Thank you for standing by. My name is Krista and I will be your conference operator today. At this time, I would like to welcome everyone to the Dow Inc. 2024 Earnings Report. All lines have been placed on mute to prevent any background noise. After the speakers remarks, there will be a question-and-answer session. Thank you. I will now like to turn the conference over to Andrew Riker. Andrew, the floor is yours.

Good morning. Thank you for joining today. The accompanying slides are provided through this webcast and posted on our website. I am Andrew Riker, Dow's Investor Relations Vice President. Leading today's call are Jim Fitterling, Dow's Chair and Chief Executive Officer, and Jeff Tate, Chief Financial Officer. 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 risk and uncertainties. I must otherwise specify that all financials where applicable exclude significant items. We will also refer to non-GAAP measures. The 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 two is our agenda for today's call. Jim will review our second quarter results and operating segment performance. Jeff will then share an update on the macroeconomic environment and modeling guidance, followed by a discussion on how our proven playbook will advance our near-term priorities and support growth. Jim will then provide more color on key milestones for our long-term strategy, including how we will capture earnings upside as macroeconomic conditions improve. Following that, we will take your questions. Now, let me turn the call over to Jim.

Thank you, Andrew. Beginning on slide three, in the second quarter, team Dow delivered sequential top and bottom line growth, as well as the third consecutive quarter of year-over-year volume growth. We achieved this despite a slower-than-expected global macroeconomic recovery, particularly in areas like building and construction and consumer durables. Net sales were $10.9 billion, down 4% versus the year ago period and up 1% sequentially, driven by gains in packaging and specialty plastics and performance materials and coatings. Volume increased 1% versus the year ago period with gains led by the United States and Canada. Excluding hydrocarbons and energy sales, which were down primarily due to lighter feed slate cracking in Europe, volume increased 4%. Sequentially, volume increased 1% with gains in all regions except Asia Pacific, which was flat. Local price decreased 4% year-over-year. Sequentially, local price increased 1% led by gains in Europe, the Middle East, Africa, and India or EMEA. Operating EBIT was $819 million, up $145 million sequentially, reflecting gains in packaging and specialty plastics and performance materials and coatings. Cash flow from operations was $832 million on higher earnings and an efficient release of working capital, resulting in an 85% cash flow conversion on a trailing 12-month basis. Our focus on cash flow generation enabled $691 million in returns to shareholders, including $491 million through dividends and $200 million in share repurchases. In June, we published our 2023 Intersections Progress Report. This report showcases the positive impact that we are making on the environment and society and importantly, how those actions support long-term profitable growth. Now turning to our operating segment performance on slide four. In the packaging and specialty plastic segment, operating EBIT was $703 million, down $215 million year-over-year; this was driven by lower integrated margins, higher planned maintenance activity, and lower non-recurring licensing sales. Local price declines were due to lower downstream polymer prices, primarily in Asia Pacific. Volume decreased year-over-year as higher demand for functional polymers and polyethylene was more than offset by lower merchant hydrocarbon sales, primarily due to lighter feed slate cracking in Europe. Sequentially, operating EBIT increased by $98 million, primarily due to higher integrated margins behind both price and volume gain. Moving to the Industrial Intermediates & Infrastructure segment, operating EBIT was $7 million, an improvement of $42 million versus the year-ago period. Results were driven by improved equity earnings, partly offset by lower integrated margins. Local price declined year-over-year, but volume was up, driven by gains in polyurethane and construction chemicals. Sequentially, operating EBIT decreased $80 million, driven by higher planned maintenance activity and higher equity losses, as well as lower volumes. And in the performance materials and coating segment, operating EBIT was $146 million, up $80 million, compared to the year-ago period, driven by broad-based business and geographic volume growth. Local price declined year-over-year, but volume was up, driven by gains in both businesses and all geographic regions. Sequentially, operating EBIT increased to $105 million, driven by volume and price gains in both businesses and lower planned maintenance activity. Now I'll turn it over to Jeff to review our outlook and share some examples of our playbook in action.

