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September 14, 2023

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Trans-Pacific Trade Crashes Into Max-Capacity Ceiling

by Tyler DurdenFriday, Jan 29, 2021 – 12:20

By Greg Miller of FreightWaves,

It’s official: Container volumes in the Asia-U.S. trans-Pacific trade have hit their limit. Massive port congestion in the ports of Los Angeles and Long Beach is forcing ocean carriers to take extreme measures. Sailings are now being “blanked” (canceled) not because of lack of demand, but because of lack of tonnage as ships are stuck awaiting berths.

When ships fall behind schedule due to long waits in port, carriers normally add “recovery vessels” to take their place and keep weekly services going. There are no recovery vessels left. According to Hapag-Lloyd, “as our fleets are fully deployed and stretched beyond capacity, this is regretfully currently not an option.”

As a result, Hapag-Lloyd has blanked 19 sailings in February. “It is important to emphasize that vessels will not be idling at any time and we will perform as many voyages as possible,” stressed the carrier. Hapag-Lloyd is a member of THE Alliance along with Ocean Network Express (ONE), Yang Ming and HMM.

‘Need-to-get-back-on-schedule blanks’

“Schedule reliability is horrible,” said Simon Sundboell, founder of eeSea, a company that analyzes ship schedules. “These are not ‘pull-out-capacity blanks.’ These are ‘need-to-get-back-on-schedule blanks,’” Sundboell told American Shipper.

Carriers usually blank sailings at this time of year due to lower exports during the Chinese New Year (CNY) holiday. Carriers initially opted to keep CNY sailings largely intact in order to clear the export pileup at Chinese ports. But the congestion in Los Angeles and Long Beach is leaving carriers short of ships. That means the pileup in Asia will take even longer to clear.

The eeSea platform provides complimentary access to real-time blank sailing data. The data as of Wednesday reveals an 11% dip in Asia-U.S. sailings in February versus January. This is despite continued high cargo demand.

During a webinar presented by freight forwarder Flexport on Tuesday, Seaintelligence Consulting CEO Lars Jensen explained, “When you have all the vessels stuck waiting outside ports, they cannot make the return journey so they cannot start the sailing they were supposed to do. The blank sailings now are not a choice. They are an operational necessity.”

No letup in San Pedro Bay traffic jam

At any given time since the beginning of this year, there have been around 30 container ships stuck waiting at anchorages in San Pedro Bay offshore of the ports of Los Angeles and Long Beach.

The situation has not improved at all. According to the Marine Exchange of Southern California, there were 33 container ships at anchorages and 26 at berths on Wednesday. Including all ship types, there were 55 vessels at anchorages — a new record, with all Los Angeles/Long Beach anchorages full and all contingency anchorages off Huntington also full.San Pedro Bay container-ship positions Jan. 27 (Map: MarineTraffic)

On Monday, many of those vessels had to leave anchorage and go to sea due to extreme storm conditions. Winds gusted to 55 mph and swells reached 15 feet. Marine Exchange Executive Director Kip Louttit exclaimed that he “could not recall a more complex situation with this many vessels and this bad a wind and sea condition for such a sustained period of time.”

Port congestion is being caused by high inbound volumes combined with surging COVID cases among dockworkers. A spokesperson for the ILWU dockworkers union told American Shipper that number of its members testing positive had risen to 803 as of Monday, up 16% from 694 as of Jan. 17.

“They can’t service the ships fast enough, which has led to waiting times of 10-14 days or even more, depending on the terminal,” said Nerijus Poskus, global head of ocean freight at Flexport.

“As of last week, there were almost 300,000 TEUs [twenty-foot equivalent units] waiting to get offloaded,” Poskus added.

Jensen put it another way. “It is the equivalent of pulling five full trans-Pacific services out of action as long as you have these waiting times,” he said. “The impact is massive.”

Deteriorating reliability, rising rolls

As previously reported by American Shipper, global schedule reliability has collapsed to around 50% versus normal levels of 70%-80%. Getting a box delivered on time is no better than a coin toss. In reality, the chance is much worse. Schedule reliability data doesn’t take into account blank sailings. Nor does it take into account cargo that is “rolled” — pushed off to a subsequent voyage.

