Greetings and welcome to the Dow First Quarter 2024 Earnings Conference Call. This conference is being recorded. I would now like to turn it over to Dow Investor Relations Vice President, Pankaj Gupta. Mr. Gupta, you may begin.

Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I'm Pankaj Gupta, Dow's outgoing Investor Relations Vice President. Leading today's call are Jim Fitterling, Dow's Chair and Chief Executive Officer; and Jeff Tate, Chief Financial Officer. Also joining is our new Investor Relations Vice President, Andrew Riker, who you may remember was a member of our IR team a few years ago. Please note, our comments contain forward-looking statements and are subject to the related cautionary statements contained in the earnings news release and slides. Please refer to our public filings for further information about principal risks and uncertainties. Unless otherwise specified, all financials, where applicable, exclude significant items. We will also refer to non-GAAP measures. A reconciliation of the most directly comparable GAAP financial measure and other associated disclosures are contained in the earnings news release and slides that are posted on our website. On Slide 2 is our agenda for today's call. Jim will review our first quarter results and operating segment performance. Jeff will then provide an update on the macroeconomic environment and modeling guidance as well as the results of our annual benchmarking. Jim will then provide an update on key milestones for our long-term strategy, which positions us well to deliver growth through the cycle. Following that, we will take your questions. Now let me turn the call over to Jim.

Thank you, Pankaj. Beginning on Slide 3. In the first quarter, Team Dow delivered sequential volume growth and margin expansion. We strategically increased operating rates to capture improving demand, we maintained pricing, and we benefited from lower feedstock and energy costs. These results reflect the strength of our advantaged portfolio, including our participation in diverse end markets and our cost advantage positions around the world. Net sales were $10.8 billion, down 9% versus the year-ago period but up 1% sequentially, driven by gains in Performance Materials & Coatings and Industrial Intermediates & Infrastructure. Volume increased 1% year-over-year, and excluding Hydrocarbons & Energy, volume increased 5%, with gains in all regions. This marks the second consecutive quarter of year-over-year volume growth. Sequentially, volume increased 1% and excluding Hydrocarbons & Energy, was up 3%, led by gains in Performance Materials & Coatings. Local price decreased 10% year-over-year and was flat sequentially as modest gains in Europe, the Middle East, Africa, and India were offset by declines in Asia Pacific, the United States, and Canada. Operating EBIT for the quarter was $674 million, down $34 million year-over-year driven by lower prices in all regions. Sequentially, operating EBIT was up $115 million, reflecting gains in Performance Materials & Coatings and Industrial Intermediates & Infrastructure. We delivered cash flow from operations of $460 million in the quarter, resulting in a 94% cash flow conversion on a trailing 12-month basis. This reflects our focus on cash flow generation and enabled $693 million in returns to shareholders. We also advanced our long-term strategy with our higher return, highly capital-efficient Path2Zero project in Fort Saskatchewan, Alberta, where construction started earlier this month. Now turning to our operating segment performance on Slide 4. In the Packaging & Specialty Plastics segment, operating EBIT was $605 million, down $37 million compared to the year-ago period, primarily due to lower integrated margins. Local price declines were primarily driven by lower energy and feedstock costs globally. Volume decreased year-over-year driven by declines in the Hydrocarbons & Energy business. This was primarily due to prioritizing higher-value downstream derivative polymer sales as well as lighter feed slate cracking in Europe. Sequentially, operating EBIT decreased by $59 million as improved polyethylene integrated margins were more than offset by expected lower nonrecurring licensing revenue and higher planned maintenance activity. Moving to the Industrial Intermediates & Infrastructure segment. Operating EBIT was $87 million compared to $123 million in the year-ago period. Results were driven by lower prices in both businesses, which were partly offset by three items: lower energy and feedstock costs, improved equity earnings, and volume gains in Polyurethanes & Construction Chemicals. Sequentially, operating EBIT was up $72 million driven by improved equity earnings and lower energy and feedstock costs, primarily in EMEAI. And in the Performance Materials & Coatings segment, operating EBIT was $41 million, up $6 million compared to the year-ago period, driven by volume growth and higher operating rates. Volume was up year-over-year driven by gains primarily in the United States, Canada, and Latin America. Sequentially, operating EBIT increased $102 million driven by higher seasonal volumes and overall improved demand. Now I'll turn it over to Jeff to review our outlook and actions.