Thank you, Jim. And good morning to everyone joining our call today. Moving to slide five, in the near-term, we expect macro-dynamics to remain largely unchanged. While global manufacturing PMI has been positive since February 2024, the pace of the global economic recovery has decelerated slightly. This is primarily led by China, where economic growth in the second quarter was lower than the market expected. Overall, we continue to keep a close eye on the weight of inflation on U.S. consumers, global interest rates, and geopolitical tensions. Looking across our four market verticals, packaging demand is seeing global growth, primarily in the U.S. and Canada as the industry experiences robust domestic and export demand for polyethylene. In Europe, soft demand across the value chain is reflected in manufacturing PMI levels, which, despite stabilizing, remain in contractionary territory. And in Asia, packaging demand has remained steady, but the reason has been impacted by poor congestion and rising transportation costs. Infrastructure demand, primarily residential construction, continues to be soft across most regions. In June, existing U.S. home sales, which tend to drive residential paint sales for both buyers and sellers, were below prior year levels. And building permits were down slightly year-to-date through June. Eurozone construction PMI remains in contractionary territory and declined to 41.8 last month, down from 42.9 in May. And in China, new home prices were down 4.5% year-over-year in June. Consumer spending has shown resilience in most regions except Europe, where consumer confidence remained negative in July. In the U.S., retail sales are up 2.3% year-to-date through June, but furniture and bedding sales remain low. In China, retail sales increased by 2% year-over-year in June, but marked the first month of deceleration since July 2023. And in mobility, China auto production was down 2.1% year-over-year in June amidst the potential for tariff increases and flow to materialized incentives. In the U.S., auto sales were down year-over-year in June after increasing by more than 2% in May. Against this backdrop, we delivered the third consecutive quarter of year-over-year volume growth and will continue to leverage our differentiated portfolio to capitalize on areas of demand strength while maintaining operating and financial discipline. And I'll touch on these actions in more detail shortly. Now turning to our outlook on slide six. We expect third quarter earnings to be slightly above second quarter performance, continuing our string of sequential improvement. We experienced minimal disruption from Hurricane Berly in the U.S. Gulf Coast, and we expect the positive sequential signals in some markets will continue. In the packaging, especially plastic segment, we expect modest top line sequential growth. Domestic and export demand for polyethylene in North America will remain robust while EMEA will experience typical lower demand seasonality from the summer holidays. In addition, the completion of our cracker turnaround in Texas in the second quarter will be offset by another planned turnaround at our St. Charles, Louisiana cracker in the third quarter. In the industrial, intermediates, and infrastructure segment, market conditions remain mixed. Demand in energy and pharma end markets remains resilient, but consumer durable demand has not shown any significant signs of inflection. We expect an approximately $25 million headwind due to the planned maintenance activity in the U.S. Gulf Coast. Importantly, at the end of June, we successfully started up our glycol 2 facility at Louisiana operations, which will ramp through the quarter and provide a sequential tailwind of $75 million. In the performance materials and coating segment, we continue to see growth in downstream silicone applications across most end markets, but the siloxane prices are still under pressure. Lower seasonal demand for building and construction end markets are expected to be a headwind of approximately $50 million while lower planned maintenance activity will contribute a $25 million tailwind. Moving to slide seven. As we navigate the current market conditions, we are focused on executing our proven playbook to deliver increased value over the cycle. We benefit from our global asset footprint with leading positions in every region. This is particularly true in the cost-advantaged Americas, where approximately 65% of our global production capacity is located, and we expect to reach 70% by 2030. With leading low-cost feedstock positions, trust our industry-leading feedstock flexibility, Dow is well positioned to capture growing global demand for our products. And supported by our solid financial position, we remain on track to deliver our countercyclical growth investments.

