The Urethane Blog

November 1, 2019

Urethane Comments from Covestro Investors’ Call

Thomas Toepfer

Yes, thank you Markus, and also a very warm welcome from my side. If you please go to Page 5, you see the sales bridge for the quarter, and as you can see we posted a sales decline of 14.6% in Q3 and the main drivers were deteriorating prices in MDI, TDI and PCS, reducing our sales by a total of EUR686 million. On the other hand, we deliver a positive volume growth contribution of EUR80 million, and also you can see in the bridge that FX effect added EUR70 million, mainly attributable to the US dollar, and also to the Chinese Yuan.

Markus Steilemann

Turning to Page number 8, looking at our polyurethanes segment on Chart number 8. In Q3, we recorded a strong core volume growth driven by all three product groups. Overall, industry utilization stays at a low level due to additional capacities added during the last 15 months. Based on most recent data, industry demand growth remains solid at our predicted long-term trend of around 4% to 5%.

In MDI, the picture remains unchanged for this year; few selected ramp-ups but no new start-up leading to slightly lower average industry utilization estimated at around 87% in full year 2019 versus 88% in 2018. Due to the currently low visibility on-demand we stay cautious about the further development in the short-term; mid-term, we expect that current overcapacities will be absorbed by growing market demand. The recent cancellation of one new 400 kt U.S. project for 221 contributes to this view. For 220, the only announced startup is our MDI facility in Brunsbuettel, Germany with 200 kt nameplate capacity.

In TDI, the latest ramp ups of three wells-scaled plants have increased supply pressure and continue to lower average industry utilization from a tight 85% in 2018 to around 76% in 2019. Of the roundabout one million tons of additional capacity expected between 2018 and 223,800,000 tons have already been started up, and partly our — partly or fully ramped up. From current margin levels, we see limited further downside risk as we believe that high-cost producers are currently operating at/below cash breakeven levels. Potential upside would, for example, come from closure of high cost plants as seen in the past. Finally, margins in Polyurethanes continue to be below the long-term average. Overall the EBITDA margin of 13.3% in PUR in the third quarter 2019 was clearly below last year’s level, primarily driven by significantly lower MDI and TDI margins. Taking a quarter on quarter perspective, the improvement reflects higher volumes and lower internal cost, thanks to undisturbed operations.

Thomas Swoboda

Yes, hi there, thank you for taking my questions. I have three; firstly, on capacity utilization at Covestro, is it fair to assume that your capacity utilization was higher especially in polycarbonates and also in Polyurethanes, then the numbers you have provide us for the market globally. So that was the first question. The second question is on the margin development in polyurethanes compared to polycarbonates. You have said in your prepared remarks, you expect polycarbonates margin to further deteriorate. Historically polycarbonate was less profitable than Polyurethanes. However, it was vice versa the last couple of years, are we going back to the historic ranges where Polyurethanes are more profitable than polycarbonate? And lastly and the third question, on supply demand in polycarbonates, my question is, have you seen your competitors actively reducing capacity canceling a build-out plans or strategically delaying start updates and so on? Thank you.

Markus Steilemann

Thomas, thanks for the question; this is Markus speaking. So on capacity utilization, very short and briefly, I would say we as Covestro should have better capacity utilization, then what you see on average of the industry and the main reason for that is not only, I think our very strong market access and customer centricity but particular the cost leadership in the commodity area and we outlined is earlier in our comments, given during the presentation, that this also enables us to still produce positive margin contribution when some of the high cost producers already getting cash negative when producing. So having said that, we clearly assume that we are having better utilization in the rest of the market, another evidence for that is we are fully loaded. So our capacities are fully loaded. We sell everything that we can sell in polycarbonates and polyurethanes, our assets are fully available. So we do not have any major planned or unplanned shutdowns and that also has helped us to achieve the strong volume growth in polycarbonate and in polyurethanes in the third quarter.

On the second part of the margins with regard to profitability, I would say that the margins for polycarbonate would continue to remain under pressure simply due to the fact that we have had additional entrants and entries in the market in 2019. And we said that earlier between 5% and 6% additional capacity, while at the same time, one major outlet for polycarbonate which is the automotive industry. Let’s say downturn with regard to overall demand and that shifts also volumes into the commodity segment which even further increase the pricing pressure and we do not expect that this pricing pressure in particular commodity segment will end soon simply due to the fact that first, there is no additional demand short term, maybe even midterm from the automotive industry foreseeable.

And secondly, we see additional capacity announced for next year in the range of additional 10%, again announced that does not mean that it comes to fruition. That is what we see. On polyurethane, I think we have tried to explain that a little bit earlier that on TDI, we see limited further opportunities for price to decline and margins to get under even further pressure because some of the high cost producers already most likely cease production and cannot compete anymore. Similar is it with MDI and in this context, you also asked about how do we see the opportunity of polycarbonate profitability, maybe historically go back, let’s say, below polyurethane profitability.