Data on cargo rolls by the world’s top liners at the world’s top ports is compiled by Ocean Insights. According to Ocean Insights data released last week, the share of shipments that did not sail aboard their originally scheduled vessels rose to 37% in December. That’s up sharply from 29% in July and 25% in December 2019.

One importer moving goods from China via Los Angeles wrote to American Shipper: “We’re seeing over 60 days of additional transit time now. The entire process used to take 28 days. Now containers shipped in November have still not reached their final destination.”

Add it all up and U.S. consumers should see escalating shortages of goods on the shelves. That, in turn, should fuel import demand even further into 2021.

Light at the end of the tunnel?

One of the central drivers of today’s capacity crunch is a shortfall of containers. Or rather, a shortfall of containers positioned in the right place.

But there are some glimmers of hope. Data on container-equipment availability is tracked by the Container x-Change Container Availability Index. Availability of 40-foot high cubes (40HCs) remains extremely low. But availability of 20-foot dry cargo (20DC) and 40-foot standard dry cargo (40DC) units improved markedly this month.

The index “finally shows a positive trend,” asserted David Amezquita, head of data insights at Container xChange. The upcoming CNY period could “finally be the turning point,” added the company.

An index level below 0.5 is considered a shortage. In the third week of January, the index in Shanghai for 20DCs was up to 0.34 and for 40DCs to 0.37. The index for 40HCs was still a very low 0.11.(Chart: Container x-Change)

Getting back to normal

Jensen expressed confidence that the container-equipment challenge will be resolved fairly soon. Chinese factories have been busy churning out new boxes.

“What’s happening now is exactly the same scenario we saw in 2010 after the financial crisis. If you look at 2010, they went on a building spree. It took about three months from when the problem arose to when it was resolved. If we put that in the context we have now, this should be resolved by Chinese New Year.

“The wild card this time around is the port congestion because that ties up a significant part of the ability to reposition the empty containers back into balance. That could delay things somewhat,” acknowledged Jensen.

As more containers are manufactured, liners should simultaneously work to get sailings back on schedule. “It appears the carriers plan to use the post-Chinese New Year period to get their vessels back on schedule,” said Jensen. “If that works out and if we get the port congestion sorted out — which is a big if — we could get back to normal levels [of service reliability] within a few months. But that’s the optimistic view.”

https://www.zerohedge.com/markets/trans-pacific-trade-crashes-max-capacity-ceiling

Trans-Pacific Trade Crashes Into Max-Capacity Ceiling

by Tyler DurdenFriday, Jan 29, 2021 – 12:20

By Greg Miller of FreightWaves,

It’s official: Container volumes in the Asia-U.S. trans-Pacific trade have hit their limit. Massive port congestion in the ports of Los Angeles and Long Beach is forcing ocean carriers to take extreme measures. Sailings are now being “blanked” (canceled) not because of lack of demand, but because of lack of tonnage as ships are stuck awaiting berths.

When ships fall behind schedule due to long waits in port, carriers normally add “recovery vessels” to take their place and keep weekly services going. There are no recovery vessels left. According to Hapag-Lloyd, “as our fleets are fully deployed and stretched beyond capacity, this is regretfully currently not an option.”

As a result, Hapag-Lloyd has blanked 19 sailings in February. “It is important to emphasize that vessels will not be idling at any time and we will perform as many voyages as possible,” stressed the carrier. Hapag-Lloyd is a member of THE Alliance along with Ocean Network Express (ONE), Yang Ming and HMM.

‘Need-to-get-back-on-schedule blanks’

“Schedule reliability is horrible,” said Simon Sundboell, founder of eeSea, a company that analyzes ship schedules. “These are not ‘pull-out-capacity blanks.’ These are ‘need-to-get-back-on-schedule blanks,’” Sundboell told American Shipper.

