August 4, 2022

Epoxy Comments from Westlake Q2 Discussion

WESTLAKE CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/03/2022 | 02:37pm EDT

Overview

We are a vertically integrated global manufacturer and marketer of performance
and essential materials and housing and infrastructure products. We operate in
two principal operating segments, Performance and Essential Materials and
Housing and Infrastructure Products. The Performance and Essential Materials
segment includes Westlake North American Vinyls, Westlake North American
Chlor-alkali & Derivatives, Westlake European & Asian Chlorovinyls, Westlake
Olefins, Westlake Polyethylene and Westlake Epoxy. The Housing and
Infrastructure Products segment includes Westlake Royal Building Products,
Westlake Pipe & Fittings, Westlake Global Compounds and Westlake Dimex. Prior to
our segment reorganization in the fourth quarter of 2021, we operated in two
principal operating segments, Vinyls and Olefins. The change has been
retrospectively reflected in the periods presented in this Form 10-Q. We are
highly integrated along our materials chain with significant downstream
integration from ethylene and chlor-alkali (chlorine and caustic soda) into
vinyls, polyethylene, epoxy and styrene monomer. We also have substantial
downstream integration from polyvinyl chloride ("PVC") into our building
products, PVC pipes and fittings and PVC compounds in our Housing and
Infrastructure Products segment.

Performance and Essentials Materials

Ethane-based ethylene producers have experienced a cost advantage over
naphtha-based ethylene producers during periods of higher crude oil prices. This
cost advantage has resulted in a strong export market for polyethylene and other
ethylene derivatives and has benefited operating margins and cash flows for our
Performance and Essential Materials segment during such periods. In the past
year, we have seen significant volatility in natural gas, ethane and ethylene
prices, primarily due to changes in demand, the timing for certain new ethylene
capacity additions, the availability of natural gas liquids, and the ongoing
conflict between Russia and Ukraine.

Our performance and essential materials such as ethylene, PVC, polyethylene,
epoxy and chlor-alkali are some of the most widely used materials in the world
and are upgraded into a variety of higher value-added products used in many
end-markets. Our performance and essential materials are used by customers in
food and specialty packaging; industrial and consumer packaging; medical health
applications; PVC pipe applications; consumer durables; mobility and
transportation; renewable wind energy; and housing and construction products.
Chlor-alkali and petrochemicals are typically manufactured in large volume by a
number of different producers using widely available technologies. The
chlor-alkali and petrochemical industries exhibit cyclical commodity
characteristics, and margins are influenced by changes in the balance between
supply and demand and the resulting operating rates, the level of general
economic activity and the price of raw materials. Due to the significant size of
new plants, capacity additions are built in large increments and typically
require several years of demand growth to be absorbed. The cycle is generally
characterized by periods of tight supply, leading to high operating rates and
margins, followed by a decline in operating rates and margins primarily as a
result of excess new capacity additions.

Westlake is the second-largest chlor-alkali producer and the second-largest PVC
producer in the world, which makes Westlake a global leading chlorovinyls
producer. Demand for our products in the first half of 2020 was negatively
impacted by the onset of the COVID-19 pandemic. Global demand for most of our
products started strengthening in the second half of 2020 and has remained
strong through the second quarter of 2022. We expect global demand for most of
our products to remain favorable throughout 2022.
                                       25