Markus Steilemann

So maybe on your last question, in terms of customer inventories levels in particular I assume or no, I’ve record you, you were very referring to automotive. Destocking, from our perspective might continue into the fourth quarter. However, we expect that it will be a little bit better in Q1, but they’re still very, very high uncertainties, the [indiscernible] inventories. Also given the chemical nature of the respective raw materials in MDI and TDI are normal there might be still slightly higher volumes in polycarbonates but also here, handle it with care, because some of the grades are highly specific particularly also in the automotive industry and you might have some sitting on stocks, but you cannot use them for any other purposes.

So even though there might be inventory system might need to order special grades. Where as in the commodity area, we do not assume that there is high inventory is actually on stock or that for example trade as carry a lot of those inventories that should be through meanwhile. Hope that helps?

Georgina Iwamoto

Hi, good afternoon. And Thomas and Markus, thanks for taking my question. I’ve got two. The first one is on kind of the volume outlook for next year. You’ve got a clear strategy to fully utilize your plan as far as possible. I just wanted and see if you could confirm what kind of capacity you expect to have to grow into for 2020? And then my second question is on polycarbonates you set out some helpful expectations for further weakening of mix over the next few quarters and you previously disclosed about 60% of sales in polycarbonates is resilient. Can you give us an idea of where that figure is today and where you see that heading to in the next few quarters? Thanks.

Markus Steilemann

Hi, Georgina this is Markus speaking. Thanks for your question. So the volume outlook should be around 4%. Also, let’s say, on the average that we plan for and for example 200,000 tons of capacity in MDI coming on stream next year. And so if we also assume for the rest of the portfolio, also due to a different turnaround pattern and things like that because many of the larger turnarounds have happened actually within this year, particularly in the first half and we would think that we have enough for 4% growth. If there will be no outages of our plants. So, considering this 4% is what we would think would be achievable with the next year.

Thomas Wrigglesworth

Thanks very much, Markus and Thomas; two questions from me. Firstly, on Polyurethanes polycarbonates; when we look at that volume, is that all market share or is actually the market share? Taking that you’ve executed larger the map because you’re, these end market has actually declined. So I wanted to get a sense of how much net market share you taken in those three businesses. Second question is, I think we’ve been talking now for two quarters about MDI prices being into the cost curve. It is surprising you how long it’s taking competitors to adjust production. Do you think something has changed in the competitive landscape with — in this cycle versus previous cycles? And any comments on that would be very helpful.

Thomas Toepfer

Maybe start with the second question. So I would say the answer is no, we’re not surprised, I think what we’ve been saying is and we cited some industry journals, which said that in MDI and also TDI we were moving into the unhealthy space so that the high cost producers were probably losing cash with every ton that they produce. We think this is true. And this has led to at least what we see a stabilization in the MDI and TDI prices. So it looks like we have reached more or less the bottom here. But on the other hand, I think what we also said is this does not change the picture of from how long does it take the market to really grow into the capacity before prices start again. And also, we know that it takes a longer time before competitors finally drop out of the market all completely. And therefore I would say the development that we have seen is in line with our expectations, which is a kind of sideways movement in terms of prices for those two products

Markus Steilemann

Yes, Jeff, this is Markus speaking. So, on your second question in terms of market share. If you really look at the numbers for the first nine months and is always very difficult quarter on quarter. You know, inventory levels or turnarounds unplanned shutdowns, whatever. So there is a lot of, let’s say, additional complexity in this while quarter-on-quarter comparisons are really difficult if not misleading. So let’s take the first nine months as an indication, we still see that the Polyurethanes market is growing quite well and that is also reflected in some stabilization in the respective prices and we still again observing additional capacity from last year, which makes progress. So the market is growing at 4% to 5% and I would say, for the first nine months in POR, we even slightly grew below in the market, if you look at the growth rates for polyurethane. And for our polycarbonates there is still 2% to 3% market growth, which means that we are more or less at or slightly above market in terms of polycarbonate. So, this is the picture how we look at it. So again, I would say we are developing within the market range. Right. So, does it help?

Markus Steilemann

So I think your first question with respect to CapEx. Yes, I mean our guidance for 2020 is 1 billion to 1.1 billion. Maintenance CapEx, We always said 300 million to 400 million, the major projects in there is our MDI 500 in the U.S, which is slowly getting costly because we are moving into the planning phase and especially the European activities in terms of our chlorine factory, our Aniline factory in Antwerp. And the related projects to this one. So I think Spain and Antwerp are the major projects that you find in the 2020 number.