Thank you, Jeff. Moving to slide eight, our expectations for 2024 reflect a slower pace of recovery in certain end markets. Dow is positioned to capture more than $3 billion in EBITDA upside as we return to mid-cycle earnings levels. We are encouraged by the positive top line signals across our portfolio. This is demonstrated by our year-over-year volume improvement in the last three quarters, as well as price stabilization across the entire enterprise over that same period. In packaging especially plastics, we anticipate supply demand fundamentals to continue improving as the recent polyethylene capacity builds in North America have been fully absorbed by growing global demand. We're also starting to see rationalization of higher cost assets, particularly in Europe. And going forward, we do not expect to see any new capacity in the cost-advantaged Americas until the 2026, 2027 timeframe. In industrial intermediates & infrastructure, we've maintained a disciplined approach to our inventory management. The beginning of an interest rate cutting cycle will accelerate demand in our polyurethanes business. In industrial solutions, the majority of our U.S. Gulf Coast capacity is aligned to higher value EO derivatives. With the successful restart of our glycol-2 facility in Louisiana, we will see a positive impact in consumer, mobility, pharma, and energy markets. And in performance materials and coatings, industry siloxane capacity additions are expected to slow due to prolonged negative cash margins impacting non-integrated players. And lastly, our coatings business is highly correlated to existing home sales with market demand forecasted to see pre-pandemic levels by next year. With these positive indicators combined with an economic recovery, Dow is positioned to capture significant annual earnings upside at mid-cycle levels. Next on slide nine, the work we've done to strengthen our financial foundation has allowed us to invest countercyclically in lower risk, higher return projects that will drive more than $3 billion in annual earnings growth by 2030. Our near-term investments are progressing and remain on track to deliver more than $2 billion of underlying mid-cycle EBITDA by mid-decade. To date, we've added the capacity to deliver $800 million of that $2 billion. So far this year, we've enhanced our product mix to produce higher value elastomers for photovoltaic films and ethylene copolymers that are site in Tarragona, Spain. We're also advancing multiple downstream silicones debottlenecking projects to support growth for liquid silicone rubber and adhesives. Our team in Fort Saskatchewan is making solid progress on our Path to Zero project. Phase 1 startup is expected in 2027, and Phase 2 will start up in 2029. The project will deliver an additional $1 billion of EBITDA annually at full run rates by 2030. Construction continued in the second quarter where we started our piling program, which will anchor the foundation of our new net zero cracker. Major foundation work is expected to begin in the third quarter. We're also advancing our transform the waste strategy to deliver more than $500 million in incremental underlying EBITDA by 2030 through partnerships and direct investments. In June, we announced that Dow signed an agreement to acquire Circulus, a leading U.S.-based mechanical recycler. This will help us accelerate our goals while enabling more high-performance circular products that brands and customers are demanding. We expect a deal which includes two facilities with combined capacity of 50,000 metric tons of recycled materials annually to close in the third quarter. Consistent with our best owner mindset, we also announced in the second quarter that we reached an agreement with Arkema to sell our laminating adhesive business, which is part of the packaging and specialty plastics portfolio. That transaction is expected to close by the fourth quarter of 2024. And lastly, in the second half of the year, we're planning to commercialize products with greater circularity using offtake from both the Valoregen mechanical and Mura advanced recycling facilities. In closing, on slide 10, Dow remains focused on driving earnings growth by executing our playbook, delivering on our capital allocation priorities, and closely managing costs as we advance our long-term strategy. We're committed to operational and financial discipline. We've delivered returns in past generations better than our peer benchmark and we will maintain our low-cost to serve mindset while capturing high-value demand and optimizing margins. Our financial flexibility allows us to invest countercyclically in higher value areas that will raise our underlying earnings and drive circularity. With all of this, Dow is well positioned to create significant upside in top and bottom line growth as cycle dynamics improve and we unlock the full benefit of these investments enabling higher shareholder returns. With that, I'll turn it back to Andrew to 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 instruction.

Thank you. We will now begin the question-and-answer session. Your first question comes from Hassan Ahmed with Alembic Global. Please go ahead.