Thank you, Jim, and good morning to everyone joining our call today. Turning to our outlook on Slide 5. We are seeing signs of improving macroeconomic conditions in several regions, which gives us cautious optimism heading into what is typically a seasonally strong quarter. That said, we are keeping a close eye on inflation, interest rates, and geopolitical tensions. The U.S. is benefiting from improving industrial activity with manufacturing PMI in expansionary territory every month thus far this year. In fact, manufacturing production expanded at its fastest rate in 22 months in March. Average chemical railcar shipments were also up 4.3% year-to-date compared to last year through mid-April. And while high-interest rates continue to improve building and construction activity in the U.S., building permits were 1.5% higher in March year-over-year, while existing home sales declined 3.7% in March. In Europe, consumer spending and industrial activity remain weak with manufacturing PMI decreasing in February and March. This partly reflects ongoing geopolitical tensions in the Red Sea, which have led to higher freight costs globally. Declines in inventory levels are a promising indicator with March at the lowest levels since July 2022. Economic activity in China continued to recover steadily with signs of improving demand. Industrial production increased 4.5% year-over-year in March. Additionally, retail sales grew 3.1% year-over-year in March, supported by consumer spending around the Lunar New Year. Nonetheless, the property sector remains weak with new home prices continuing to decline through March. Industrial activity in other regions remains constructive. In March, India manufacturing PMI reached its highest level in more than three years at 59.1. ASEAN manufacturing PMI reached an 11-month high at 51.5. And in Mexico, industrial production increased further in February. Now turning to our outlook for the second quarter on Slide 6. In the Packaging & Specialty Plastics segment, higher global polyethylene integrated margins, resilient demand in packaging, as well as continued strength in the export markets are expected to drive a $150 million tailwind in the quarter. Additionally, we expect $25 million in tailwinds from our site in Bahía Blanca, Argentina, which has returned to operations following an unexpected storm in December 2023. Lastly, we expect a $75 million headwind due to increased plant maintenance primarily in Sabine, Texas. In the Industrial Intermediates & Infrastructure segment, consumer durables demand continues to be muted. However, we expect margin expansion on improved MDI and polyols spreads in Europe. We also expect modest seasonal demand improvement in building and construction end markets as well as resilient demand in pharma and energy end markets. Altogether, these represent a $25 million tailwind. In addition, we expect a headwind of $25 million due to planned maintenance in Europe and the U.S. Gulf Coast. This will be partly offset by the completion of a turnaround at a PDH unit in the first quarter. In the Performance Materials & Coatings segment, higher global siloxane prices and seasonal demand increases in building and construction end markets are expected to drive a $75 million tailwind in the second quarter. We also expect an additional $25 million tailwind from a turnaround at our siloxane pillar site in the U.S., while our Deer Park and PDH sites will come back up following planned maintenance in the first quarter. So with all the puts and takes, at a company level, we expect second quarter earnings to be approximately $200 million above first quarter performance.

