Company News
August 28, 2024
Adnoc and Covestro Update
Adnoc Finishes Due Diligence on €12 Billion Covestro Deal
ByEyk Henning and Dinesh NairAugust 28, 2024 at 6:54AM EDT
(Bloomberg) — Abu Dhabi National Oil Co. has largely completed due diligence on its planned bid for German chemical company Covestro AG, paving the way for the state-owned energy firm’s biggest-ever deal, people familiar with the matter said.
Adnoc could move forward with an €11.7 billion ($13 billion) offer for Covestro as soon as September, the people said. It has finished site visits to major Covestro plants as part of its in-depth confirmatory due diligence and hasn’t discovered any red flags, according to the people.
The Middle Eastern company still needs final signoff from senior officials for the planned bid of €62 per share, which may take several more weeks, the people said, asking not to be identified because the information is private. Shares of Covestro jumped as much as 5.7% in Frankfurt trading Wednesday to touch €56.90, the highest intraday level since January 2022.
Representatives for Adnoc and Covestro declined to comment.
After more than a year of negotiations, Covestro in June agreed to exchange information with Adnoc to help it firm up the prospective bid. Adnoc said at the time that a potential bid of €62 per share was its final offer, indicating it wouldn’t be raising any further after already bumping several times from its first proposal of €55 per share.
Backed by tens of billions of dollars of oil money, Adnoc has been scouring the world for deals. Chemicals are a big part of that push, as the company sees demand for products used to make goods such as plastics continuing to rise over the coming decades, while the energy transition is likely to slow oil demand.
August 27, 2024
Covestro Invests
Covestro invests $40M in R&D upgrades in Pittsburgh
Covestro is committing $40 million to enhance its research and development capabilities in Pittsburgh, strengthening its innovation efforts and supporting advanced materials science.
By Prakriti Mitra Published on August 27, 2024, 07:55 EDT
Image credits – welt.de
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Covestro, a global leader in high-tech polymer materials, has announced a $40 million investment to upgrade its research and development (R&D) facilities in Pittsburgh. This significant commitment is aimed at bolstering the company’s innovation capabilities, particularly in the area of advanced materials science, which is crucial for driving future growth and meeting evolving market demands.
The investment will be used to modernize and expand Covestro’s existing R&D infrastructure, ensuring that the company remains at the forefront of material science innovation. The enhancements will include the introduction of cutting-edge equipment, upgraded laboratories, and expanded research spaces. These improvements are designed to facilitate more efficient and effective research, enabling Covestro to accelerate the development of new materials and technologies that address the needs of various industries.
Covestro’s Pittsburgh site has long been a central hub for the company’s R&D activities, and this investment reaffirms the site’s importance within the company’s global operations. By strengthening its R&D capabilities in Pittsburgh, Covestro is positioning itself to better respond to the growing demand for sustainable and innovative material solutions.
The upgrades are expected to significantly enhance the company’s ability to innovate in areas such as automotive, construction, electronics, and healthcare, where advanced materials play a critical role. Covestro’s R&D efforts focus on developing materials that are not only high-performing but also environmentally friendly, aligning with the company’s commitment to sustainability.
In addition to advancing its research initiatives, the $40 million investment will also support job creation and economic growth in the Pittsburgh region. The expansion of the R&D facilities is likely to attract top talent to the area, further solidifying Pittsburgh’s reputation as a hub for innovation and technology.
This investment is part of Covestro’s broader strategy to strengthen its position as a leader in the global materials science industry. By enhancing its R&D capabilities, Covestro aims to accelerate the development of next-generation materials that meet the challenges of today’s rapidly changing markets.