Good morning, Jim and Jeff. Just a question around Q3 sequential guidance. Particularly as I sort of take a look at some of the commentary around ENSD, it seems that you guys are looking for relatively flat EBITDA sequentially. Obviously, I understand you guys have the St. Charles cracker sort of planned maintenance, but I'm just trying to get a better sense of what's baked into that guidance from an underlying fundamentals perspective. Meaning, obviously, you guys, the industry has North American Q3 price hikes on the table. It seems inventory levels are down. It seems exports have been sort of steadily picking up. So just if you could give me a sense of beyond your planned maintenance what you guys have baked into those fundamentals for the Q3 guidance?

Good morning, and I'm happy to address that. You know, as we look at the outlook for PNSD end of the third quarter, I do expect some margin improvement there. You've got a combination of actual numbers there, and the direction is correct. We do expect, and we have in the plan, that we expect ethane to be up a bit. What I do expect will be one of the reasons that gas and methane is so low is because you have free flow down through Hurricane Beryl, and that backs up volume here at the Gulf Coast. That's going to reverse itself, but I think when that happens, our expectation is, you'll see some ethane pricing move up. In Europe, we have still positive spreads, but it's a little bit less than what it was in the second quarter, but it's still very advantageous for us to crack propane. I mentioned cracking white in the quarter, which led to fewer byproduct sales for cracker byproducts in Europe. But the derivative demand is good. If you look at derivative volumes, across the board they've been up. Asia was a little bit low in the second quarter, mainly because Asia was pushing a lot of export volumes out, especially in China, to get ahead of some tariff barriers. And that kind of caused some congestion over there. I think that's working itself out, and I think we'll see continued strong export environment out of the U.S. Gulf Coast. As you mentioned, inventories are low right now. Inventories are right in line with where they've been historically and exports are very strong. So I do think the environment is there for pricing to take hold in the third quarter. I expect the derivative volumes to be strong. We've got advantageous cost positions and operating rates are strong for us. So I think net-net turnarounds won't be any more than they were in the second quarter. I think you'll see some slight improvement in third quarter.

Your next question comes from the line of Vincent Andrews with Morgan Stanley. Please go ahead.

Thank you and good morning everyone. Jim, we'd love to get your sort of high level thoughts on two things that might have opposite reactions. One, it does seem like we're finally going to get into a period where interest rates are going to come down, which I would expect to be broadly positive for your business, particularly your exposure to building and construction. But politically, we may be also re-entering a period geopolitically with tariffs and duties and things like that. So I'm wondering if you can compare and contrast, you know, sort of what the impact of both of those dynamics could be for Dow as we look into 2025?

Good morning, Vince, I'm happy to do that. On interest rates, we had expected that by this time, we'd probably have seen two or three interest rate cuts in the year; we haven't seen the first one yet. I do think the expectation is coming. If you look at the housing market, I think you're seeing the weight right now of the high interest rates on housing and new builds. And part of it's because people are unable to qualify for mortgages at these higher rates. So I think when we start to see mortgage rates get into the fives, we're going to see a couple of things happen. We're going to see people who have financed mortgages at these higher rates of 7% or higher will get some advantage to refinance. We're going to see people who've been sitting on the sidelines with properties they want to sell move into start to sell them, because people can get qualified for mortgages. And you've got to start to see building credits increase. In polyurethanes and construction chemicals, when that starts to happen, you get a domino effect. You get both existing homes there and new builds starting to become built. That drives volume, and then, of course, anywhere you have that, you've got appliances and all the other things that go along with it. And so that tends to wrap it up pretty quickly. We haven't seen that yet. Obviously, teams are managing it closely, but we haven't seen that tick up. On the geopolitics side, yes, I think on both sides, on the political spectrum, you're expecting a more percussive tone that we're hearing coming out from both sides. I would say that the big driver behind that is the subsidies and products being flooded into other markets. It's hard to see anti-dumping cases being brought against China around the world in different areas. And so I think you are going to see activities that will try to halt some of that from happening in concert with trying to bring the manufacturing back. Today, most of the manufacturing is going to go into Mexico. We haven't had time to see the impact from semiconductors and other things being invested; that will take a few years to get to the market. But I think we're going to see increased rates on a whole host of things, most of which will be in the 25% to 50% range. So we're prepared for whatever case we get, depending on the outcome of the election. And as always, we just have to get on there and make sure both sides understand the supply chains, how products flow, and what's important to keep industry moving, not just here, but in Europe and around the world.