Thank you, Jeff. Moving to Slide 7. As we navigate the cycle and execute on our long-term strategic actions, Dow remains committed to our culture of transparency, accountability, and benchmarking. Today, we published the results of our annual benchmarking update, once again demonstrating our strong performance and value creation relative to our peers. The results can be found on our investor website. Dow came in well ahead of the pure average and broader S&P 500 with continued attractive 3-year average free cash flow and dividend yields. This reflects our commitment to industry-leading cash generation and shareholder remuneration across the economic cycle. Our 3-year EBITDA margins and return on invested capital are above the peer median with return on invested capital, 200 basis points above our 13% target across the economic cycle. We also delivered best-in-class net debt reduction since 2019, which allows us to deliver on our capital allocation priorities even at the bottom of the cycle. Our achievements in these areas point to our continued discipline and financial flexibility. As a result, Team Dow has set the stage for us to drive earnings growth and increase shareholder returns through the cycle. With that, I'll turn it back to Jim. Thank you, Jeff. Moving to Slide 8. Dow is well positioned to capture demand and drive earnings growth as the economic recovery takes hold. This is reflected in our competitive advantages and early cycle growth investments that are progressing while also showcasing Dow's ongoing commitment to operational and financial discipline. We have a differentiated portfolio with strategically advantaged assets, global reach, and cost-effective positions in every region. Favorable oil-to-gas spreads, backed by increasing natural gas and NGL production in North America, enhance our cost advantage and ability to achieve further margin improvements as the economic recovery strengthens. We have also implemented strategies to boost Dow's earnings as we pursue our near-term, high-value, low-risk growth investments projected to yield approximately $2 billion in additional underlying EBITDA by mid-decade. Since 2021, we have increased capacity expected to enhance our mid-cycle EBITDA by around $800 million, including investments in our FCDh unit in Louisiana and additional capacity investments in the United States and Europe targeting attractive market segments such as consumer nondurables and pharmaceuticals. Furthermore, we have invested in several downstream silicone debottlenecks to meet the demands of rapidly growing applications in MobilityScience and electronics. We are on course to reach the remaining $1.2 billion of our near-term EBITDA target by mid-decade, supported by our lower risk and higher return growth projects. These investments constitute a significant part of Dow's earnings growth in the next up cycle. Moving to Slide 9. Dow continues to execute with financial and operational discipline as we invest through the bottom of the chemical industry's economic cycle for long-term profitable growth. Our near-term growth and efficiency investments continue to progress with our propylene glycol expansion in Thailand achieving mechanical completion this month. We are also making good progress on our Decarbonize & Grow strategy, including our Path2Zero project in Fort Saskatchewan, Alberta. Construction began earlier this month, where we're installing the first of approximately 4,000 piles that will anchor the foundation of our new net zero cracker. In addition, all long lead time equipment items have been ordered, further demonstrating our consistent focus on locking in cost efficiencies for this project. We also entered into a long-term agreement with Pembina, a leading ethane supply and transportation provider, to supply and transport up to 50,000 barrels per day of ethane. With this latest agreement, we have secured the majority of our cost-advantaged ethane supply with multiple suppliers in the region. Overall, I expect the Path2Zero project to deliver an additional $1 billion per year in mid-cycle EBITDA growth at full run rates over the economic cycle. In addition, we continue to advance circularity through our Transform the Waste strategy via strategic partnerships and offtake agreements. This includes a recent joint development agreement with Procter & Gamble, which will create a new recycling technology aimed at converting hard-to-recycle plastic packaging into recycled polyethylene. The result will be near virgin quality and lower greenhouse gas emissions than virgin polyethylene. All in all, we expect our Transform the Waste initiatives to generate more than $500 million of incremental run rate EBITDA by 2030. Turning to Slide 10. Our actions since 2019 have created a stronger Dow. Over the past five years, we have worked hard to improve our balance sheet, to improve cash flow conversion, and to build a more resilient company that maintains consistent discipline. This was demonstrated when we delivered $12.4 billion in peak EBITDA in 2021, higher than any other timeframe in Dow's history. This has created the opportunity for us to invest strategically at the bottom of the cycle for long-term profitable growth. And as implementation of our growth strategy increases our underlying EBITDA, we will continue to target at least 65% of operating net income to shareholders as we move up the next peak. This means at least 45% in dividends and 20% in share buybacks. Closing on Slide 11, I want to thank you for your interest and ownership in Dow. The team and I look forward to engaging with many of you on our 2024 Investor Day on May 16. As a reminder, the event will be hosted from the New York Stock Exchange. It will also be available via live webcast. More information can be found on our website at investors.dow.com. During the event, we will share progress on Dow's commitment to improve underlying earnings by greater than $3 billion by 2030 that will enable raising the mid-cycle as well as the trough and peak earnings levels. We'll demonstrate our consistent commitment to operational and financial discipline, our capital allocation priorities, and our leadership in attractive market verticals. And we'll show how, taken together, this creates significant value creation as we grow earnings and enhance shareholder returns over the cycle. Before I turn it over to Pankaj, he mentioned at the top of the call that we have our incoming Vice President of Investor Relations, Andrew Riker, joining us today. I'd like to take a minute to congratulate Andrew as he takes charge and to thank Pankaj for leading the Investor Relations team over the last three years and also for his contributions to our upcoming Investor Day. Pankaj, we look forward to seeing your achievements in your next role leading our Dow Industrial Solutions business. With that, Pankaj, please get us started with the Q&A.