August 21, 2024
Stockmeier & BASF Team Up for Sustainable Products
Joint News Release
BASF and STOCKMEIER Urethanes USA, Inc. partner to offer more sustainable polyurethane playground and recreational surfacing products
- BASF supplies STOCKMEIER Urethanes with BMB Lupranate MDI for the manufacturing of their Stobielast S binders
FLORHAM PARK, NJ and CLARKSBURG, WV, AUGUST 20, 2024 – BASF and STOCKMEIER Urethanes USA, Inc. (“STOCKMEIER Urethanes”) have announced the commercial production of Stobielast® S polyurethane binders for playground and recreational surfacing made with 100% domestically produced Biomass Balance (BMB) Lupranate® methylene diphenyl diisocyanate (MDI). BASF produces the BMB MDI at its Verbund site in Geismar, Louisiana. This achievement represents a pivotal milestone in the surfacing industry and highlights both companies’ commitments to driving a more sustainable future.
The use of BMB Lupranate in the polyurethane manufacturing process allows STOCKMEIER Urethanes to leverage more sustainable solutions without the need for reformulations, new production equipment or changes to its supply chain. Creating polyurethane binders from mass balanced isocyanates complements STOCKMEIER Urethanes’ efforts to promote environmental stewardship and a more circular economy. The Stobielast S product line also includes water-based & solvent-free coatings, GREENGUARD and GREENGUARD GOLD certified products, and U.S. Department of Agriculture (USDA) Certified Biobased labeled products.
“With playground season in full swing across North America, we are excited to team with BASF and become the first U.S. polyurethane pour-in-place (PIP) binder manufacturer to forge a domestic partnership over BASF’s BMB isocyanates,” said Christian Martinkat, President and CEO of STOCKMEIER Urethanes USA, Inc. “This collaboration marks a significant advancement toward enhancing product innovation and expanding manufacturing capabilities in the surfacing industry. We can take a big step toward greater sustainability of our products by offering a version of our high-quality PIP binders produced with renewable feedstock-based MDI. This partnership advances our goal of reducing STOCKMEIER Urethanes’ carbon footprint worldwide.”
“At BASF’s Monomers division, we are proud to partner with STOCKMEIER Urethanes as the company scales up its more sustainable production of PIP binders using BMB MDI,” said Stefan Doerr, Senior Vice President, Monomers North America at BASF. “All of our BMB MDI products are certified according to globally recognized ISCC PLUS and REDcert² standards and produced right here in the United States.”
BASF aims to achieve net zero emissions by 2050. Bio-circular feedstocks used to make BMB MDI play an important role in reducing the product carbon footprint (PCF), which sums up the total greenhouse gas (GHG) emissions generated by a product over the different stages of its life cycle. BASF’s Monomers division is following an ambitious sustainability roadmap and will expand its portfolio of products with a lower CO2 footprint while committing to providing a circular option in every major product line by 2025.
Like BASF, STOCKMEIER Urethanes is deeply committed to sustainability, actively participating in the Responsible Care initiative through the American Chemistry Council (ACC) to enhance health, safety and environmental practices. The company implements various sustainability measures, such as waste reduction and energy efficiency in its production processes. By prioritizing sustainability across its operations and collaborating with stakeholders including customers, suppliers, and industry partners, the company strives for responsible growth and innovation, aiming meet the market demand for greener solutions.
To learn more about BASF’s 100% BMB Lupranate and its certification process, visit https://polyurethanes.basf.us/about-us/sustainability.
To learn more about STOCKMEIER Urethanes’ sustainability commitments, visit https://www.stockmeier.com/en/responsibility/sustainability. To inquire about the Stobielast® S product line, please reach out at info@stockmeier.us.com.
Always read and follow label directions. Stobielast is a registered trademark of STOCKMEIER Urethanes. Lupranate is a registered trademark of BASF. (C) 2024, BASF Corporation. All Rights Reserved.