——————————————————————————–

Table of Contents

On February 1, 2022, we completed the acquisition of Westlake Epoxy for a
purchase consideration of $1,207 million. The assets acquired and liabilities
assumed and the results of operations of the Westlake Epoxy business are
included in the Performance and Essential Materials segment. This acquisition
represents a significant strategic expansion of Westlake's Performance and
Essential Materials businesses into additional high-growth, innovative and
sustainability-oriented applications - such as wind turbine blades and
light-weight automotive structural components. Because epoxies are produced from
chlorine and caustic soda, the transaction also provides vertical integration
with Westlake's global chlor-alkali businesses. With the acquisition of the
Westlake Epoxy business Westlake is now one of the leading producers of epoxy
specialty resins, modifiers and curing agents in Europe and the United States
with a global reach to our end markets. Epoxy resins are the fundamental
component of many types of materials and are often used in the automotive,
construction, wind energy, aerospace and electronics industries due to their
superior adhesion, strength and durability. Our position in basic epoxy resins,
along with our technology and service expertise, has enabled us to offer
formulated specialty products in certain markets. In composites, our specialty
epoxy products are used either as replacements for traditional materials such as
metal, wood and ceramics, or in applications where traditional materials do not
meet demanding engineering specifications. We are also one of the leading
producers of resins that are used in fiber reinforced composites. Composites are
a fast growing class of materials that are used in a wide variety of
applications ranging from aircraft components and wind turbine blades to sports
equipment, and increasingly in automotive and transportation. We supply epoxy
resin systems to composite fabricators in the wind energy, automotive and pipe
markets. Epoxy specialty resins are also used for a variety of high-end coating
applications that require the superior adhesion, corrosion resistance and
durability of epoxy, such as protective coatings for industrial flooring, pipe,
marine and construction applications and automotive coatings. Epoxy-based
surface coatings are among the most widely-used industrial coatings due to their
long service life and broad application functionality combined with overall
economic efficiency. We also leverage our resin and additives position to supply
custom resins to specialty coatings formulators. The raw materials that we
primarily use to manufacture our epoxy products are chlorine and caustic soda,
among others and are available from more than one source including internal
sourcing and the open market. Prices for our main feedstocks are generally
driven by the underlying petrochemical benchmark prices and energy costs, which
are subject to price fluctuations.

Depending on the performance of the global economy, the timing of resolution of
the conflict between Russia and Ukraine, disruption in the global supply chain,
labor shortages and costs, potential resurgence of the COVID-19 pandemic, the
trend of crude oil prices, new capacity additions in North America, Asia and the
Middle East in 2022 and beyond, the sustainability of the current, strong demand
for most of our products, inflationary pressures and concerns over slower future
economic growth, including the possibility of recession or financial market
instability, our financial condition, results of operations or cash flows could
be negatively or positively impacted.

We purchase significant amounts of ethane feedstock, natural gas, ethylene and
salt from external suppliers for use in production of performance and essential
materials. We also purchase significant amounts of electricity to supply the
energy required in our production processes. While we have agreements providing
for the supply of ethane feedstock, natural gas, ethylene, salt and electricity,
the contractual prices for these raw materials and energy vary with market
conditions and may be highly volatile. Factors that have caused volatility in
our raw material prices in the past, and which may do so in the future include:

•the availability of feedstock from shale gas and oil drilling;

•supply and demand for crude oil and natural gas;

•shortages of raw materials due to increasing demand;

•ethane and liquefied natural gas exports;

•capacity constraints due to higher construction costs for investments, construction delays, strike action or involuntary shutdowns;

•the general level of business and economic activity; and

•the direct or indirect effect of governmental regulation.

Significant volatility in raw material costs tends to put pressure on product
margins as sales price increases could lag behind raw material cost increases.
Conversely, when raw material costs decrease, customers may seek immediate
relief in the form of lower sales prices. We currently use derivative
instruments to reduce price volatility risk on feedstock commodities and lower
overall costs. Normally, there is a pricing relationship between a commodity
that we process and the feedstock from which it is derived. When this pricing
relationship deviates from historical norms, we have from time to time entered
into derivative instruments and physical positions in an attempt to take
advantage of this relationship.