Your next question comes from the line of Steve Byrne with Bank of America. Please go ahead.

Thank you. Jim, if you could adjust your audio, that would be helpful as we're having difficulty hearing you. I have a couple of questions regarding slide nine. For your Fort Saskatchewan project, is the $1 billion EBITDA per pound comparable to the mid-cycle expectations for your existing assets in terms of polyethylene, or is this an expansion? Do you have customer commitments that support your confidence in this profitability? Additionally, regarding the 3 million tons of transformed waste, the incremental EBITDA per pound likely varies significantly based on the type of product, especially since a competitor targeting a similar goal has an incremental EBITDA per pound that is three times higher. I assume this might be related to the ratio of mechanical processing to paralysis-driven methods. Can you comment on where you foresee the most profitable opportunities in your circular plastic platform?

Yes. Thank you, Steve. On Fort Saskatchewan generally, it's pretty similar to what we see today. As I mentioned before, I think the upside there is the ability to get the additional value out of the circular economy, and it's targeting high quality outputs. Those policies and deliverables focus on how you obtain better data and how you deliver the service with better knowledge. In circularity, we believe a combination of mechanical processes will give us the best results. We anticipate that two-thirds of our volume will be the best in that sector, primarily because we're working to get the high quality we need to meet those margins. You have to integrate those processes. On the technical side, the circular investment is a great position. We're focused on trying to move up the yield of technology, and typically we're not looking at making big investments in that market, but I think our ability to improve our capacity allows us to achieve the margins we need to deliver about $500 million more by 2030. So it's going to be different across markets, but it's all going to be driven by the quality of the material produced from those assets. Certainly, the demand is there, and it is in supply, but we need high quality products.

Your next question comes from the line of David Begleiter with Deutsche Bank. Please go ahead.

Thank you. Good morning. Jim, you're run rating at roughly $6 billion at EBITDA. Consensus for next year is $7.3 billion. How much of that earnings ramp is in Dow's control?

David, the biggest will be what we see in terms of the durable goods market and the housing market coming back. Plastics right now, PNSP, silicones, and coatings. I think we have a pretty good line of sight and with Glycol-2 coming back in I-9, we feel good about that. The real question mark will be how quickly do the polyurethanes come back, and that's going to be driven by what happens with interest rates and what happens with housing and construction. That's not just here; that's Europe and Asia as well.

Your next question comes from the line of Jeff Zekauskas with JPMorgan. Please go ahead.

Thank you very much. I have a couple of questions for Jeff. Your corporate expense was $30 million this quarter, compared to $60 million a year ago, and you forecast $60 million for the third quarter versus $40 million in the same period last year. Why is there such a significant increase? Why doesn't it remain at the $30 million level? Additionally, you've been repurchasing shares, but their price has been quite stable since going public. What criteria will you use to evaluate whether share repurchases are a sensible use of capital for Dow? How will you assess that?

Yes, good morning, Jeff. Appreciate the questions here. Starting on the corporate side. When we look at the second quarter, you're right, it was slightly lower, more favorable than what we traditionally had. I would say, as you're thinking about the second half of the year, you can expect it to be in the range of $60 million to $65 million. What we had in the second quarter was we had actually some gains from our insurance operations as well as some lower environmental cost accruals. So when you think about the second half of the year, you can expect it to be in that $60 million to $65 million range. In relation to share repurchases, you're right, we have continued to trend to cover dilution, and that's one of the things from a capital allocation perspective that we've been consistent with. And as we think about the CapEx ramp-up that we have and our commitment to deliver overall 65% more back to our shareholders, we're going to stay consistent with that at this point because of the cash flow expectations as well as our ability to manage all of those capital allocation priorities. But we will look at from a criteria perspective, what will give us the greatest return over that time period in comparison to the commitments that we have for our capital allocation prioritization.

Your next question comes from the line of Mike Sison with Wells Fargo. Please go ahead.