Carriers usually blank sailings at this time of year due to lower exports during the Chinese New Year (CNY) holiday. Carriers initially opted to keep CNY sailings largely intact in order to clear the export pileup at Chinese ports. But the congestion in Los Angeles and Long Beach is leaving carriers short of ships. That means the pileup in Asia will take even longer to clear.

The eeSea platform provides complimentary access to real-time blank sailing data. The data as of Wednesday reveals an 11% dip in Asia-U.S. sailings in February versus January. This is despite continued high cargo demand.

During a webinar presented by freight forwarder Flexport on Tuesday, Seaintelligence Consulting CEO Lars Jensen explained, “When you have all the vessels stuck waiting outside ports, they cannot make the return journey so they cannot start the sailing they were supposed to do. The blank sailings now are not a choice. They are an operational necessity.”

No letup in San Pedro Bay traffic jam

At any given time since the beginning of this year, there have been around 30 container ships stuck waiting at anchorages in San Pedro Bay offshore of the ports of Los Angeles and Long Beach.

The situation has not improved at all. According to the Marine Exchange of Southern California, there were 33 container ships at anchorages and 26 at berths on Wednesday. Including all ship types, there were 55 vessels at anchorages — a new record, with all Los Angeles/Long Beach anchorages full and all contingency anchorages off Huntington also full.San Pedro Bay container-ship positions Jan. 27 (Map: MarineTraffic)

On Monday, many of those vessels had to leave anchorage and go to sea due to extreme storm conditions. Winds gusted to 55 mph and swells reached 15 feet. Marine Exchange Executive Director Kip Louttit exclaimed that he “could not recall a more complex situation with this many vessels and this bad a wind and sea condition for such a sustained period of time.”

Port congestion is being caused by high inbound volumes combined with surging COVID cases among dockworkers. A spokesperson for the ILWU dockworkers union told American Shipper that number of its members testing positive had risen to 803 as of Monday, up 16% from 694 as of Jan. 17.

“They can’t service the ships fast enough, which has led to waiting times of 10-14 days or even more, depending on the terminal,” said Nerijus Poskus, global head of ocean freight at Flexport.

“As of last week, there were almost 300,000 TEUs [twenty-foot equivalent units] waiting to get offloaded,” Poskus added.

Jensen put it another way. “It is the equivalent of pulling five full trans-Pacific services out of action as long as you have these waiting times,” he said. “The impact is massive.”

Deteriorating reliability, rising rolls

As previously reported by American Shipper, global schedule reliability has collapsed to around 50% versus normal levels of 70%-80%. Getting a box delivered on time is no better than a coin toss. In reality, the chance is much worse. Schedule reliability data doesn’t take into account blank sailings. Nor does it take into account cargo that is “rolled” — pushed off to a subsequent voyage.

Data on cargo rolls by the world’s top liners at the world’s top ports is compiled by Ocean Insights. According to Ocean Insights data released last week, the share of shipments that did not sail aboard their originally scheduled vessels rose to 37% in December. That’s up sharply from 29% in July and 25% in December 2019.

One importer moving goods from China via Los Angeles wrote to American Shipper: “We’re seeing over 60 days of additional transit time now. The entire process used to take 28 days. Now containers shipped in November have still not reached their final destination.”

Add it all up and U.S. consumers should see escalating shortages of goods on the shelves. That, in turn, should fuel import demand even further into 2021.

Light at the end of the tunnel?

One of the central drivers of today’s capacity crunch is a shortfall of containers. Or rather, a shortfall of containers positioned in the right place.

But there are some glimmers of hope. Data on container-equipment availability is tracked by the Container x-Change Container Availability Index. Availability of 40-foot high cubes (40HCs) remains extremely low. But availability of 20-foot dry cargo (20DC) and 40-foot standard dry cargo (40DC) units improved markedly this month.

The index “finally shows a positive trend,” asserted David Amezquita, head of data insights at Container xChange. The upcoming CNY period could “finally be the turning point,” added the company.

An index level below 0.5 is considered a shortage. In the third week of January, the index in Shanghai for 20DCs was up to 0.34 and for 40DCs to 0.37. The index for 40HCs was still a very low 0.11.(Chart: Container x-Change)

Getting back to normal

Jensen expressed confidence that the container-equipment challenge will be resolved fairly soon. Chinese factories have been busy churning out new boxes.