Acquisition of Hexion Epoxy Business


On November 24, 2021, the Company, through a wholly-owned subsidiary, entered
into a Stock Purchase Agreement (the "Hexion Epoxy Purchase Agreement") by and
among Hexion Inc. ("Hexion"), a New Jersey corporation, and solely for the
limited purposes set forth therein, the Company. Pursuant to the terms of the
Hexion Epoxy Purchase Agreement, the Company agreed to acquire all of the equity
interests in Hexion's global epoxy business ("Westlake Epoxy"). On February 1,
2022, the Company completed the acquisition of, and acquired all of the equity
interests in, the Westlake Epoxy business for a purchase consideration of $1,207
million. The assets acquired and liabilities assumed and the results of
operations of the Westlake Epoxy business are included in the Performance and
Essential Materials segment.

Performance and Essential Materials Segment


Net Sales. Net sales for the Performance and Essential Materials segment
increased by $958 million, or 45%, to $3,104 million in the second quarter of
2022 from $2,146 million in the second quarter of 2021. Average sales prices for
the Performance and Essential Materials segment increased by 27% in the second
quarter of 2022 as compared to the second quarter of 2021. The higher
Performance Materials sales prices were due to higher PVC resin sales prices.
The higher Essential Materials sales prices were primarily driven by the higher
prices for caustic soda, chlorine, styrene and derivative products. Sales
volumes for the Performance and Essential Materials segment increased by 18% in
the second quarter of 2022 as compared to the second quarter of 2021, primarily
resulting from the acquisition of Westlake Epoxy in the first quarter of 2022.

Income from Operations. Income from operations for the Performance and Essential
Materials segment increased by $294 million to $965 million in the second
quarter of 2022 from $671 million in the second quarter of 2021. This increase
in income from operations was due to higher sales prices for PVC resin, caustic
soda and styrene and higher margins for polyethylene, mainly resulting from
strong demand for our products. Income from operations was also higher due to
the acquisition of Westlake Epoxy in the first quarter of 2022. The increase in
income from operations versus the prior-year period was partially offset by
higher global fuel and power costs, higher feedstock costs and lower sales
volumes for PVC resin.


https://www.marketscreener.com/quote/stock/WESTLAKE-CORPORATION-14877/news/WESTLAKE-CORP-Management-s-Discussion-and-Analysis-of-Financial-Condition-and-Results-of-Operations-41186706/

August 4, 2022

Epoxy Comments from Westlake Q2 Discussion

WESTLAKE CORP Management’s Discussion and Analysis of Financial Condition and Results of Operations (form 10-Q)

08/03/2022 | 02:37pm EDT

Overview

We are a vertically integrated global manufacturer and marketer of performance
and essential materials and housing and infrastructure products. We operate in
two principal operating segments, Performance and Essential Materials and
Housing and Infrastructure Products. The Performance and Essential Materials
segment includes Westlake North American Vinyls, Westlake North American
Chlor-alkali & Derivatives, Westlake European & Asian Chlorovinyls, Westlake
Olefins, Westlake Polyethylene and Westlake Epoxy. The Housing and
Infrastructure Products segment includes Westlake Royal Building Products,
Westlake Pipe & Fittings, Westlake Global Compounds and Westlake Dimex. Prior to
our segment reorganization in the fourth quarter of 2021, we operated in two
principal operating segments, Vinyls and Olefins. The change has been
retrospectively reflected in the periods presented in this Form 10-Q. We are
highly integrated along our materials chain with significant downstream
integration from ethylene and chlor-alkali (chlorine and caustic soda) into
vinyls, polyethylene, epoxy and styrene monomer. We also have substantial
downstream integration from polyvinyl chloride ("PVC") into our building
products, PVC pipes and fittings and PVC compounds in our Housing and
Infrastructure Products segment.

Performance and Essentials Materials

Ethane-based ethylene producers have experienced a cost advantage over
naphtha-based ethylene producers during periods of higher crude oil prices. This
cost advantage has resulted in a strong export market for polyethylene and other
ethylene derivatives and has benefited operating margins and cash flows for our
Performance and Essential Materials segment during such periods. In the past
year, we have seen significant volatility in natural gas, ethane and ethylene
prices, primarily due to changes in demand, the timing for certain new ethylene
capacity additions, the availability of natural gas liquids, and the ongoing
conflict between Russia and Ukraine.