Chetan Udeshi

Are you saying 2020 already includes a sizable CapEx from MDI in the U.S?

Markus Steilemann

No, it’s not a sizeable CapEx because most of it, I mean — so I mean, let me just correct myself, 2020 already includes costs for MDI 500, but you will find them in the OpEx line. Mostly, not in the CapEx line because we cannot yet expense it, because we have not yet received the relevant milestone. In terms of the pure CapEx which is capitalized the major numbers in 2020 will come from the European activities that I just made.

Jaideep Pandya

Hi, thank you. Just on the U.S. MDI market, could you just explain me in very simple terms. Why the profitability in the US, remains to be very high compared to the other regions. And what is the sustainability of this when we think of the next two, three, four years when pretty much everyone wants to increase capacity in the U.S. And then the second question really is on China or other, what you’re seeing in China where capacity increases, as you point out of being pushed out into 2021, 2022. So do you think really here that even the big players are suffering and therefore doing this or is it just the balancing act between volumes as you were saying, they need to grow into an utilization? Thank you.

Markus Steilemann

Maybe on the first question you ask, first and foremost days run numbers quoted by some consultants to be very clear because we do currently not see significant capacity additions in particular on the next two to three years. And you might have seen that even one major announcement has been that there is at least a withdrawal of a planned investment and a major investments. So — and in particular the U.S MDI prices here really wrongly quoted by some consultant. So that is very important that there is an indication, maybe on some trends, but the absolute levels are in most cases, simply not correct. So that is I think very important to keep this into consideration.

And then the — there is also some cost issues, if you look for example on tariffs for some of the raw material goods. Take Aniline that you need to import from China into the U.S; there have been additional tariffs on these. So from that perspective, you might also consider that some of the supply chains that have been built and have been calculated into respective investments may simply lead to different calculations after the tariffs have been imposed and may not make the overall investments including other factors that you have to consider as profitable looking at before. But that is speculation, because for sure. We have no idea, let’s say, how the cost calculation look like, but it’s just an assumption that I would make and therefore the cancellation of the respective MDI capacities from our perspective are not demand driven, but more driven by the respective cost developments. Does that help?

Jaideep Pandya

Yes. So in a nutshell, current U.S profitability is better than the other regions, is that right? That’s what I was trying to understand really, to be honest.

Thomas Toepfer

You could say so but — it’s not a major topic, so they are slightly better really slightly better. So to be very clear. For sure, you have an advanced and advantage when you’re sitting in the country because the cost to serve, cost to deliver lower than for local producers. But in general terms, I would say there is still important in the U.S. or however, they have reason to decline, also due to the tariffs that have been imposed. So yes, there is some margins, but again the whole picture is short-term and there is no — short to mid-term there is no significant supply addition in the U.S foreseeable also due to the fact that somebody else was drawn. And again the margins even if you would like to say take the published numbers are only slightly higher than in other regions, also due to the fact that some of the MDI prices are simply misstated.

https://seekingalpha.com/article/4299683-covestro-ag-cvvtf-ceo-markus-steilemann-q3-2019-results-earnings-call-transcript?part=single

November 1, 2019

Urethane Comments from Covestro Investors’ Call

Thomas Toepfer

Yes, thank you Markus, and also a very warm welcome from my side. If you please go to Page 5, you see the sales bridge for the quarter, and as you can see we posted a sales decline of 14.6% in Q3 and the main drivers were deteriorating prices in MDI, TDI and PCS, reducing our sales by a total of EUR686 million. On the other hand, we deliver a positive volume growth contribution of EUR80 million, and also you can see in the bridge that FX effect added EUR70 million, mainly attributable to the US dollar, and also to the Chinese Yuan.

Markus Steilemann

Turning to Page number 8, looking at our polyurethanes segment on Chart number 8. In Q3, we recorded a strong core volume growth driven by all three product groups. Overall, industry utilization stays at a low level due to additional capacities added during the last 15 months. Based on most recent data, industry demand growth remains solid at our predicted long-term trend of around 4% to 5%.

In MDI, the picture remains unchanged for this year; few selected ramp-ups but no new start-up leading to slightly lower average industry utilization estimated at around 87% in full year 2019 versus 88% in 2018. Due to the currently low visibility on-demand we stay cautious about the further development in the short-term; mid-term, we expect that current overcapacities will be absorbed by growing market demand. The recent cancellation of one new 400 kt U.S. project for 221 contributes to this view. For 220, the only announced startup is our MDI facility in Brunsbuettel, Germany with 200 kt nameplate capacity.