August 15, 2024
Urethane Highlights from Huntsman Investors Call
Huntsman Corporation (HUN) Q2 2024 Earnings Call Transcript
Aug. 06, 2024 1:28 PM ETHuntsman Corporation (HUN) Stock
Q2: 2024-08-05 Earnings Summary
EPS of $0.14 misses by $0.00 | Revenue of $1.57B (-1.38% Y/Y) misses by $36.92M
Huntsman Corporation (NYSE:HUN) Q2 2024 Earnings Conference Call August 6, 2024 10:00 AM ET
Company Participants
Ivan Marcuse – Vice President-Investor Relations and Corporate Development
Peter Huntsman – Chairman, Chief Executive Officer and President
Phil Lister – Executive Vice President and Chief Financial Officer
Peter Huntsman
Ivan, thank you very much and thank you all for joining us this morning. I find myself in a rather precarious place this morning as I usually prepare some opening comments the afternoon before these calls. Within the last 24 hours, swords have been rattling in the Middle East, triggering massive potential for raw material volatility. Over the past few hours of trading, trillions of dollars, yen, Euros and RMB have been wiped out, and consumer confidence has been reforecasted more times in the polling data for the upcoming presidential election. All of that being said after five quarters in the chemical industry of massive inventory adjustments, plummeting margins and a tidal wave of Asian-based oversupply. These most recent events seem quite calm.
Our cost initiatives that have been ongoing for the past three years are paying off as we’ve stayed ahead of inflation. Our focus on cash generation delivered over $50 million of cash flow from our operations in the second quarter. As we outlined plans in the previous earnings call, our volumes year-over-year and quarter-over-quarter were up across the entire business by 9% and 8%, respectively. This volume improvement took place as we were able to increase margins and earn what we projected from our previous calls. While I continue to be concerned with Europe’s highly successful policy of deindustrialization and excess chemical capacity flowing out of Asia, the single largest catalyst for margin improvement for Huntsman would be a resurgence of commercial and residential construction demand.
This will not fully happen until this interest rates drop below the current levels. I believe that events in the past few weeks have increased the likelihood and timing of a rate decrease. Presently, third quarter order patterns seem flattish to the second quarter. We remain cautious regarding the second half of the year. The present time it is simply too early to have a clear picture of the fourth quarter. That being said, inventory in the supply chain remains low. Our construction, aerospace, infrastructure, power and elastomers businesses continue to improve. We will stay focused on cost, and cash management is our priority.
Michael Sison
Hi, good morning. Nice quarter there, Peter. In terms of MDI industry operating rates, I think last quarter you noted that we were at the cusp potentially of getting better pricing. I think you said operating rates are in the mid-80s. Any thoughts of where we’re at now in July and how that – how you think that’s going to shape up as we head into the rest of the second half?
Peter Huntsman
Yes, it’s somewhat of a squishy number because there is not a lot of reliable data that’s transmitted in real-time. I would say that we probably have seen a few percentage points drop in Europe, probably a few percentage points tightening in Asia and the Americas basically, I’d say, stayed flat since the second quarter. I’d say that in the second quarter we probably – we’re in – first going into the second quarter, we’re probably in the mid-80s, maybe on the weak mid-80s. And I think now we’re probably still in that mid-80s, but perhaps a few points stronger. Overall, I think trending in the right direction, but moving along ever so slowly.
Michael Sison
Got it. And you did mention if there is an improvement in construction demand longer term, it’s the big – the most important earnings driver for Huntsman. Any thoughts where you think you’ve had a lot of cost savings where you think polyurethanes EBITDA can get back to in the event that hopefully demand resurges over time?
Peter Huntsman
Well, I certainly see given that if we get back into kind of that normalized construction, that we’re looking at the mid to upper mid-teens sort of margins with polyurethanes across the board. That will require, I think, three basic things to take place I believe that China will have to see a little bit stronger growth than we’ve seen in the last year or two. We’ll have to see Europe at least start to get some traction and in a low sort of percentage growth rate in an industrial basis, kind of remember that they need to be moving from a tourist economy back to some element of an industrial economy. And then the U.S., which I feel is in a recovery phase right now. We need to see that housing come back. Those three basic things take place. I think you see urethanes back into that mid-teens plus sort of margin basis.
eff Zekauskas
Thanks very much. Your volumes were up 8% or 9%. Your inventories were down about 10%. Why is that?