Our performance and essential materials such as ethylene, PVC, polyethylene,
epoxy and chlor-alkali are some of the most widely used materials in the world
and are upgraded into a variety of higher value-added products used in many
end-markets. Our performance and essential materials are used by customers in
food and specialty packaging; industrial and consumer packaging; medical health
applications; PVC pipe applications; consumer durables; mobility and
transportation; renewable wind energy; and housing and construction products.
Chlor-alkali and petrochemicals are typically manufactured in large volume by a
number of different producers using widely available technologies. The
chlor-alkali and petrochemical industries exhibit cyclical commodity
characteristics, and margins are influenced by changes in the balance between
supply and demand and the resulting operating rates, the level of general
economic activity and the price of raw materials. Due to the significant size of
new plants, capacity additions are built in large increments and typically
require several years of demand growth to be absorbed. The cycle is generally
characterized by periods of tight supply, leading to high operating rates and
margins, followed by a decline in operating rates and margins primarily as a
result of excess new capacity additions.

Westlake is the second-largest chlor-alkali producer and the second-largest PVC
producer in the world, which makes Westlake a global leading chlorovinyls
producer. Demand for our products in the first half of 2020 was negatively
impacted by the onset of the COVID-19 pandemic. Global demand for most of our
products started strengthening in the second half of 2020 and has remained
strong through the second quarter of 2022. We expect global demand for most of
our products to remain favorable throughout 2022.
                                       25

——————————————————————————–

Table of Contents

On February 1, 2022, we completed the acquisition of Westlake Epoxy for a
purchase consideration of $1,207 million. The assets acquired and liabilities
assumed and the results of operations of the Westlake Epoxy business are
included in the Performance and Essential Materials segment. This acquisition
represents a significant strategic expansion of Westlake's Performance and
Essential Materials businesses into additional high-growth, innovative and
sustainability-oriented applications - such as wind turbine blades and
light-weight automotive structural components. Because epoxies are produced from
chlorine and caustic soda, the transaction also provides vertical integration
with Westlake's global chlor-alkali businesses. With the acquisition of the
Westlake Epoxy business Westlake is now one of the leading producers of epoxy
specialty resins, modifiers and curing agents in Europe and the United States
with a global reach to our end markets. Epoxy resins are the fundamental
component of many types of materials and are often used in the automotive,
construction, wind energy, aerospace and electronics industries due to their
superior adhesion, strength and durability. Our position in basic epoxy resins,
along with our technology and service expertise, has enabled us to offer
formulated specialty products in certain markets. In composites, our specialty
epoxy products are used either as replacements for traditional materials such as
metal, wood and ceramics, or in applications where traditional materials do not
meet demanding engineering specifications. We are also one of the leading
producers of resins that are used in fiber reinforced composites. Composites are
a fast growing class of materials that are used in a wide variety of
applications ranging from aircraft components and wind turbine blades to sports
equipment, and increasingly in automotive and transportation. We supply epoxy
resin systems to composite fabricators in the wind energy, automotive and pipe
markets. Epoxy specialty resins are also used for a variety of high-end coating
applications that require the superior adhesion, corrosion resistance and
durability of epoxy, such as protective coatings for industrial flooring, pipe,
marine and construction applications and automotive coatings. Epoxy-based
surface coatings are among the most widely-used industrial coatings due to their
long service life and broad application functionality combined with overall
economic efficiency. We also leverage our resin and additives position to supply
custom resins to specialty coatings formulators. The raw materials that we
primarily use to manufacture our epoxy products are chlorine and caustic soda,
among others and are available from more than one source including internal
sourcing and the open market. Prices for our main feedstocks are generally
driven by the underlying petrochemical benchmark prices and energy costs, which
are subject to price fluctuations.

