution from the China MDI plant startup? And also, will there be any startup costs affecting Huntsman’s EBITDA in the second half of 2017?

Peter R. Huntsman – Huntsman Corp.

I don’t believe that there will be any startup costs during the second half of 2017. We might see a little bit early next year. That’s just totally unrelated. It’s just very difficult to try to project that now given the fact that the plant’s just in the process of being mechanically completed. We got six months of commissioning to go here. As we look at the next year at the impact of that facility, I expect that we’ll probably be somewhere between $75 million to $95 million of EBITDA this next year, in 2018, assuming that the plant starts up on a timetable that we have planned at this point.

Aleksey Yefremov – Nomura Instinet

Thank you. And also on MDI, would you expect MDI unit margins in the U.S. and Europe to continue improving in the second quarter and also in the second half of 2017?

Peter R. Huntsman – Huntsman Corp.

We see the market as such that there will be gradual improvements in pricing and product. Product for us is particularly tight. We’re presently buying product from competitors to resell to some of our customers. And until we have this new facility coming on, we’re going to be constrained in our capacity. So it feels, I would imagine right now that globally, MDI capacity has an effective operating rate of probably better than 95% utilization.

Frank J. Mitsch – Wells Fargo Securities LLC

Got you, got you. You did mention very strong demand or strong demand in Polyurethanes in China in Q1. Can you talk – can you add some metrics around that in terms of percent changes? Or – and where does that head as we work through April and into May here?

Peter R. Huntsman – Huntsman Corp.

Well, again, our – it’s kind of a tough one for me to answer, Frank, just because – I’m speaking just of Huntsman, I don’t want to talk about our competitors. But as I think of our own business, we were pretty flat just because we’re so constrained on product and we’re selling everything we can produce. And what we – with any excess materials that we have around the world, we’re shipping to Asia. But as we look at the Asian market, we think that the overall market there is growing at about 8% during the first quarter year over year. So – and that’s, we were sitting here a year ago at this time, I think, we were probably talking 1% to 2% growth as we were looking out a year ago at this time. So, certainly, a significant turnaround and a broad base in most of our downstream applications in MDI in China.

Frank J. Mitsch – Wells Fargo Securities LLC

Extremely helpful. And that expectation of that upper single digit growth continues in Q2?

Peter R. Huntsman – Huntsman Corp.

Yes.

Jeffrey J. Zekauskas – JPMorgan Securities LLC

So I guess, just two more things, briefly. So I think, Peter in the early part of the call talked about the tightness in MDI just about everywhere. And what’s happening now is, benzene prices, at least in North America, are falling. So all things being equal, do you think you can capture more margin going forward because of the raw material decreases and the industry tightness?

Peter R. Huntsman – Huntsman Corp.

I would say that it’s more about industry tightness than it is raw materials. You can capture month-to-month movement – barge-to-barge benefits on raw materials, but margins for the most part are a function of supply and demand. And I think that as we look at that, those issues, that’s going to have a much greater impact on long-term margin and as we look at margins out quarter to quarter, the tightness in MDI with the large competitor here in Europe, declaring a force majeure recently and some of the other movements that we’re seeing in the industry, I think it’s going to be fairly tight here for the next couple of quarters.

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