Peter Huntsman
I think that we’ve tried to manage cash as carefully as we can. We did have a plan as we announced three and six months ago to try to recover some of our volumes that we have lost. I don’t think through error, but we certainly lost some volumes a year ago trying to hold on to pricing and demonstrate pricing discipline. We did give up some of the larger, particularly around insulation, composite wood, some of the more polymeric commodity side. So we also saw a lot of deinventorying that took place in elastomers, industrial applications and so forth. So we’ve gotten some of that volume back. We’ve seen some regrowth taking place in some of those applications and we have seen a lot of the deinventorying taking place. So I think it’s just a capital discipline around supply and demand and production.
Phil Lister
And Jeff, just on the numbers, our volume in inventory is down 4% overall. You’re correct. If you calculate that on a DIO basis, we’re down about 10%. And as Peter says, that’s just a real focus on our inventory levels that we have right now.
Patrick Cunningham
Hi, good morning. So the polyurethanes guide is calling for flattish EBITDA quarter-on-quarter despite maybe $15 million to $20 million in discrete headwinds and relatively stable volumes. How should we think about variable margin improvement throughout the quarter? And if there are any particular regions you want to call out that might be stronger than others.
Peter Huntsman
I think it’s largely going to be flat. I mean, there will be some give and takes we experienced an outage in our Rotterdam facility in which we’re just now starting to restart the facility and coming back online. We’ve got to rebuild some inventory there. We’ll see a little bit of headwinds on the Chinese joint venture that we have around propylene oxide and we hope to see some volume growth and pricing momentum that continues into the third quarter. And I think some of that’s going to be offsetting each other a little bit of seasonality that will – that will mostly be taking place in Performance Products in the third quarter. So yes, I think a lot of give and takes, as I said in my prepared remarks, it’s probably going to be pretty flattish.
Phil Lister
One item to consider, Patrick, on the bridge for polyurethanes from Q2 to Q3. We will aim to have an inventory build towards the back end of quarter three. We’ve got a turnaround in the fourth quarter that will necessitate some inventory build, which will give us a one-time benefit on EBITDA, which will reverse out. And that’s probably between $5 million and $10 million, which will reverse out in the fourth quarter.
Patrick Cunningham
Understood. Very helpful. And then with price mix down 10% year-on-year for advanced materials, were there any areas of structural pricing pressure or was this mostly mixed impacts? And if you have any detail on how we should think about it for the balance of the year, that would be helpful.
Peter Huntsman
I think that virtually all of that is mix. Demand trends continue to be very strong in advanced materials, very solid, and we’re seeing the gradual recovery of aerospace, I do mean gradual – they are continuing to be playing with some supply issues in aerospace. But by and large, it’s been a very consistent and very reliable end of the business.
Vincent Andrews
Thank you and good morning. Peter, in your prepared remarks, you made a comment that lower interest rates, you’re not so sure would actually improve your operating environment in Europe. I was wondering if you could just color that in a little bit.
Peter Huntsman
No. I – okay, well, maybe I meant that came out a little bit backwards. I think the lower interest rates are going to particularly impact North American construction, housing, commercial construction and so forth. I do think that lower interest rates will impact Europe. I just don’t believe that it will be nearly as material to the bottom line. We certainly welcome that in Europe, but I don’t think it’s going to be nearly as material as it will be in the United States.
Vincent Andrews
And is that just a function for you of your exposure being larger to building and construction in the U.S. versus Europe? Or is there something else that’s causing that space?
Peter Huntsman
Yes. Yes. And I think as we look at and we track multifamily, single-family construction and so forth and we look at the housing inventory of how many homes are in the market, how many homes are available, let’s go through the typical housing data. The U.S. when it rebounds, I believe it’s not going to be a very gradual rebound. It could be a very sudden and strong rebound. Again, depending on – two things on rate cuts and overall consumer optimism.