Thank you, Jim. Now let's move on to your questions. I would like to remind you that our forward-looking statements apply to both our prepared remarks and the following Q&A. Operator, please provide the Q&A instructions.

And your first question comes from Hassan Ahmed at Alembic Global.

Jim, a quick question around global ethylene and polyethylene supply-demand fundamentals. On the surface, as I sort of take a look at global utilization rates, they seem relatively slack. But then as one sort of thinks through marginal producer economics, I mean, they seem pretty weak right now and we're obviously hearing more and more announcements of capacity closures out in Europe. So how do you see utilization rates pan out in '24 and beyond?

Hassan, good question. I would say, obviously, there are differences around the globe depending on the cost positions. And we have a footprint that is very highly advantaged in North America and Latin America and the Middle East. Europe is right now where you've seen most of the focus on supply reductions with a couple of announcements of crackers being shut down. I'd also say China, there's a lot of pressure on operating rates there because the cash margins are negative and have been negative for some time and there's a big arbitrage window open between the United States and China. And so all of those things have really led to much higher operating rates in the cost-advantaged regions. And even in Europe, where we had LPG cracking flexibility in the first quarter and propane was still a little bit high in the first quarter but that advantage led to higher operating rates for us in Europe. Our overall operating rates jumped about 10 percentage points in Europe in the first quarter. So I think if you've got a cost advantage position, things are looking pretty good. Europe is a little bit isolated right now because of the tensions in the Middle East and the Red Sea effect from shipping. And so it's relying on its domestic production for the market growth and there has been some volume growth there. And the Middle East has been focused more on Asian demand. So I feel good about it. Most of the new capacity is in the market already and we're seeing volume growth, second consecutive quarter of volume growth. And we're starting to see year-over-year volume growth numbers. So it feels like we're starting to turn the corner a little bit.

Your next question comes from the line of David Begleiter from Deutsche Bank.

Jim, last quarter, you gave a bit of an earnings walk up to about $6.4 billion, $6.5 billion of EBITDA this year. Do you still believe that number is achievable, if not beatable, given the solid Q1 results?

David, I think with the first quarter results and the $200 million that Jeff mentioned on the call, we're right on track. I would add that, as you go into the third quarter, now that we'll have another $100 million from the restart of Glycol 2 in Plaquemine, so $100 million third quarter, $100 million fourth quarter kind of numbers. So we're starting to see that run rate and that run rate right in line with what we need to deliver that $6.4 billion. And then I would say the underlying chemical demand, I talked about in last quarter, it felt like destocking slowed. Inventory levels for us in December were the lowest they've ever been. They continue to be low at the end of the first quarter and chemical production and chemical shipments are up. And so when you look at those numbers, you say this volume growth right now feels like it's demand driven, not restocking driven. And so I think as we start to move up this thing, hopefully, the economy keeps with us here and we start to see us pick up some momentum on this trend.

Your next question comes from the line of Vincent Andrews from Morgan Stanley.

If I could just ask, in the PSP guidance for 2Q and that step up to $150 million, can you just walk us around the world and tell us sort of how you're bridging that $150 million?

Yes, Vincent, thank you. We are mainly seeing an increase in integrated margins, which I estimate to be about $0.03 a pound globally. In North America and Europe, it might exceed $3, while the rest of the world remains relatively flat. We have a one-time improvement due to Bahía Blanca being down for part of the first quarter because of the storm in December, but it is now operational again, contributing a $25 million improvement. Together, these two factors account for around $175 million. However, we also encountered higher turnaround costs this quarter, particularly from the turnaround at Sabine, amounting to about $75 million. So overall, this results in roughly a $100 million increase in P&SP for the second quarter. The volume and margin numbers look solid, and exports from the U.S. Gulf Coast are performing well. Products are moving, and operating rates are strong, reflecting the positive effects of these factors.

Your next question comes from Frank Mitsch from Fermium Research.

And let me also extend my congratulations to Pankaj. Best wishes in Industrial Solutions. Jim, could you please discuss the operating rates across the Dow portfolio in general? That seems to be one of the positive aspects of the quarter. If you could share your expectations for the Dow engine regarding operating rates in the second quarter and beyond.