“What’s happening now is exactly the same scenario we saw in 2010 after the financial crisis. If you look at 2010, they went on a building spree. It took about three months from when the problem arose to when it was resolved. If we put that in the context we have now, this should be resolved by Chinese New Year.

“The wild card this time around is the port congestion because that ties up a significant part of the ability to reposition the empty containers back into balance. That could delay things somewhat,” acknowledged Jensen.

As more containers are manufactured, liners should simultaneously work to get sailings back on schedule. “It appears the carriers plan to use the post-Chinese New Year period to get their vessels back on schedule,” said Jensen. “If that works out and if we get the port congestion sorted out — which is a big if — we could get back to normal levels [of service reliability] within a few months. But that’s the optimistic view.”

https://www.zerohedge.com/markets/trans-pacific-trade-crashes-max-capacity-ceiling

James Fitterling

Starting on Slide 3. In the fourth quarter, the Dow team delivered results that exceeded expectations with sales and EBIT growth year-over-year and a sequential net sales increase of 10%. And as the global economy and market fundamentals continue to improve, demand drove volumes above or in line with pre-COVID levels across all operating segments.

We captured strong durable goods and construction demand, we grew volumes and do-it-yourself architectural coatings and home care sectors, and we continue to benefit from solid demand and pricing momentum in packaging applications, supporting a sequential net sales increase of 12% in our Packaging & Specialty Plastics segment.

This volume increase, combined with improved pricing and margins, particularly in polyethylene and polyurethane applications, delivered 5% revenue growth and higher operating EBIT year-over-year.

We completed the sale of select U.S. Gulf Coast marine and terminal operations and assets, delivering another strategic nonoperational cash lever. And improved financial and operational performance at Sadara was a key contributor in delivering positive year-over-year equity earnings.

Moving to the Industrial Intermediates & Infrastructure segment. Operating EBIT was $296 million, up $75 million year-over-year and up $192 million versus the prior quarter. Supply and demand fundamentals in polyurethanes and construction chemicals as well as higher equity earnings from improved performance at Sadara drove this result.

On a sequential basis, significant improvement in margin over raw materials drove operating EBIT margins up more than 500 basis points, more than offsetting typical seasonality. The polyurethane and construction and chemicals business reported a double-digit increase in net sales year-over-year and sequentially.

The year-over-year increase was primarily due to higher local prices with gains in all regions, except Latin America. Compared to prior quarter, sales growth was driven by strong local pricing and furniture, bedding and appliance end markets.

Howard Ungerleider

Thank you, Jim, and good morning, everyone. Turning to Slide 6. The strong supply and demand trends that continue to benefit our packaging and polyurethanes businesses this quarter also benefited Sadara. The joint venture again delivered improved financial and operational results, driving equity earnings higher by more than $130 million year-over-year.

We expect solid market fundamentals and an improving economy to continue to benefit the joint venture in 2021, supported by Sadara’s feedstock flexibility and enhanced global cost curve position. We are also very pleased to report that Sadara declared project completion in the fourth quarter, removing Dow’s $4 billion share of the guarantees that supported the joint venture’s debt.

In addition, in January of this year, Dow, Saudi Aramco and Sadara reached an agreement in principle with the remaining lenders and Sukuk investors on key terms for its debt reprofiling with formal agreements expected to be completed within the first quarter. As a result, Sadara is expected to be cash flow self-sufficient going forward.

Key provisions of the reprofiling include an extension of the contractual debt maturity from 2029 to 2038; a modified repayment schedule aligned with Sadara’s projected cash generation profile, including a grace period until June 2026, during which interest-only payments are required; no upfront payments of principal; and limited support in the form of much lower sponsor guarantees of Sadara’s reprofiled debt, in proportion of the sponsor’s ownership interest.