Phil Lister
For North America, construction is about a 60% exposure, U.S. about 50%, but it’s very different, as Peter says. In Europe, in general, it’s aligned with commercial construction, whereas in North America, it’s relatively balanced, but with a greater proportion of sales into residential.
Frank Mitsch
Hi, good morning. Peter, one of the priorities in 2024 was to get the volumes up and clearly, that’s been a success. But price mix in the second quarter faced a very easy comp and obviously came in on the negative side of the ledger. 3Q faces another easy year-over-year comp. How should we think about the progression of price mix in 3Q and beyond? And what will it take to get it back to neutral if not positive.
Peter Huntsman
Well, it’s going to take a combination of capacity utilization, overall demand and mix of the products we’re selling, the combination of those three. And as sort of a cataclysmic economic event, I remain bullish that we’re going to continue to see a gradual improvement that’s taking place in the business over the course of the next couple of quarters.
Phil Lister
I think price mix was mostly built in, Frank. If you look at the sequential quarter one to quarter two in general, that was relatively neutral.
Frank Mitsch
That’s right. Yes. I did pick that up. And then North America polyurethane volumes up nicely in 1Q, up nicely again here in 2Q over 20% in both of those quarters, does that continue in 3Q that level of improvement in polyurethanes North America?
Peter Huntsman
Most likely, yes. Again, kind of basing that what you said earlier, we’re starting it on a very low basis as to where we were a year ago. But no, I think that we will continue to defend our market share and we’ll continue to win back business.
Salvator Tiano
Yes, thank you very much. First, I wanted to release a little bit of polyurethanes guidance because actually, I would think when you’re taking into account the force majeure or the PO/MTBE turnaround, it looks like actually like-for-like, it would have – you’re pointing to much higher earnings in Q3 than Q2. And I’m wondering what is driving that? Is it essentially the U.S. margin expansion because of the Freeport outage and then I guess the big price increase we saw in May and June? And also, how sustainable is this margin expansion as Freeport comes back online?
Peter Huntsman
Yes, Sal. So you’re correct in that we’ve got the Rotterdam force majeure or we’ve got PO/MTBE turnaround. I think we said earlier as well we’ve got a one-time benefit from what is an intended inventory build towards the end of September, ahead of a turnaround in October.
Any benefits that we’re getting tend to be in PU Americas when you compare quarter two to quarter three, driven by a little bit of volume. But as you indicate, we’ve also got some pricing traction in the United States with our price increase, which should improve unit variable margins as we go through the quarter.
So it’s really North America plus those other pluses and minuses that we go earlier to bridge the quarter two to quarter three.
Josh Spector
Yes, hi. Good morning. I wanted to ask around your early thoughts here around 4Q and not necessarily pinning to a specific number, but just thinking about seasonality. We talked about some of the moving parts in polyurethanes, and you’re seeing some pricing. Would you expect seasonality to be normal in fourth quarter? Should that be our base case, or are there things that you would call out to say why it would be abnormal, maybe closer to stable versus what you typically expect? Thanks.
Phil Lister
Yes, great question. My guess is probably as good as any, Josh. I would suspect this year that seasonality ought to be pretty normal compared to the last couple of years, with the exception of last year. And I base that solely on demand has been fairly steady, hasn’t been growing a great deal. It’s been fairly steady. There is not a lot of inventory just anecdotally that I’m seeing in the supply chain. That’s not to say that they are not pockets here and there, and so forth. But typically, at the end of the year, if you’re sitting on a lot of the inventory customers and in certain geographic areas of the company will take that opportunity to deplete inventories and improve their working capital at the end of the fourth quarter – and seasonally – that coupled with seasonality. So, from a seasonal point of view, probably a 100% chance of certainty that Christmas and New Years will come about, there will be a slowdown.