Depending on the performance of the global economy, the timing of resolution of
the conflict between Russia and Ukraine, disruption in the global supply chain,
labor shortages and costs, potential resurgence of the COVID-19 pandemic, the
trend of crude oil prices, new capacity additions in North America, Asia and the
Middle East in 2022 and beyond, the sustainability of the current, strong demand
for most of our products, inflationary pressures and concerns over slower future
economic growth, including the possibility of recession or financial market
instability, our financial condition, results of operations or cash flows could
be negatively or positively impacted.

We purchase significant amounts of ethane feedstock, natural gas, ethylene and
salt from external suppliers for use in production of performance and essential
materials. We also purchase significant amounts of electricity to supply the
energy required in our production processes. While we have agreements providing
for the supply of ethane feedstock, natural gas, ethylene, salt and electricity,
the contractual prices for these raw materials and energy vary with market
conditions and may be highly volatile. Factors that have caused volatility in
our raw material prices in the past, and which may do so in the future include:

•the availability of feedstock from shale gas and oil drilling;

•supply and demand for crude oil and natural gas;

•shortages of raw materials due to increasing demand;

•ethane and liquefied natural gas exports;

•capacity constraints due to higher construction costs for investments, construction delays, strike action or involuntary shutdowns;

•the general level of business and economic activity; and

•the direct or indirect effect of governmental regulation.

Significant volatility in raw material costs tends to put pressure on product
margins as sales price increases could lag behind raw material cost increases.
Conversely, when raw material costs decrease, customers may seek immediate
relief in the form of lower sales prices. We currently use derivative
instruments to reduce price volatility risk on feedstock commodities and lower
overall costs. Normally, there is a pricing relationship between a commodity
that we process and the feedstock from which it is derived. When this pricing
relationship deviates from historical norms, we have from time to time entered
into derivative instruments and physical positions in an attempt to take
advantage of this relationship.

Acquisition of Hexion Epoxy Business


On November 24, 2021, the Company, through a wholly-owned subsidiary, entered
into a Stock Purchase Agreement (the "Hexion Epoxy Purchase Agreement") by and
among Hexion Inc. ("Hexion"), a New Jersey corporation, and solely for the
limited purposes set forth therein, the Company. Pursuant to the terms of the
Hexion Epoxy Purchase Agreement, the Company agreed to acquire all of the equity
interests in Hexion's global epoxy business ("Westlake Epoxy"). On February 1,
2022, the Company completed the acquisition of, and acquired all of the equity
interests in, the Westlake Epoxy business for a purchase consideration of $1,207
million. The assets acquired and liabilities assumed and the results of
operations of the Westlake Epoxy business are included in the Performance and
Essential Materials segment.

Performance and Essential Materials Segment


Net Sales. Net sales for the Performance and Essential Materials segment
increased by $958 million, or 45%, to $3,104 million in the second quarter of
2022 from $2,146 million in the second quarter of 2021. Average sales prices for
the Performance and Essential Materials segment increased by 27% in the second
quarter of 2022 as compared to the second quarter of 2021. The higher
Performance Materials sales prices were due to higher PVC resin sales prices.
The higher Essential Materials sales prices were primarily driven by the higher
prices for caustic soda, chlorine, styrene and derivative products. Sales
volumes for the Performance and Essential Materials segment increased by 18% in
the second quarter of 2022 as compared to the second quarter of 2021, primarily
resulting from the acquisition of Westlake Epoxy in the first quarter of 2022.