In TDI, the latest ramp ups of three wells-scaled plants have increased supply pressure and continue to lower average industry utilization from a tight 85% in 2018 to around 76% in 2019. Of the roundabout one million tons of additional capacity expected between 2018 and 223,800,000 tons have already been started up, and partly our — partly or fully ramped up. From current margin levels, we see limited further downside risk as we believe that high-cost producers are currently operating at/below cash breakeven levels. Potential upside would, for example, come from closure of high cost plants as seen in the past. Finally, margins in Polyurethanes continue to be below the long-term average. Overall the EBITDA margin of 13.3% in PUR in the third quarter 2019 was clearly below last year’s level, primarily driven by significantly lower MDI and TDI margins. Taking a quarter on quarter perspective, the improvement reflects higher volumes and lower internal cost, thanks to undisturbed operations.

Thomas Swoboda

Yes, hi there, thank you for taking my questions. I have three; firstly, on capacity utilization at Covestro, is it fair to assume that your capacity utilization was higher especially in polycarbonates and also in Polyurethanes, then the numbers you have provide us for the market globally. So that was the first question. The second question is on the margin development in polyurethanes compared to polycarbonates. You have said in your prepared remarks, you expect polycarbonates margin to further deteriorate. Historically polycarbonate was less profitable than Polyurethanes. However, it was vice versa the last couple of years, are we going back to the historic ranges where Polyurethanes are more profitable than polycarbonate? And lastly and the third question, on supply demand in polycarbonates, my question is, have you seen your competitors actively reducing capacity canceling a build-out plans or strategically delaying start updates and so on? Thank you.

Markus Steilemann

Thomas, thanks for the question; this is Markus speaking. So on capacity utilization, very short and briefly, I would say we as Covestro should have better capacity utilization, then what you see on average of the industry and the main reason for that is not only, I think our very strong market access and customer centricity but particular the cost leadership in the commodity area and we outlined is earlier in our comments, given during the presentation, that this also enables us to still produce positive margin contribution when some of the high cost producers already getting cash negative when producing. So having said that, we clearly assume that we are having better utilization in the rest of the market, another evidence for that is we are fully loaded. So our capacities are fully loaded. We sell everything that we can sell in polycarbonates and polyurethanes, our assets are fully available. So we do not have any major planned or unplanned shutdowns and that also has helped us to achieve the strong volume growth in polycarbonate and in polyurethanes in the third quarter.

On the second part of the margins with regard to profitability, I would say that the margins for polycarbonate would continue to remain under pressure simply due to the fact that we have had additional entrants and entries in the market in 2019. And we said that earlier between 5% and 6% additional capacity, while at the same time, one major outlet for polycarbonate which is the automotive industry. Let’s say downturn with regard to overall demand and that shifts also volumes into the commodity segment which even further increase the pricing pressure and we do not expect that this pricing pressure in particular commodity segment will end soon simply due to the fact that first, there is no additional demand short term, maybe even midterm from the automotive industry foreseeable.

And secondly, we see additional capacity announced for next year in the range of additional 10%, again announced that does not mean that it comes to fruition. That is what we see. On polyurethane, I think we have tried to explain that a little bit earlier that on TDI, we see limited further opportunities for price to decline and margins to get under even further pressure because some of the high cost producers already most likely cease production and cannot compete anymore. Similar is it with MDI and in this context, you also asked about how do we see the opportunity of polycarbonate profitability, maybe historically go back, let’s say, below polyurethane profitability.

Markus Steilemann

So maybe on your last question, in terms of customer inventories levels in particular I assume or no, I’ve record you, you were very referring to automotive. Destocking, from our perspective might continue into the fourth quarter. However, we expect that it will be a little bit better in Q1, but they’re still very, very high uncertainties, the [indiscernible] inventories. Also given the chemical nature of the respective raw materials in MDI and TDI are normal there might be still slightly higher volumes in polycarbonates but also here, handle it with care, because some of the grades are highly specific particularly also in the automotive industry and you might have some sitting on stocks, but you cannot use them for any other purposes.

So even though there might be inventory system might need to order special grades. Where as in the commodity area, we do not assume that there is high inventory is actually on stock or that for example trade as carry a lot of those inventories that should be through meanwhile. Hope that helps?

Georgina Iwamoto

Hi, good afternoon. And Thomas and Markus, thanks for taking my question. I’ve got two. The first one is on kind of the volume outlook for next year. You’ve got a clear strategy to fully utilize your plan as far as possible. I just wanted and see if you could confirm what kind of capacity you expect to have to grow into for 2020? And then my second question is on polycarbonates you set out some helpful expectations for further weakening of mix over the next few quarters and you previously disclosed about 60% of sales in polycarbonates is resilient. Can you give us an idea of where that figure is today and where you see that heading to in the next few quarters? Thanks.