As far as will there be a massive drawdown of inventory, and so forth, that doesn’t feel like there is a lot of inventory in the system right now. I think my biggest concern right now would be between now and the end of the year where you’ve got kind of a couple of these big macro issues, either geopolitical issues in the Middle East, U.S. elections, and so forth, consumer confidence, volatility in the stock market, consumer confidence somehow tanks in the fourth quarter, that could have a reverberating impact on overall demand. And I think that, in my mind, is probably the biggest uncertainty that’s out there right now.
But aside from that, I don’t see at this point, I don’t see a lot of areas of uncertainty and supply that’s sloshing around.
Aleksey Yefremov
Thanks. Good morning everyone. Peter, I was hoping you could update us on your spray foam story. How is your business doing this year? And if that business overall is gaining share from other forms of insulation.
Peter Huntsman
Well, I think when I look at the comparison to spray foam versus other products. I look at it first on a very macro basis, and I look at some of the earnings of our peers, and so forth, it feels like it’s a pretty sluggish area of demand right now. And we’re optimistic about some of the government initiatives and standards and so forth that are being set that will be coming in through 2025. As those standards, tax issues, building codes, and so forth, really hit the bottom line, I am quite optimistic about what I see in the pipeline. Presently, the higher crude prices, which is kind of where your polyurethane foam is based versus your natural mineral fibers, which are largely based on energy and natural gas prices it’s a competitive market out there right now.
Aleksey Yefremov
Thanks, Peter. And you reminded us of your commercial versus residential real estate exposure in the U.S. in prepared remarks. I was hoping to ask you if you see any signs of slowdown in commercial real estate? And also tell us what is the breakdown between maintenance and new within commercial?
Peter Huntsman
Yes. As we look at commercial in North America, just looking at the revenues, it’s really about on the commercial side, which makes up about 40% of our overall business, 45% of our overall North American polyurethanes business. Of that, it will be split about one third retrofit, two thirds new. Again, that’s commercial. When I look at residential, that’s making up of our polyurethanes business in North America on a revenue basis. That’s making up about 55%. And of that, that’s going to be about – of that number – it will be about three quarters that will be new and one quarter, that will be retrofit.
Hassan Ahmed
Good morning, Phil and Peter. Peter, a question, just wanted to revisit volumes in the Polyurethane segment. obviously, on a percentage basis, strong growth over there, particularly in North America. I’m just trying to get a better sense of despite – you mentioned that, obviously, we are coming off of a low base. How far away are we – be it by region, be it globally from reaching more normalized levels of volumes.
Peter Huntsman
I think that is a good question. I think that you’ve got to see that normalization again, we need to see a recovery in the construction, residential construction markets. And I believe that as we see that gradual improvement take place that’s certainly something that we would hope would have returned in 2025 as we kind of get through the rest of this year.
August 12, 2024
Epoxy Highlights from Olin Call
Olin Corporation (OLN) Q2 2024 Earnings Call Transcript
Jul. 26, 2024 2:37 PM ETOlin Corporation (OLN) Stock
Q2: 2024-07-25 Earnings Summary
EPS of $0.66 misses by $0.03 | Revenue of $1.64B (-3.45% Y/Y) misses by $59.22M
Olin Corporation [OLN] Q2 2024 Earnings Conference Call July 26, 2024 9:00 AM ET
Company Participants
Ken Lane – CEO
Todd Slater – CFO
Steve Keenan – Director, IR
Ken Lane
Thank you, Steve, and good morning, everyone. I want start by saying how grateful we are that despite a direct hit on our Freeport, Texas facility by Hurricane Beryl, all our team members are safe. I’m very proud of how everyone responded. We saw the best come out, with colleagues supporting one another, not only on site during and following the storm, but with each other’s homes as well. Many team members experienced significant damage to their homes, and I want to personally thank all of those who stepped up to help during the recovery. While we did experience damage to some of our assets, Olin’s preparations limited the impact of the storm and kept our team members and neighbors safe.