Sure, happy to do that, Frank. I'd say globally, at a high level, we were at about 6%, which is up quarter-over-quarter. Higher demand obviously drove that, and lower energy costs in Europe were also a significant factor. The United States Gulf Coast, Argentina, and Canada have been operating at well over 80%, with some rates reaching as high as 90%. Europe experienced the largest individual increase, as I mentioned before, but all regions saw an improvement in rates. I’m optimistic that this trend is indicative of growing underlying demand. You might consider that around 10 percentage points up is a reasonable estimate for the overall global figure, with North America and Latin America continuing to perform strongly at high rates, while Europe contributes significantly to that increase.

Your next question comes from the line of Steve Byrne from Bank of America.

I wanted to ask a question about the hydrogen-fueled cracker you're building in Alberta. And then you also have the investments with the Mura pyrolysis feedstock. For those investments, how would you expect the unit costs of those downstream crackers to compare to, say, Texas-9 on a unit cost? And to drive the return on those projects, do you have sales agreements for the product at a premium price?

Steve, on the hydrogen-fueled cracker, we recover part of the higher unit costs there through the price on carbon. And the team is working on as well, trying to get the premium pricing for that offtake. And I would say our view on that is that it will be there. There's a strong demand for low-carbon emission products, ethylene-based materials. And so we're working on that right now. But the returns on that project are going to be equal to or greater than Texas-9 all in. And so when you take a look at it, we are very optimistic about where we're going to be with that project. And Texas-9 was one of the projects that obviously led us to be able to deliver the $12.4 billion in peak earnings in that 2021-2022 time frame. So I feel good about that. Again, remember, because of the scale and because of the fact that we get the hydrogen and methane as byproducts off the back of the cracker, the incremental cost is coming through the autothermal reformer, which, part of that is recovered through the price on carbon. And then we have long-term ITCs, investment tax credits, from Canada for that low carbon investment. Those two things will make it very competitive with Texas-9. On Mura, Mura will be focused on primarily on looking at the recycle demand, at which the supply for recycled polyethylene right now is much shorter than the demand. And so there are premiums in the market today for those materials. And the Mura process, in our view, is one of the more highly profitable ones because it uses the supercritical steam to change the product back into a monomer state. So we feel good about the start-up of that project.

Your next question comes from the line of Josh Spector from UBS.

I was wondering if you could share some thoughts on free cash flow for '24 since you kind of reiterated your expectations there on EBITDA. How do you see that tracking? And any update you can provide on any of the non-operating items that you thought could bridge free cash flow for this year as well?

Jeff, could you discuss your perspective on the free cash flow outlook for the year? I want to highlight that December marked the low point in terms of pricing, and we've observed improvements in January, February, and March. We transitioned from cash usage in the fourth quarter to cash usage in the first quarter. However, as we continue to improve and as earnings increase, we anticipate generating free cash flow from these higher earnings.

Yes. Well said, Jim. Josh, building on Jim's statement there, the other thing I would mention is that we've also started to see, as the volumes have been improving, we're seeing sales ramp up, and we saw the sales ramp up throughout the quarter. So our receivables are also ramping up as well from a working capital standpoint. We're also going into a heavy turnaround period as well, which we anticipated. So all of this is in line with our expectations and our projections, especially for the first half of the year in terms of the working capital uses of cash that we would expect and have. But as Jim mentioned, as we go into the second half of the year, we continue to see the volume growth and the volume ramp-up in sales leading to earnings growth that will get us into a really good position as we think about our cash flow on a full year basis. And we'll continue to have what we like to call unique to Dow cash levers. If you look over the past several years, we have had anywhere from $1 billion to almost $3 billion on an annual basis of cash levers that we've identified and executed on. And you can expect that to be very similar in 2024. As we work on our Nova judgment, which we've talked about in the past, we continue to evaluate a number of our non-product producing assets that we have across our portfolio as well. And we're going to continue to focus on structural working capital improvements that we can make while also looking at opportunities to get cash out of our joint ventures.

Your next question comes from the line of Mike Sison from Wells Fargo.

Nice quarter. Congratulations, Pankaj, again. Regarding second quarter volumes, will Hydrocarbons & Energy be a challenge once more? I'm also curious about the core volume growth for PSP. Lastly, could you explain why you anticipate an improvement in siloxanes for the second quarter compared to the first?