Markus Steilemann

Hi, Georgina this is Markus speaking. Thanks for your question. So the volume outlook should be around 4%. Also, let’s say, on the average that we plan for and for example 200,000 tons of capacity in MDI coming on stream next year. And so if we also assume for the rest of the portfolio, also due to a different turnaround pattern and things like that because many of the larger turnarounds have happened actually within this year, particularly in the first half and we would think that we have enough for 4% growth. If there will be no outages of our plants. So, considering this 4% is what we would think would be achievable with the next year.

Thomas Wrigglesworth

Thanks very much, Markus and Thomas; two questions from me. Firstly, on Polyurethanes polycarbonates; when we look at that volume, is that all market share or is actually the market share? Taking that you’ve executed larger the map because you’re, these end market has actually declined. So I wanted to get a sense of how much net market share you taken in those three businesses. Second question is, I think we’ve been talking now for two quarters about MDI prices being into the cost curve. It is surprising you how long it’s taking competitors to adjust production. Do you think something has changed in the competitive landscape with — in this cycle versus previous cycles? And any comments on that would be very helpful.

Thomas Toepfer

Maybe start with the second question. So I would say the answer is no, we’re not surprised, I think what we’ve been saying is and we cited some industry journals, which said that in MDI and also TDI we were moving into the unhealthy space so that the high cost producers were probably losing cash with every ton that they produce. We think this is true. And this has led to at least what we see a stabilization in the MDI and TDI prices. So it looks like we have reached more or less the bottom here. But on the other hand, I think what we also said is this does not change the picture of from how long does it take the market to really grow into the capacity before prices start again. And also, we know that it takes a longer time before competitors finally drop out of the market all completely. And therefore I would say the development that we have seen is in line with our expectations, which is a kind of sideways movement in terms of prices for those two products

Markus Steilemann

Yes, Jeff, this is Markus speaking. So, on your second question in terms of market share. If you really look at the numbers for the first nine months and is always very difficult quarter on quarter. You know, inventory levels or turnarounds unplanned shutdowns, whatever. So there is a lot of, let’s say, additional complexity in this while quarter-on-quarter comparisons are really difficult if not misleading. So let’s take the first nine months as an indication, we still see that the Polyurethanes market is growing quite well and that is also reflected in some stabilization in the respective prices and we still again observing additional capacity from last year, which makes progress. So the market is growing at 4% to 5% and I would say, for the first nine months in POR, we even slightly grew below in the market, if you look at the growth rates for polyurethane. And for our polycarbonates there is still 2% to 3% market growth, which means that we are more or less at or slightly above market in terms of polycarbonate. So, this is the picture how we look at it. So again, I would say we are developing within the market range. Right. So, does it help?

Markus Steilemann

So I think your first question with respect to CapEx. Yes, I mean our guidance for 2020 is 1 billion to 1.1 billion. Maintenance CapEx, We always said 300 million to 400 million, the major projects in there is our MDI 500 in the U.S, which is slowly getting costly because we are moving into the planning phase and especially the European activities in terms of our chlorine factory, our Aniline factory in Antwerp. And the related projects to this one. So I think Spain and Antwerp are the major projects that you find in the 2020 number.

Chetan Udeshi

Are you saying 2020 already includes a sizable CapEx from MDI in the U.S?

Markus Steilemann

No, it’s not a sizeable CapEx because most of it, I mean — so I mean, let me just correct myself, 2020 already includes costs for MDI 500, but you will find them in the OpEx line. Mostly, not in the CapEx line because we cannot yet expense it, because we have not yet received the relevant milestone. In terms of the pure CapEx which is capitalized the major numbers in 2020 will come from the European activities that I just made.

Jaideep Pandya

Hi, thank you. Just on the U.S. MDI market, could you just explain me in very simple terms. Why the profitability in the US, remains to be very high compared to the other regions. And what is the sustainability of this when we think of the next two, three, four years when pretty much everyone wants to increase capacity in the U.S. And then the second question really is on China or other, what you’re seeing in China where capacity increases, as you point out of being pushed out into 2021, 2022. So do you think really here that even the big players are suffering and therefore doing this or is it just the balancing act between volumes as you were saying, they need to grow into an utilization? Thank you.

Markus Steilemann

Maybe on the first question you ask, first and foremost days run numbers quoted by some consultants to be very clear because we do currently not see significant capacity additions in particular on the next two to three years. And you might have seen that even one major announcement has been that there is at least a withdrawal of a planned investment and a major investments. So — and in particular the U.S MDI prices here really wrongly quoted by some consultant. So that is very important that there is an indication, maybe on some trends, but the absolute levels are in most cases, simply not correct. So that is I think very important to keep this into consideration.