Turning to our second quarter results, overall, the quarter unfolded as expected, with our chemical businesses improving modestly with seasonal demand gains and generally improved pricing. Winchester also delivered on its second quarter objectives as higher propellant costs were partially offset by improved pricing, continued strength in military, and a strong performance by White Flyer. Looking ahead to the second half, we now have greater clarity around the macroeconomic outlook, customer demand, and global supply. The industrial economic trough we find ourselves in looks to be longer-lived than typical. We expect Hurricane Beryl to represent a setback for our chemicals businesses of approximately $100 million during the third quarter. Based on our current outlook and including the effect of the hurricane, we have lowered our full-year 2024 adjusted EBITDA outlook. Olin remains in great shape with our investment-grade balance sheet, strong liquidity, and leading market positions. We will continue to be disciplined with our capital allocation strategy as we were during the quarter. Also, we remain focused on executing our value-first commercial strategy and continuing to anticipate a bright future as economic activity improves and Olin acts as a coiled spring to serve that recovering demand.
Turning to Slide 4, I’ll highlight our efforts in the second half to maximize cash flow. Our teams will continue to focus on cash generation by reducing capital expenditures in spite of hurricane Beryl requirements, maintaining cost discipline, and reducing working capital through the second half of 2024. We’ve done a lot of restructuring around our chlor alkali and epoxy assets, and expect to continue to realize benefits in the second half. We will continue to stay focused on cost, discipline, and explore additional cost-saving opportunities.
For a look at our epoxy business, let’s turn to Slide 6. Epoxy results continued to improve in the second quarter on lower cost and higher pricing. Third quarter epoxy results will be challenged by both the impact of Hurricane Beryl and our planned start at Germany epoxy resin turnaround. Our US epoxy anti-dumping case continues to progress on schedule, with an expectation for provisional duties to be set later this year. We are encouraged that the European Union recently launched a parallel investigation as we pull all available leavers to level the global playing field and combat the government-subsidized dumping of Florida epoxy. During the second quarter, we’ve seen several US and EU importers accelerate their epoxy import volumes. This raises the potential for retroactive duties to be applied, and we would expect our coalition of US producers to request this additional remedy. Olin has been clear with regulators in both the US and Europe that success on each front will be essential to keeping production of these critical materials in region.
JeffZekauskas
Okay. And in terms of your reassessment of demand for the second half, are there particular industry areas that have slowed relative to your expectations?
Ken Lane
Hey, Jeff, I’ll take that, and this is Ken. So, back in the first half of the year, even in the first quarter, there was a lot of expectation that we were going to start to see the economy improve in the second half of the year. I think that was a consensus pretty much across industries. And we were seeing some inquiries coming in around volume in the second half for our businesses, but as we got closer to that, they just didn’t develop because the economy, frankly, is still struggling to really start to grow again. I wouldn’t say that there’s any significant difference in any one particular industry. There were a couple that we thought there would be some more improvement than what we’ve seen maybe in the TiO2 space, maybe in polyurethanes. Both of those have continued to be stable but have not really shown any growth. So, in Q2, the volume uptick that we saw was more of a normal seasonal uplift. There was really no underlying growth that we saw in the market, which you would expect to see if you were going to see growth in the second half of the year.
Ken Lane
Yes, thanks for the question, Hassan. What I would say is we certainly are in the trough, and if you look at the last 12 months, that would I think certainly represent a trough level of earnings. And what I will say is, I think the expectations are that even if you look at the epoxy business, that is in a very unusual position relative to historic performance. So, that’s not a typical trough level. It’s really driven by the overinvestment that we’ve seen in China with the new capacity, and we know the impacts that that’s having on both Europe and to the US markets, which is why we’ve got the anti-dumping cases out there. So, that’s a bit of an unusual case, but I do think that the trough level of earnings is going to be somewhere around this level. I don’t expect that that it’s going to continue at this level significantly longer. As I said in my prepared comments, this is a very long trough that we’ve been in, and as soon as we start to see the green shoots, not just in the US markets, but also in the China market, we really need to see China start to recover and get the demand in the economy going there. Europe is probably closer to seeing some improvement, but it’s still very, very early, I would say, even in Europe.