Income from Operations. Income from operations for the Performance and Essential
Materials segment increased by $294 million to $965 million in the second
quarter of 2022 from $671 million in the second quarter of 2021. This increase
in income from operations was due to higher sales prices for PVC resin, caustic
soda and styrene and higher margins for polyethylene, mainly resulting from
strong demand for our products. Income from operations was also higher due to
the acquisition of Westlake Epoxy in the first quarter of 2022. The increase in
income from operations versus the prior-year period was partially offset by
higher global fuel and power costs, higher feedstock costs and lower sales
volumes for PVC resin.


https://www.marketscreener.com/quote/stock/WESTLAKE-CORPORATION-14877/news/WESTLAKE-CORP-Management-s-Discussion-and-Analysis-of-Financial-Condition-and-Results-of-Operations-41186706/

August 2, 2022

Contract Truck Rates Expected to Fall

Contract truckload rates will likely soften in the coming months

Spot rates indicate a strong dip for contracts is imminent

Zach Strickland, FW Market Expert & Market Analyst Follow on Twitter Saturday, July 30, 2022 3 minutes read Listen to this article 0:00 / 4:56 BeyondWords

Van rates on the truckload contract market will likely soften in the coming months. But, the decline won’t be as marked as what the industry saw on the spot market side.

The spread between spot and contract rates has averaged around record low levels (~-74 cents a mile) since early May. That will put downward pressure on contract rates for bids negotiated in the second half of the year. There is little precedent for such a dramatic difference, but there’s also little evidence historically that contract rates will fall as fast as they increase. 

The contract truckload market behaves very differently from the spot market. Volatility is the main difference. That’s driven primarily by the way pricing is negotiated. 

The RATES12 index used in this week’s chart is the difference between spot rates less a level of estimated cost of fuel and contract rates. This is done for a more apples-to-apples comparison of the two rates, as contract rates include a portion of fuel cost and pass a lot of it along in the form of a fuel surcharge. This mechanism is largely absent from spot rates.

Contract truckload rates have barely budged since March, but red flags are already appearing

The contract or published rate market is simply an agreement between shipper and carrier that is in place for an extended period of time. The commitment is somewhat tenuous as neither volume nor service is guaranteed in most instances. 

The only binding portion is, if the shipper tenders a load(s) to the carrier and the carrier is willing and able to transport the customer’s freight, it will do it for a predetermined price until the expiration of the agreement. Spot rates are negotiated on the spot and are normally only applicable for a few days with minimal volume.

Contract rate agreements typically have a life span of around 12 months but can be longer or shorter. Many shippers transitioned to a shorter procurement cycle during the pandemic thanks to their inability to secure capacity reliably, essentially bidding against one another and driving up rates faster than ever. Contract rates increased ~49% from June 2020 to March 2022.

Since March, there has been minimal movement in contract rates, but they are showing early signs of deterioration, falling about 2% since early June. Spot rates, assuming a base level of fuel cost around $1.20 per gallon, have dropped 27% over the same period. This has created a 74-cent-per-mile difference between the spot (NTIL12) and contract rate (VCRPM1) indices. 

In 2019 the spread between spot and contract averaged -24 cents per mile. Contract rates barely moved before falling about 2%-4% in January 2020, which shows that contract rates are less volatile.

The spread today is three times larger than it was in 2019. Shippers may have a stronger appetite for cost reduction after two years of rapid inflation. 

A rate decrease will occur if demand-side conditions do not improve

Movements for contract truckload rates will ultimately be decided by the carriers and their need for equipment utilization. And so far, most publicly traded trucking companies have only mentioned minor deterioration at most while reporting strong Q2 results. 

Accepted contract load volumes support this for now, showing only a marginal decline in July versus June. Compared to last July, volumes are down 3%-5%.

As for the supply side of the equation, most of the capacity growth over the past two years has been on the small fleet/owner-operator side, which heavily relies on spot market freight. The larger fleet heavy contract market has better structure to maintain elevated rate levels.

That said, the rate differential is too large to sustain for long. Some level of rate decrease will occur if demand-side conditions remain at or below current levels. Judging from history, it would appear a conservatively estimated 3%-5% decrease is all but imminent in the coming months.

About the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.

SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.