The impact to Dow’s commitments are expected to include the following, which are in proportion to Dow’s 35% ownership interest in Sadara. Dow will provide guarantees for $1.3 billion of Sadara’s debt, effectively replacing approximately $4 billion of prior guarantees. Dow will provide guarantees for its portion of Sadara interest payments due during the grace period.

Our pro rata share of any potential shortfall, which based on Sadara’s current performance we do not expect, will be funded by a new $500 million revolving facility in Sadara, guaranteed by Dow. This is expected to be established in the first quarter of 2021.

And finally, Dow’s existing $220 million letter of credit related to the guarantee of one future Sadara debt service payment will also be canceled. As a result of these actions, the company does not expect to provide any further shareholder loans or equity contributions to Sadara.

Let’s now turn to our modeling guidance for first quarter on Slide 7. We exited the fourth quarter with increasing strength, which is carried over into the first quarter. The ISM manufacturing new orders index is trending at its highest level in 10 years. In addition, low interest rates are supporting a resilient housing market and deurbanization trends are driving U.S. housing starts to their highest point since 2006.

We expect sequentially higher business results in the first quarter with total sales in the range of $10.7 billion to $11.2 billion, driven by ongoing strength in our polyethylene and polyurethane value chains, improvement in our silicones franchise and supported by our U.S. Gulf Coast ethane advantage. We will see some headwinds sequentially with higher turnaround costs and the reversal of approximately $50 million in onetime benefits from the prior quarter.

The Industrial Intermediates & Infrastructure segment will continue to benefit from strong consumer durables demand, supported by automotive and housing sectors and improvement in industrial end markets. These trends, combined with industry supply limitations and low inventories, should support pricing uplift, although we do see some cost increases from rising propylene pricing as well.

Jeffrey Zekauskas

Hi thanks very much. Propylene is going up really quickly. Are your acrylate prices going up as fast as propylene prices are going up, that is are acrylate margins likely to be squeezed in the early part of the year or widen in the later part of the year, how do you assess that? And for Howard, in the operating cash flow in 2020, how much of operating cash flow came from asset sales or legal settlements?

James Fitterling

Good morning Jeff. Let me see if I can cover propylene first, and then I will flip it over to Howard. Spot prices have increased. And it is a combination of reduced supply because ethane has been the preferred crack in the crackers and propane has been much more expensive, again due to that polar vortex I was talking about in Europe and Asia, driving these prices up.

That means ethane has been the crack, and so you don’t have as many byproducts. And that shortest bit on propylene. And then on purpose propylene, you have had a raft of issues through on purpose propylene production, which has meant there hasn’t been as much there. And so that has tightened things up.

I think acrylates are holding up well because demand has been good, downstream demand has been good. So there has been some price improvements. Do It Yourself, architectural coatings are growing. In fact, they were the big winner last year in terms of market share. I expect the contractor side will come back this year.

David Begleiter

Thank you. Jim, polyurethane has strong end to the year. How do you foresee that business progressing into Q1 and through the rest of the year, both on prices and margins?

James Fitterling

Good morning David, thanks for the question. The markets that I mentioned, automotive, furniture, and bedding, appliance and construction are very solid right now. In the energy space, the oil and gas space, it is a little bit challenging.

And so we see the trajectory that we had in isocyanates and polyols in the second half continuing to move up in first quarter due to supply limitations. It is hard to keep things on the shelves like mattresses and furniture, while we have got these strong housing drives that are going on.

We are seeing the automotive sector come back. Obviously, we saw it big electric vehicles, we have set records in 2020, and I think we are going to crush those in 2021. But internal combustion engine vehicle is coming back as well. And that is good demand and strong order patterns, even without some of the bigger capital-intensive markets being back on stream.

So like the large-scale industrial construction, those types of markets. So I think we have got a good demand at and ahead of us. Housing starts is a very, very solid sign, highest we have seen since 2006. So that drives a lot of content for our products.

Howard Ungerleider

Yes, Jonas, look, thanks for the question. I mean, I couldn’t be prouder of the Dow, the Saudi Aramco and the Sadara team. It is about 18-months worth of work that got us to this point where we have got the agreement in principle with the entire lending syndicate of commercial banks, ECAs as well as the Sukuk investors.