Steve Byrne
And then just a quick question on these anti-dumping initiatives in the US and Europe with respect to epoxy, does that require some level of government support in order for those initiatives to get some traction? And what is it that you view as enabling those four countries to undercut you on price on epoxy? It would seem to be propylene and energy-related, but what’s your outlook for that?
Ken Lane
Well, again, our outlook is that we favor fair and free trade. That’s what we want to have. And what we have seen is over the last few years, there have been subsidized assets that are brought online that has created tremendous imbalances, and people are operating in a way that they’re dumping materials into these markets and threatening local production. So, as I said in the prepared remarks, if we don’t see some intervention with import duties to get some protection to the domestic producers, they are very much at risk. And I think these are materials that we want to continue to produce both in Europe and in the United States market. So, we’ll see how this all plays out. We expect to see some announcements around that later this year, and we hope that it’s favorable for the local producers.
Matthew Blair
Good morning. Thanks for taking my question. I’m glad everyone is safe after the hurricane. For that 100 million impact, is there a breakout between the CAPB and epoxy segments? And then I just want to confirm, but it sounds like the $940 million full-year guide actually does include an assumption of better cost of pricing in Q4.
Ken Lane
Yes, thanks for your question, Matthew. The split, if you think about the assets that we’ve talked about, it’s going to be around 70/30 roughly. Don’t make that too precise, but that’s kind of the range you can think about, 70 for chlor alkali, 30 for epoxy. I would use that as a rough estimate. And when we think about the back half of the year, yes, we see that there’s pricing momentum. So, in our outlook, we’ve included some improvement in the caustic market.
Arun Viswanathan
Okay. And well, maybe I can ask the question a little differently then. So, if you do have a resumption in normal operations, given some of the capacity that you’ve taken out, is that – would that be a limitation on your earlier comments maybe a little while ago that peak EBITDA is kind of in the $3 billion range? Maybe, is that now kind of two and a half or well below that? And then along those lines, do you see any kind of structural impairment to any of these markets? I know epoxy has gone through pretty significant pullback, especially in China, in demand. It’s unlikely that China will return to their prior growth rates. So, I don’t know if they’ve taken enough action to right-size their own epoxy market either. So, it seems like that business does have some structural limitations that weren’t there in the past. And then on chlor alkali, again, you’ve shut down some capacity. So, just wanted to understand if there’s been any change in kind of the earnings power of the businesses.
Ken Lane
Yes, well, listen, I said in the prepared comments as well that we’ve positioned ourselves very well with a set of assets that are going to be competitive in the long term. They’re very well positioned on the cost curve. We’re continuously looking at optimizing our asset portfolio, especially around chlor alkali, but our focus is going to be on operating those assets. As we see demand coming back, we will adjust our position in the market to be the ones that are capturing that growth. I mean, that’s really the way we’ve positioned ourselves. So, if you think about the capacity we took offline, it doesn’t take away the optionality for us to be that coiled spring as we’ve called it, to be able to respond when we see the growth coming back. With respect to epoxy, yes, structurally there are more challenges in that market. And that’s why, again, we’ve been so vocal about the anti-dumping cases that we have filed. We think that it’s very important that there is some support that comes into those markets. But ultimately, there probably does need to be some restructuring in the China market. There’s probably going to need to be some capacity that comes offline because to your point, it’s going to be a very long time before they’re able to grow into that capacity. And when you’ve seen these sorts of troughs in the past, that’s what’s happened. You’ve seen capacity come off in conjunction with growth in the market, and both of those things will typically correct themselves over time, but it’s going to be years, if not months before we see that happen.
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