The FreightWaves data science and product teams are releasing new datasets each week and enhancing the client experience.

August 2, 2022

Contract Truck Rates Expected to Fall

Contract truckload rates will likely soften in the coming months

Spot rates indicate a strong dip for contracts is imminent

Zach Strickland, FW Market Expert & Market Analyst Follow on Twitter Saturday, July 30, 2022 3 minutes read Listen to this article 0:00 / 4:56 BeyondWords

Van rates on the truckload contract market will likely soften in the coming months. But, the decline won’t be as marked as what the industry saw on the spot market side.

The spread between spot and contract rates has averaged around record low levels (~-74 cents a mile) since early May. That will put downward pressure on contract rates for bids negotiated in the second half of the year. There is little precedent for such a dramatic difference, but there’s also little evidence historically that contract rates will fall as fast as they increase. 

The contract truckload market behaves very differently from the spot market. Volatility is the main difference. That’s driven primarily by the way pricing is negotiated. 

The RATES12 index used in this week’s chart is the difference between spot rates less a level of estimated cost of fuel and contract rates. This is done for a more apples-to-apples comparison of the two rates, as contract rates include a portion of fuel cost and pass a lot of it along in the form of a fuel surcharge. This mechanism is largely absent from spot rates.

Contract truckload rates have barely budged since March, but red flags are already appearing

The contract or published rate market is simply an agreement between shipper and carrier that is in place for an extended period of time. The commitment is somewhat tenuous as neither volume nor service is guaranteed in most instances. 

The only binding portion is, if the shipper tenders a load(s) to the carrier and the carrier is willing and able to transport the customer’s freight, it will do it for a predetermined price until the expiration of the agreement. Spot rates are negotiated on the spot and are normally only applicable for a few days with minimal volume.

Contract rate agreements typically have a life span of around 12 months but can be longer or shorter. Many shippers transitioned to a shorter procurement cycle during the pandemic thanks to their inability to secure capacity reliably, essentially bidding against one another and driving up rates faster than ever. Contract rates increased ~49% from June 2020 to March 2022.

Since March, there has been minimal movement in contract rates, but they are showing early signs of deterioration, falling about 2% since early June. Spot rates, assuming a base level of fuel cost around $1.20 per gallon, have dropped 27% over the same period. This has created a 74-cent-per-mile difference between the spot (NTIL12) and contract rate (VCRPM1) indices. 

In 2019 the spread between spot and contract averaged -24 cents per mile. Contract rates barely moved before falling about 2%-4% in January 2020, which shows that contract rates are less volatile.

The spread today is three times larger than it was in 2019. Shippers may have a stronger appetite for cost reduction after two years of rapid inflation. 

A rate decrease will occur if demand-side conditions do not improve

Movements for contract truckload rates will ultimately be decided by the carriers and their need for equipment utilization. And so far, most publicly traded trucking companies have only mentioned minor deterioration at most while reporting strong Q2 results. 

Accepted contract load volumes support this for now, showing only a marginal decline in July versus June. Compared to last July, volumes are down 3%-5%.

As for the supply side of the equation, most of the capacity growth over the past two years has been on the small fleet/owner-operator side, which heavily relies on spot market freight. The larger fleet heavy contract market has better structure to maintain elevated rate levels.

That said, the rate differential is too large to sustain for long. Some level of rate decrease will occur if demand-side conditions remain at or below current levels. Judging from history, it would appear a conservatively estimated 3%-5% decrease is all but imminent in the coming months.

About the Chart of the Week

The FreightWaves Chart of the Week is a chart selection from SONAR that provides an interesting data point to describe the state of the freight markets. A chart is chosen from thousands of potential charts on SONAR to help participants visualize the freight market in real time. Each week a Market Expert will post a chart, along with commentary, live on the front page. After that, the Chart of the Week will be archived on FreightWaves.com for future reference.