So we have got a five-year great period where no principal is due until June of 2026. We have matched the principle from 2026 out to 2038 with the projected earnings and cash flows. And in terms of the next five-years, on a 100% Sadara basis, you are looking at about between $300 million and $350 million of interest expense.

So our share would be about $100 million to $125 million a year. But I would say based on Sadara’s current performance as well as all the plans that they have in place, they will be cash flow self-sufficient for this year and going forward. So we do not expect to put any cash into Sadara. So that is a $350 million tailwind year-on-year.

John Roberts

Thanks and nice quarter, guys. We are reading a lot about how much shipping activities are challenging and freight costs are up a lot. How much is it contributing to the tight markets and higher pricing? And is it impacting more than just polyethylene?

James Fitterling

Yes, right, we have seen some shipping rates on marine pack cargo, primarily due to the fact that you have got a container dislocation. China has had some pretty high export levels. And so some empty containers have been moving back to China. Mostly that is been reported in the Ag sector, not so much in the plastic sector.

I think our supply chains are pretty well stocked in terms of containers, but we keep a close eye on it. So I don’t anticipate anything that is long-lasting. I think we will work through this. And they just assigned some of the supply chain imbalances. China came back fast from COVID, and we are coming back now. And so things can, from time to time, get dislocated.

https://seekingalpha.com/article/4401618-dow-inc-dow-ceo-james-fitterling-on-q4-2020-results-earnings-call-transcript?mail_subject=dow-dow-inc-dow-ceo-james-fitterling-on-q4-2020-results-earnings-call-transcript&utm_campaign=rta-stock-article&utm_content=link-2&utm_medium=email&utm_source=seeking_alpha

James Fitterling

Starting on Slide 3. In the fourth quarter, the Dow team delivered results that exceeded expectations with sales and EBIT growth year-over-year and a sequential net sales increase of 10%. And as the global economy and market fundamentals continue to improve, demand drove volumes above or in line with pre-COVID levels across all operating segments.

We captured strong durable goods and construction demand, we grew volumes and do-it-yourself architectural coatings and home care sectors, and we continue to benefit from solid demand and pricing momentum in packaging applications, supporting a sequential net sales increase of 12% in our Packaging & Specialty Plastics segment.

This volume increase, combined with improved pricing and margins, particularly in polyethylene and polyurethane applications, delivered 5% revenue growth and higher operating EBIT year-over-year.

We completed the sale of select U.S. Gulf Coast marine and terminal operations and assets, delivering another strategic nonoperational cash lever. And improved financial and operational performance at Sadara was a key contributor in delivering positive year-over-year equity earnings.

Moving to the Industrial Intermediates & Infrastructure segment. Operating EBIT was $296 million, up $75 million year-over-year and up $192 million versus the prior quarter. Supply and demand fundamentals in polyurethanes and construction chemicals as well as higher equity earnings from improved performance at Sadara drove this result.

On a sequential basis, significant improvement in margin over raw materials drove operating EBIT margins up more than 500 basis points, more than offsetting typical seasonality. The polyurethane and construction and chemicals business reported a double-digit increase in net sales year-over-year and sequentially.

The year-over-year increase was primarily due to higher local prices with gains in all regions, except Latin America. Compared to prior quarter, sales growth was driven by strong local pricing and furniture, bedding and appliance end markets.

Howard Ungerleider

Thank you, Jim, and good morning, everyone. Turning to Slide 6. The strong supply and demand trends that continue to benefit our packaging and polyurethanes businesses this quarter also benefited Sadara. The joint venture again delivered improved financial and operational results, driving equity earnings higher by more than $130 million year-over-year.

We expect solid market fundamentals and an improving economy to continue to benefit the joint venture in 2021, supported by Sadara’s feedstock flexibility and enhanced global cost curve position. We are also very pleased to report that Sadara declared project completion in the fourth quarter, removing Dow’s $4 billion share of the guarantees that supported the joint venture’s debt.