On Hydrocarbons & Energy, as we entered the first quarter, Bahía was affected by the storm, and we took advantage of the arbitrage to China to increase product movement. We chose not to distribute materials widely and concentrated on optimizing our operating rates. This sometimes resulted in lower byproduct sales from the crackers, particularly in Europe and North America. Consequently, there were fewer byproducts available for sale, and at times, we pushed the derivatives harder. Our volume on derivatives increased by 5% since the first quarter, as we were successfully processing ethylene through the derivatives to boost production, and I anticipate this trend will persist. While Hydrocarbons & Energy might show slightly decreased volumes, I believe margins on those volumes will improve. The team is diligently working to achieve growth in volumes. We had an excellent first quarter, and we see strong volumes as we head into the second quarter, along with elevated integrated margins. Prices in China have risen, and there is strong demand for downstream products, particularly in areas like electronics, automotive, hybrids, and electric vehicles, as well as in data centers and thermal management for silicones. However, the construction sector is a bit sluggish. In China, we are seeing higher operating rates and better siloxane pricing, and personal care markets are starting to show positive growth. Therefore, before significant improvements in building and construction, other sectors are already beginning to recover.

Your next question comes from the line of Jeff Zekauskas from JPMorgan.

In your Industrial Intermediates & Infrastructure forecast, you have sales going up sequentially 1% or 2% and you've got your EBITDA flat sequentially. And normally, there's seasonal strength in the various construction markets. Why is your forecast so conservative? And then secondly for Jeff, how many shares will be issued? Or what's the amount of options and shares issued that will affect the share count in 2024?

I believe the main reason for the difference between the first and second quarter in Industrial Intermediates & Infrastructure is the Glycol 2 situation in Plaquemine. We had some insurance recoveries in the first quarter that won't happen in the second quarter, creating a perceived headwind. However, the underlying business and demand are solid. In Polyurethanes and Construction Chemicals, we have noticed an increase in Europe and in operating rates. Sadara is taking on more marketing of some materials, resulting in slightly reduced volume through Sadara compared to Dow's marketing of Sadara's offtake. Nevertheless, we still see a slight improvement in construction and a better cost position in Europe, positively impacting operating rates, with the insurance difference being the primary factor.

Jeff, in terms of the issuances for the full year, and this then captures options, deferred stock, 401(k) plan, as well as Dow employee stock purchase plans. We're looking at approximately 11 million shares on a full year basis.

Your next question comes from the line of Kevin McCarthy from Vertical Research Partners.

Jim, I'd like to ask you about your thoughts on the likely pace of capacity rationalization across the global ethylene chain. You mentioned the cash negative margins in China today. Obviously, we've seen some of your competitors announce rationalizations in Europe in recent weeks. So my question would be, relative to prior cycles, do you think we're likely to see more supply come out of the equation this cycle, based on a combination of the current energy regime in Europe and obviously a powerful drive to decarbonize?

Kevin, it's always challenging to predict the exact pace of developments. However, we've been experiencing ongoing pressure on high-cost assets, particularly from a cash cost perspective. Typically, at this stage, one would expect to see some asset retirements. When evaluating assets likely to be retired, we need to consider their age. Generally, older assets tend to have higher unit costs and increased maintenance expenses, leading to questions about investing significant maintenance funds into these assets. Additionally, depending on the circumstances, emissions and CO2 costs, especially in Europe where there are financial implications for CO2, require long-term decision-making. That's why Europe has been proactive in this area, with various policies driving up costs across multiple sectors, including petrochemicals and steel, as well as other energy-intensive industries. We've been relatively fortunate in Europe due to our ability to crack LPGs, which has been beneficial for us. In China, the assets tend to be newer, and many are state-owned, which may lead to a slower pace of change compared to Europe. We must remain vigilant about the situation. No one wants to operate while incurring significant cash losses, which we are seeing between $100 and $200 a ton. This is a tough situation, and I believe we'll continue to witness changes.

Your next question comes from the line of Laurence Alexander from Jefferies.

This is Kevin Estok on for Laurence. Just to touch back on silicone trends. I was just wondering if you guys have seen any visibility into restocking in Europe and whether you've seen maybe any green shoots in construction globally.