SONAR aggregates data from hundreds of sources, presenting the data in charts and maps and providing commentary on what freight market experts want to know about the industry in real time.

The FreightWaves data science and product teams are releasing new datasets each week and enhancing the client experience.

August 2, 2022

Huntsman Q2 Results

Huntsman Announces Second Quarter 2022 Earnings; $501 million of Buybacks in First Half of 2022

Download as PDF August 02, 2022 6:00am EDT

Related Documents

Audio Earnings WebcastEarnings Slides PDF

Second Quarter Highlights

• Second quarter 2022 net income of $242 million compared to net income of $172 million in the prior year period; second quarter 2022 diluted earnings per share of $1.10 compared to diluted earnings per share of $0.70 in the prior year period.
• Second quarter 2022 adjusted net income of $265 million compared to adjusted net income of $191 million in the prior year period; second quarter 2022 adjusted diluted earnings per share of $1.28 compared to adjusted diluted earnings per share of $0.86 in the prior year period.
• Second quarter 2022 adjusted EBITDA of $432 million compared to adjusted EBITDA of $334 million in the prior year period.
• Second quarter 2022 net cash provided by operating activities from continuing operations was $231 million. Free cash flow from continuing operations was $162 million for the second quarter 2022 compared to an outflow of $83 million in the prior year period.
• Repurchased approximately 8.4 million shares for approximately $291 million in the second quarter 2022.

THE WOODLANDS, Texas, Aug. 2, 2022 /PRNewswire/ —

Huntsman Corporation (NYSE: HUN) today reported second quarter 2022 results with revenues of $2,362 million, net income of $242 million, adjusted net income of $265 million and adjusted EBITDA of $432 million. 

Peter R. Huntsman, Chairman, President, and CEO, commented:

“Second quarter EBITDA margins exceeded 18% on the back of our value over volume strategy, improved pricing, and solid cost control.  We remain well ahead or on track to meet the targets that we presented at our Investor Day in November 2021, despite an increasingly challenging economic environment due to extremely high European natural gas prices, headwinds in China associated with government-mandated shutdowns and monetary tightening in the United States. In addition to the positive results, we repurchased approximately $500 million in shares in the first six months of the year and our balance sheet remains extremely strong with a net leverage ratio of 0.6x.

“Regardless of any macro headwinds that may impact the chemical industry in the coming quarters, our priorities around cost control, a focus on downstream businesses and returning capital to shareholders will remain unchanged.  Our balance sheet and cash generation places us in an enviable position to take advantage of opportunities as they present themselves to invest in our core businesses.” Segment Analysis for 2Q22 Compared to 2Q21

Polyurethanes

The increase in revenues in our Polyurethanes segment for the three months ended June 30, 2022 compared to the same period of 2021 was primarily due to higher MDI average selling prices, partially offset by lower sales volumes. MDI average selling prices increased in all our regions. Sales volumes decreased primarily due to the extended government-mandated COVID lockdown in Shanghai, China and lower demand, partially offset by favorable comparisons in Europe due to the scheduled turnaround at our Rotterdam, Netherlands facility in the second quarter of 2021. The increase in segment adjusted EBITDA was primarily due to higher MDI margins and a gain from an insurance settlement, partially offset by lower sales volumes, the negative impact of weaker major international currencies against the U.S. dollar and lower equity earnings from our minority-owned joint venture in China.

Advanced Materials

The increase in revenues in our Advanced Materials segment for the three months ended June 30, 2022 compared to the same period of 2021 was primarily due to higher average selling prices, partially offset by lower sales volumes. Average selling prices increased largely in response to higher raw material, energy and logistics costs as well as improved sales mix. Sales volumes decreased primarily due to deselection of lower margin base resins business. The increase in segment adjusted EBITDA was primarily due to higher sales prices and improved sales mix.

https://www.huntsman.com/news/media-releases/detail/534/huntsman-announces-second-quarter-2022-earnings-501