In addition, in January of this year, Dow, Saudi Aramco and Sadara reached an agreement in principle with the remaining lenders and Sukuk investors on key terms for its debt reprofiling with formal agreements expected to be completed within the first quarter. As a result, Sadara is expected to be cash flow self-sufficient going forward.

Key provisions of the reprofiling include an extension of the contractual debt maturity from 2029 to 2038; a modified repayment schedule aligned with Sadara’s projected cash generation profile, including a grace period until June 2026, during which interest-only payments are required; no upfront payments of principal; and limited support in the form of much lower sponsor guarantees of Sadara’s reprofiled debt, in proportion of the sponsor’s ownership interest.

The impact to Dow’s commitments are expected to include the following, which are in proportion to Dow’s 35% ownership interest in Sadara. Dow will provide guarantees for $1.3 billion of Sadara’s debt, effectively replacing approximately $4 billion of prior guarantees. Dow will provide guarantees for its portion of Sadara interest payments due during the grace period.

Our pro rata share of any potential shortfall, which based on Sadara’s current performance we do not expect, will be funded by a new $500 million revolving facility in Sadara, guaranteed by Dow. This is expected to be established in the first quarter of 2021.

And finally, Dow’s existing $220 million letter of credit related to the guarantee of one future Sadara debt service payment will also be canceled. As a result of these actions, the company does not expect to provide any further shareholder loans or equity contributions to Sadara.

Let’s now turn to our modeling guidance for first quarter on Slide 7. We exited the fourth quarter with increasing strength, which is carried over into the first quarter. The ISM manufacturing new orders index is trending at its highest level in 10 years. In addition, low interest rates are supporting a resilient housing market and deurbanization trends are driving U.S. housing starts to their highest point since 2006.

We expect sequentially higher business results in the first quarter with total sales in the range of $10.7 billion to $11.2 billion, driven by ongoing strength in our polyethylene and polyurethane value chains, improvement in our silicones franchise and supported by our U.S. Gulf Coast ethane advantage. We will see some headwinds sequentially with higher turnaround costs and the reversal of approximately $50 million in onetime benefits from the prior quarter.

The Industrial Intermediates & Infrastructure segment will continue to benefit from strong consumer durables demand, supported by automotive and housing sectors and improvement in industrial end markets. These trends, combined with industry supply limitations and low inventories, should support pricing uplift, although we do see some cost increases from rising propylene pricing as well.

Jeffrey Zekauskas

Hi thanks very much. Propylene is going up really quickly. Are your acrylate prices going up as fast as propylene prices are going up, that is are acrylate margins likely to be squeezed in the early part of the year or widen in the later part of the year, how do you assess that? And for Howard, in the operating cash flow in 2020, how much of operating cash flow came from asset sales or legal settlements?

James Fitterling

Good morning Jeff. Let me see if I can cover propylene first, and then I will flip it over to Howard. Spot prices have increased. And it is a combination of reduced supply because ethane has been the preferred crack in the crackers and propane has been much more expensive, again due to that polar vortex I was talking about in Europe and Asia, driving these prices up.

That means ethane has been the crack, and so you don’t have as many byproducts. And that shortest bit on propylene. And then on purpose propylene, you have had a raft of issues through on purpose propylene production, which has meant there hasn’t been as much there. And so that has tightened things up.

I think acrylates are holding up well because demand has been good, downstream demand has been good. So there has been some price improvements. Do It Yourself, architectural coatings are growing. In fact, they were the big winner last year in terms of market share. I expect the contractor side will come back this year.

David Begleiter

Thank you. Jim, polyurethane has strong end to the year. How do you foresee that business progressing into Q1 and through the rest of the year, both on prices and margins?

James Fitterling

Good morning David, thanks for the question. The markets that I mentioned, automotive, furniture, and bedding, appliance and construction are very solid right now. In the energy space, the oil and gas space, it is a little bit challenging.

And so we see the trajectory that we had in isocyanates and polyols in the second half continuing to move up in first quarter due to supply limitations. It is hard to keep things on the shelves like mattresses and furniture, while we have got these strong housing drives that are going on.