And then the — there is also some cost issues, if you look for example on tariffs for some of the raw material goods. Take Aniline that you need to import from China into the U.S; there have been additional tariffs on these. So from that perspective, you might also consider that some of the supply chains that have been built and have been calculated into respective investments may simply lead to different calculations after the tariffs have been imposed and may not make the overall investments including other factors that you have to consider as profitable looking at before. But that is speculation, because for sure. We have no idea, let’s say, how the cost calculation look like, but it’s just an assumption that I would make and therefore the cancellation of the respective MDI capacities from our perspective are not demand driven, but more driven by the respective cost developments. Does that help?

Jaideep Pandya

Yes. So in a nutshell, current U.S profitability is better than the other regions, is that right? That’s what I was trying to understand really, to be honest.

Thomas Toepfer

You could say so but — it’s not a major topic, so they are slightly better really slightly better. So to be very clear. For sure, you have an advanced and advantage when you’re sitting in the country because the cost to serve, cost to deliver lower than for local producers. But in general terms, I would say there is still important in the U.S. or however, they have reason to decline, also due to the tariffs that have been imposed. So yes, there is some margins, but again the whole picture is short-term and there is no — short to mid-term there is no significant supply addition in the U.S foreseeable also due to the fact that somebody else was drawn. And again the margins even if you would like to say take the published numbers are only slightly higher than in other regions, also due to the fact that some of the MDI prices are simply misstated.

https://seekingalpha.com/article/4299683-covestro-ag-cvvtf-ceo-markus-steilemann-q3-2019-results-earnings-call-transcript?part=single

November 1, 2019

New Spokesperson for CertiPUR-US® Program

Nationally Acclaimed Consumer Advocate Elisabeth Leamy Becomes Spokesperson for CertiPUR-US® Program

(November 1, 2019) CertiPUR-US®, a certification program for flexible polyurethane foam used in bedding and upholstered furniture, welcomes Elisabeth Leamy, a 13-time Emmy-award-winning journalist and consumer advocate, as the spokesperson for its national publicity campaign. The campaign recently conducted a satellite media tour that resulted in Leamy’s interview airing on TV news broadcasts in more than 20 markets—gaining consumer awareness for the benefits of purchasing products containing certified foam.

Leamy is a 25-year consumer advocate who has appeared on programs such as “Good Morning America” and “The Dr. Oz Show.” In addition to her Emmys, she has been honored with four Edward R. Murrow awards for her work educating consumers on a variety of issues. She has written two critically acclaimed books, “Save Big: Cut Your Top 5 Costs and Save Thousands” an d “The Savvy Consumer: How to Avoid Scams and Rip-Offs that Cost You Time and Money.”

Her advocacy of the CertiPUR-US® program began after writing about the foam certification program in an article on how to choose a mattress for the Washington Post in her role as consumer columnist for the newspaper.

“I was so impressed with what this nonprofit group is doing for consumers that I partnered with them to try to help get the word out,” Leamy explains.

Additional coverage on TV news stations and other media outlets is planned for 2020. Read Leamy’s blog post on how to get a safer night’s sleep at www.certipur.us/safersleep.

# # # #

Media contact:

Helen Sullivan hsullivan@certipur.us 703 606 7622

November 1, 2019

New Spokesperson for CertiPUR-US® Program

Nationally Acclaimed Consumer Advocate Elisabeth Leamy Becomes Spokesperson for CertiPUR-US® Program

(November 1, 2019) CertiPUR-US®, a certification program for flexible polyurethane foam used in bedding and upholstered furniture, welcomes Elisabeth Leamy, a 13-time Emmy-award-winning journalist and consumer advocate, as the spokesperson for its national publicity campaign. The campaign recently conducted a satellite media tour that resulted in Leamy’s interview airing on TV news broadcasts in more than 20 markets—gaining consumer awareness for the benefits of purchasing products containing certified foam.

Leamy is a 25-year consumer advocate who has appeared on programs such as “Good Morning America” and “The Dr. Oz Show.” In addition to her Emmys, she has been honored with four Edward R. Murrow awards for her work educating consumers on a variety of issues. She has written two critically acclaimed books, “Save Big: Cut Your Top 5 Costs and Save Thousands” an d “The Savvy Consumer: How to Avoid Scams and Rip-Offs that Cost You Time and Money.”

Her advocacy of the CertiPUR-US® program began after writing about the foam certification program in an article on how to choose a mattress for the Washington Post in her role as consumer columnist for the newspaper.

“I was so impressed with what this nonprofit group is doing for consumers that I partnered with them to try to help get the word out,” Leamy explains.