No, I haven't seen significant signs of restocking in Europe. Regarding construction trends, we are beginning to notice some positive developments. Although year-over-year existing home sales are down, we're seeing slight improvements, and building permits are starting to increase, which is encouraging. There is definitely a demand for new homes in North America, and we expect that demand to rise. The team has noted that when interest rates decline consecutively, there's typically an immediate increase in downstream demand for products in our polyurethanes, silicones, and coatings businesses. We're monitoring this closely. I believe the underlying demand is driven by markets like electronics, data centers, automotive, and areas related to energy and thermal management, all of which have been strong. Personal care is also performing well, and a significant portion feeds into infrastructure, which remains solid. Once we see an uptick in housing, I anticipate we'll witness another significant shift.

Your next question comes from the line of Duffy Fischer from Goldman Sachs.

I have a question regarding your coatings and monomers business. You reported an increase in volumes, but many of your major customers, such as PPG and Sherwin, have reported declines in revenue in Q1. What is your perspective on the current state of the coatings market this year? Do you believe you overshipped in Q1 relative to the expected demand for paints this year? Additionally, how do you anticipate pricing will trend in that sector for your company?

I don't believe there is any overshipping or stocking happening. Some customers are more involved in the contractor business, which is largely influenced by new homes and construction. There's also the DIY segment that significantly affects us, especially when it comes to painting existing homes or during the sale of those homes. This segment tends to support our performance. We had a strong fourth quarter and experienced some turnaround activity in the first quarter, still achieving decent numbers. Therefore, we are well-positioned for the peak season in the second and third quarters. Additionally, demand for monomers can occasionally provide a positive impact as well, and it's not solely dependent on downstream coatings; monomers utilized in other markets can also be beneficial.

Your next question comes from the line of John Roberts from Mizuho.

And congrats as well to both Pankaj and Andrew on the new roles. Jim, there were some reports about European warehouses and ports being jammed again with your customers' products. Do you think there's supply chain inventory building again downstream in Europe?

Any particular products, John, that you're thinking of?

Just the economic magazines are talking about because of the Red Sea issues, just a lot of safety stock, I guess, being built up again across some supply chains.

I haven't noticed any issues with plastics specifically. I'm unsure if we've encountered it with polyurethanes or construction chemicals. Our inventory levels are low, sitting at 41 days of sales, which is an improvement from the fourth quarter. We're not experiencing any problems on our end, and our focus in Europe is primarily on the domestic market rather than relying on it as an export hub, which I think benefits us. The situation in the Red Sea is likely to remain the same for the rest of the year. Even if everything were resolved today, it would probably take around six months for shipping routes to normalize. We'll need to monitor the situation, but so far it hasn't affected us, and we aren't exporting from that region. We still anticipate strong operating rates in the second quarter.

Your next question comes from the line of Patrick Cunningham from Citigroup.

You called increased demand in functional polymers for the first time in a few quarters. Can you speak to some of the specific areas of strength or products for which you're seeing increased demand? And you've also called it out as the source of some higher return, high EBITDA contribution, incremental growth projects. How meaningful is that benefit in 2024?

Functional Polymers will mainly be driven by infrastructure markets. Wire and cable, automotive, and golf balls are significant contributors. Footwear sales have improved, making these areas very strong. The demand for power, particularly in electric sectors, is notable, especially with the rise of AI and data centers. Additionally, the energy transition, electric grids, and new installations, whether they are wind, offshore wind, solar farms, or telecom and data centers, require our products. We are the market leader in wire and cable jacketing, which remains a strong segment. We expect year-over-year growth in footwear, which was somewhat slow last year. Infrastructure also includes items like membranes for water treatment basins and roofing replacements. We contribute significantly to cool roofing, enhancing building efficiency with light-colored roofs. We work closely with our customers to produce and install these materials, and there's sustained high demand in commercial building and energy efficiency retrofits. I should also highlight that we secured a significant new business in solar PV encapsulation, where we supply durable outer layers to protect solar panels. This area has gained traction over the past couple of years, contributing to our growth.

Your next question comes from the line of Chris Parkinson from Wolfe Research.