We are seeing the automotive sector come back. Obviously, we saw it big electric vehicles, we have set records in 2020, and I think we are going to crush those in 2021. But internal combustion engine vehicle is coming back as well. And that is good demand and strong order patterns, even without some of the bigger capital-intensive markets being back on stream.

So like the large-scale industrial construction, those types of markets. So I think we have got a good demand at and ahead of us. Housing starts is a very, very solid sign, highest we have seen since 2006. So that drives a lot of content for our products.

Howard Ungerleider

Yes, Jonas, look, thanks for the question. I mean, I couldn’t be prouder of the Dow, the Saudi Aramco and the Sadara team. It is about 18-months worth of work that got us to this point where we have got the agreement in principle with the entire lending syndicate of commercial banks, ECAs as well as the Sukuk investors.

So we have got a five-year great period where no principal is due until June of 2026. We have matched the principle from 2026 out to 2038 with the projected earnings and cash flows. And in terms of the next five-years, on a 100% Sadara basis, you are looking at about between $300 million and $350 million of interest expense.

So our share would be about $100 million to $125 million a year. But I would say based on Sadara’s current performance as well as all the plans that they have in place, they will be cash flow self-sufficient for this year and going forward. So we do not expect to put any cash into Sadara. So that is a $350 million tailwind year-on-year.

John Roberts

Thanks and nice quarter, guys. We are reading a lot about how much shipping activities are challenging and freight costs are up a lot. How much is it contributing to the tight markets and higher pricing? And is it impacting more than just polyethylene?

James Fitterling

Yes, right, we have seen some shipping rates on marine pack cargo, primarily due to the fact that you have got a container dislocation. China has had some pretty high export levels. And so some empty containers have been moving back to China. Mostly that is been reported in the Ag sector, not so much in the plastic sector.

I think our supply chains are pretty well stocked in terms of containers, but we keep a close eye on it. So I don’t anticipate anything that is long-lasting. I think we will work through this. And they just assigned some of the supply chain imbalances. China came back fast from COVID, and we are coming back now. And so things can, from time to time, get dislocated.

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27. January 2021

Huntsman: Lintech new distributor for cast elastomer systems in North America

Huntsman Corporation announced that its Elastomers team has signed an agreement with Lintech International LLC, to distribute its polyurethane-based Daltocast hot cast elastomer systems in the Southern and Western regions of the USA.  Lintech has been distributing Huntsman’s coatings and adhesive systems and components for the past nine years.

Huntsman Daltocast MDI-based hot-cast elastomer systems and Castech processing machines have been developed by the Elastomers team in Modena, Italy, and in Auburn Hills, MI, USA. These systems are used in many applications, including bumper pads, coated conveyor belts, gears, rollers and wheels. Hot cast elastomers are used in the automotive, rail, oil and gas, mining and steel industries, among others.

“This agreement allows the Huntsman Elastomers team to leverage Lintech’s 37+ years of chemical product distribution experience. Now, we will be able to tap into hot cast elastomers markets, which we may not have reached otherwise,” said Alex Ziev, Americas Sales Portfolio Manager, Huntsman Elastomers.

“We are excited to strengthen our relationship with Huntsman. By combining Huntsman’s hot cast technology with Lintech’s strong distribution network in the U.S., we can strategically align our resources to expand and strengthen our customer reach and service to grow our target markets,” said Jay Downs, Director, Marketing and Business Development, Lintech.

With 13 regional warehouses, Lintech International LLC is a speciality chemical distributor of resins, monomers, additives, pigments and performance minerals in the USA. Since 1983, the company supplies customers in a wide variety of markets, including agriculture, coatings, inks, plastics, rubber, adhesives, and composites. Lintech is ISO 9001:2015 certified, a member of NACD Responsible Distribution, a certified Women’s Business Enterprise, and C-TPAT verified through U.S. Customs for a secure international supply chain.

www.huntsman.com
https://lintechinternational.com

https://www.gupta-verlag.com/news/distributor/24839/huntsman-lintech-new-distributor-for-cast-elastomer-systems-in-north-america