Additional coverage on TV news stations and other media outlets is planned for 2020. Read Leamy’s blog post on how to get a safer night’s sleep at www.certipur.us/safersleep.

# # # #

Media contact:

Helen Sullivan hsullivan@certipur.us 703 606 7622

November 1, 2019

Huntsman Urethane Comments From Investors’ Call

Peter R. Huntsman

Ivan, thank you very much. Good morning everyone. Thank you for joining us. Let’s turn to slides number 3 and 4. Adjusted EBITDA for our polyurethanes division in the second quarter was $146 million versus $218 million a year ago. As Ivan mentioned, our North American propylene oxide and MTBE businesses are now reported as discontinued operations. Therefore, our continuing operations for our polyurethane divisions are now nearly entirely comprised of MDI based formulated systems, elastomers, and MDI components. As a reminder and as we have called out in the past, in the third quarter of 2018, we were still experiencing exceptionally high margins in the component end of our MDI portfolio. These spiked margins including above normal operating rates, conditions accounted for approximately $45 million of the year-over-year variance.

MDI volumes in the quarter were up 3% as the business continued to benefit from the expansion of our Chinese facility that began to come online in the third quarter of 2018. Our downstream strategy continues to perform well. Our margins remain stable in the larger differentiated end of our polyurethanes portfolio. This stability is a result of our continuous drive downstream, ongoing material substitution, product innovations, benefits from bolt-on acquisitions, global scale up opportunities, and increasing regional diversification.

In the third quarter, our total differentiated systems volumes were about flat compared to last year, and our global component MDI grew 7% year-over-year due to the new capacity added at our Chinese facility. What we experienced in the third quarter within our polyurethanes division was a continuation of what we were saying at the end of the last quarter in most of our key end markets. However, in Europe, the economic headwinds did intensify somewhat in September. We believe that the destocking we reported impacting the first half of the year in polyurethanes is finished most specifically in China. However, customers are still cautious, and inventories continue to be managed aggressively low in about every region which we compete. Consistent with what we have said in our conference call in July visibility still remains challenging.

Looking at polyurethanes regionally; for the second quarter, our Americas volumes were down from the prior year. We experienced a short-term outage near the end of the quarter at our Geismar facility impacting volumes a bit and EBITDA by about $5 million. Our spray foam insulation business, Demilec that we acquired last year continues to be a bright spot for us and is growing at a low-double-digit rate. We continue to expand this business by leveraging our global footprint. We’re on track to achieve our expected synergies. Just to illustrate the global opportunities for our Demilec business, the system house that we opened this past September in Dubai is equipped to support Demilec growth in that region. Our growth in spray foam in the quarter was offset by weaker volumes in other high-volume markets such as OSB and furniture.

We are focused on growing our downstream business further in the Americas, and we’re progressing with a new splitter at our Geismar facility. This should be operational in 2021 and will cost approximately $175 million to build, which is above our preliminary estimate that we shared with you this past February. The increased costs are primarily due to higher material costs such as steel due to tariffs as well as very tight labor markets in the Gulf Coast. Despite these higher costs, the IRR on this project remains very attractive, well north of our 20% hurdle rate.

Turning to the Asia region of polyurethanes, our differentiated and component volumes were up even when excluding the benefits of our recent expansion. Volumes are being helped by insulation growth in large scale infrastructure projects and applications. The adhesives, coatings, and elastomers and footwear markets in Asia are also contributing as we gradually shift our China portfolio and the newly added capacity to be more downstream and differentiated. We believe that customer inventories were at very low levels in this region. While we’ve experienced real growth within this region, demand in China remains well below average and erratic. We believe this will remain unchanged until trade discussions have some form of resolution thereby helping customer confidence and visibility.

In Europe, our downstream margins are stable despite lower underlying demand. Our volumes in the region were marginally up but that was primarily a result of favorable comparisons due to outages that impacted our results in the same period over a year ago. The overall macroeconomic environment remains increasingly soft, and we do not expect it to improve in the near-term. The margins in our differentiated business remained stable despite the pressure on volumes and weaker industry conditions. Our long-term strategy of growing our downstream business through strategic investments like our splitter, our new system houses will continue to be supplemented with bolt-on acquisitions having strong synergies and compelling financial metrics. We believe that the positive long-term fundamentals for MDI remain intact as above GDP growth driven by product substitution will continue long into the future. However, for the short term, the demand headwinds are unlikely to change. On top of that the fourth quarter is typically softer than the second and third quarters. Putting it all together we would expect our fourth quarter results to look slightly better than our first quarter.