So Jim, there's been a lot of back and forth in the buy and the sell side communities about the $0.03 increase for April and then obviously some preliminary ideas for May. Just, where we stand right here, right now, given the U.S. macro, given where you anticipate USGC operating rates to be on a sequential basis, what's Dow's view of this? We all know what the consensus view is but what's your view in terms of how things play out during the second quarter and how that ultimately sets the tone for the second half?

We're moving up in the second quarter. I would say it almost moved up that $0.03 at the end of the first quarter. And the numbers have continued. The macroeconomic indicators have continued to get stronger, not weaker. So I think with the volume that we're seeing on the downstream derivatives with improved economic business and the consumer still being strong, I think you're going to see it move up in the second quarter. So I think we're very firm on the $0.03 increase in April. And as I mentioned, we started at the low point at the end of December and we just saw steady improvement through the first quarter. And so I think we're off to start the second quarter at a much higher rate and see some momentum as we move through that quarter.

Your next question comes from the line of Mike Leithead from Barclays.

I wanted to ask a follow-up to an earlier question on cash flow, maybe for Jeff. I guess, if you hit your EBITDA targets for this year, are you forecasting working capital to be a use of cash or a source of cash this year and to roughly what magnitude?

Mike, yes, we are actually looking at it still being a use of cash on a full year basis as we work our way through, again, the recovery for a number of the dynamics that I mentioned earlier in relation to Josh's question here. But again, as we see the earnings improve based on the volume improvements that we're anticipating, we will start to turn that corner. But coming from where we're coming from on our working capital today, it will be a use of cash on a full year basis.

Your next question comes from Aleksey Yefremov from KeyBanc Capital Markets.

I want to come back to silicones. Was the improvement that you saw more on the upstream silicone side or downstream? And as a follow-up, where are your downstream silicones margins relative to your mid-cycle expectations? And therefore, what's the sort of optionality for downstream silicones improvement?

Aleksey, it's from both. We saw better demand on siloxanes and better pricing, and we saw better downstream. We saw improvements in building and infrastructure, which were primarily seasonality driven. We saw gains in personal care. We saw gains in industrial and chemical processing, where some of the products are used as intermediates. We saw gains in mobility, and we saw gains in consumer electronics. So all the downstream markets were up. The siloxanes demand was up. The operating rates were up. The pricing on siloxanes was up. So it was pretty balanced on both sides.

Your next question comes from the line of Arun Viswanathan from RBC Capital Markets.

I hope everyone is doing well. Pankaj, it's great to work with you. My question is about your current run rate, which seems to be between $6.3 and $6.5 billion in annual EBITDA. Do you believe the mid-cycle level is around $8 billion? If so, how do you plan to move from $6.5 billion to $8 billion? Are there specific items related to capacity additions that you would highlight, or will this increase primarily be driven by volume recovery?

Yes, I believe you're accurate about the run rate. I don't have any additional comments on that. In terms of mid-cycle, our estimate is closer to $9 billion. To reach that mid-cycle run rate, we will need a couple more step-ups. Volume plays a significant role in this. As I mentioned, the projects discussed on the call account for $800 million of the step-up, and the ongoing initiatives represent another $1.2 billion of step-up. The total of $2 billion in improved margins is entirely volume-driven. Most of the capital expenditures either have been completed or will be finished this year and at the beginning of next year, which makes me optimistic. The Path2Zero project in Alberta will come later, contributing an additional $1 billion as we approach the next peak, which is anticipated between 2027 and 2029. Phase 1 is scheduled for 2027, with Phase 2 following in 2029. If our timing is accurate, we aim to have this operational before reaching the next peak. I see a clear path to the volume we can achieve leading up to mid-cycle. At our Investor Day on May 16, we'll detail that volume and trajectory. We're also focused on achieving greater than $3 billion by 2030, which aligns with next peak economic conditions. Given our current position, that's a strong growth rate for both cases, and I feel we have weathered the worst of the slowdown in the cycle. There should be more upside than downside moving forward.

That concludes our question-and-answer session. I will now turn the conference back over to Pankaj Gupta for closing remarks.

Thank you, Christa and thanks, everyone, for joining our call and we appreciate your interest in Dow. For your reference, a copy of our transcript will be posted on Dow's website within 48 hours. This concludes our call. Thanks once again.

This concludes today's conference call. Thank you for your participation and you may now disconnect.