Kevin McCarthy

Good morning. Peter as you anticipate the influx of 1.6 billion in cash proceeds from the Indorama deal can you elaborate on how you’re thinking about organic growth investments versus M&A for example with regard to your splitter project. Notwithstanding the higher costs, it sounds like you’re looking at a return above 20% there, do you to see other projects or opportunities like that that could claim a substantial portion of the capital, and maybe you could just elaborate in general on your latest thoughts there?

Peter R. Huntsman

Well, thank you very much Kevin. I look at the splitter that we’re building in Geismar Louisiana to be something almost akin to an acquisition. We have a very similar splitter in Europe, we have one in Asia. With the completion of this facility in the Americas, we’re going to be very well positioned by producing crude MDI, splitting capacity, and downstream. I don’t see a lot of large CAPEX projects. So, if you were to give me $150 million right now and say go spend it internally, I I think I’d be rather hard pressed at the present time. I don’t see a lot of large scale projects like that and frankly I’m not a big believer in that. It seems that as you build virtually anything in the last decade in the U.S. Gulf Coast, costs just continuously are going up and I’ve never been a big proponent that this industry needs more capacity of just about any product. I think that we need greater diversity of technology and the ability to perhaps specialize the products we’re producing.

But frankly, I don’t see this company going headlong into spending a lot of CAPEX around building new capacities around the world. So, as I look at that threshold because of the risks of higher costs and uncertainty about making commitments today as to where markets will be two, three, four years down the road when you complete such projects, I think that they warrant a much higher IRR in general than M&A does, where you know what you’re getting upon closing, and you have a good outline of synergies, technologies, globalization, and you can have a plan of action on day one. That’s rather difficult to do when you’re planning a new MDI plant that won’t be coming into the market for upwards of four, five, six years.

So, I think that we’re going to be certainly leaning more towards M&A opportunities, and again I emphasize that on a cautionary note as I did in my script, and I would also say that we want to make sure that whilst — particularly while we’re in what I would consider to be a rather challenging economic conditions, we need to make sure we retain the strong balance sheet. We’ve got plenty of capital to continue to pay a competitive dividend, and we are very committed to share buyback program when the share price is at appropriate levels.

Laurence Alexander

Good morning, could you discuss a little bit for both advanced materials, and in polyurethanes how you are seeing the competitive dynamics shift in response to weak environment. That is are you seeing capacity curtailments, are you seeing changes in pricing behavior, extended outages, any other kind of indications of sort of how the market is reacting in this environment?

Peter R. Huntsman

I think, Laurence it really is a little bit of a mixed view. The further upstream that you are or the more commoditized the product and the application, I think the more competitive pricing and margin pressure that you’re seeing. Further on down the chain where you have a product that has been specked into a customer, where you have a multi-year commitment and where you’re selling in effect or performance rather than a commodity raw material that maybe has a little bit of work done to it. You know I think that we’re seeing far less of that, and so as I look at something like our advanced materials in aerospace, as I look at our downstream formulation, applications in MDI, polyurethanes and so forth, margins for the majority of the business — margins are holding up very well. It is volume that is hurting the bottom line, and I suspect that volume will obviously be coming back as the economy starts to stabilize or even if the economy doesn’t stabilize when you see a lot of the de-inventorying, destocking that is out there taking place. So, again I would say, and it’s always — I probably will get in trouble for saying something this broad, but I’d say that I’d like to think that two thirds of our business is more volume sensitive, meaning that I think margins are pretty stable by and large and we’re going to be more affected by volume, and maybe a third of our business you’re seeing more competitive factors that might be impacting to some degree or another margins. And so, it is again product by product, region by region, division by division. Those things will vary, but I think that obviously we would like to get more and more of our products into that two thirds category.

Laurence Alexander

And are you seeing any sort of significant curtailments of customer R&D cycles, innovation cycles, new product development in response to the soft environment or is that inconsistent?

Peter R. Huntsman

I have not, as a matter of fact I might be seeing and I don’t want to say that this is going to continue but for the time being I think that there’s — you take in the economy like Europe where you’re seeing virtually no growth in GDP perhaps even a bit of shrinkage right now in economies like Germany. So for product substitution, things around sustainability, things that have an environmental improvement and push I think that there’s actually more innovation in certain applications. I look in the footwear industry where a lot of the producers today are looking to have a single grade of material that goes into the soul of the running shoe versus four or five different elastomers and colors and so forth that go into the sole of a running shoe. You look at those sort of — it might sound rather drab but those are areas where we’re seeing where there’s increased reward, increased opportunity. And so I think right now I’ve not seen a decrease in the reward for innovation and the opportunity to replace product substitution. I would imagine 2020, I’ve not seen the budget yet, we’ve not completed for 2020 but I would imagine that the majority of our growth in 2020 will be through product substitution.

Unidentified Analyst