Hey, good morning. In the first half, your free cash flow didn't generate a lot. Could you give us a feel of how much free cash flow you generate in the second half and maybe for the full-year?

Jeff, do you want to take that?

Yes. Good morning, Mike, thanks for the question. From our perspective, first of all, when you look at the second quarter, we saw some really positive side, where we delivered over $800 million in cash from operations. Our conversion rate was at 55%, and our free cash flow was a positive $109 million. All of those are sequential improvements over what we delivered in the first quarter. So we're really trending well. As we think about the full year, Mike, one of the things that we would expect is from a working capital standpoint, you can expect the use of cash anywhere from the $600 million to $800 million range. You've seen in our slide deck here, we got some guidance on some of the other key levers related to full year cash flow. But one of the areas where we're pleased about is our ability and the joint ventures to be able to get greater dividends out of debt, which we're focused on moving forward as well as our liquidity right now. We're in a really good position. We've got well over $3 billion of cash and cash equivalents and total liquidity of $13 billion. And right now, we don't have any debt maturities of substantive levels until 2027. And the other thing I'd also like to remind you is that over the past several years, DOW has done a solid job of being able to deliver what we like to call unique-to-Dow cash levers of anywhere from $1 billion to $3 billion. And our expectation is that we'll deliver at least $1.5 billion of those levers here in 2024.

Your next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please go ahead.

Yes, thank you, and good morning. Can you comment, as you look across your portfolio on the monthly cadence in June, as well as your order books in July? Were there any businesses that stood out varied versus your prior expectations through that period? And on a related note, can you comment on the Beryl hurricane impact in the third quarter and whether you're expecting that to have a net positive or negative or neutral impact on the quarter? Thank you.

Yes. Good morning, Kevin, we've seen pretty solid order books at the beginning of every month. I would say as we finished the second quarter, you'd see some softness towards the end of the month. July order book looks pretty solid as we move forward. Hurricane Beryl, we ran most of Freeport through the hurricane; all the power plants and all the crackers ran through. We obviously had damage to electrical lines and cooling towers and things. But within a week, we were back up. So I expect that it's not going to have a significant impact on volumes. There will be some cost impact to it. We’re insured for it. But there's a deductible. And I don't remember how much that is, Jeff.

$50 million.

Beryl’s Freeport is back up and running. And I'd say that we've gotten most of the issues identified, and we're fortunate with no impact to our employees or people other than the normal things that impact their homes, but we jump in and help them out so that they're able to focus on what they need to do.

Your next question comes from the line of John McNulty with BMO Capital Markets. Please go ahead.

Yes, thanks for taking my question. Maybe just a follow-up on Beryl. It didn't hit the way some of the major hurricanes necessarily take down lots of capacity for long periods, but it does look like a lot of assets were taken down, including your own for at least a week or so. Can you speak to what that did to the market for you in terms of inventory levels and how you're thinking about what that might mean for pricing in the next couple of months or so?

Yes. Good question, John. I think it's starting to have some impact on the market, as it happened early in the hurricane cycle. Early August or early July is typically not when we would see the first hurricanes come through. We tend to see them more in the August timeframe. And so I think what you're seeing is that it's firming up the sentiment that there will be price increase moves. I think what you're going to see in terms of impacts are going to be different grade by grade depending on what derivatives are down and what grades are going to become a little bit tighter. And then you've got some planned downtime happening in the third quarter as well. So you've got some plan outages. I'm saying we're back up and running hard trying to catch up to those volumes and get customers stocked back up at this point. And there is a bit of concern starting to come through the market from customers about being ready for the next impact. Hats off to our team for moving product out in railcars and other areas ahead of it. So we were able to get things positioned to respond so that we could keep product moving to customers.

Your next question comes from the line of Josh Spector with UBS. Please go ahead.

Yes, hi. Good morning. I was wondering if you could give some early thoughts on fourth quarter. So a couple of quarters ago, you thought that there'd be some maybe unseasonal improvement as volumes improve. As we sit today, would you think about a normal seasonal in fourth quarter, call it, down $100 million, $200 million in EBITDA sequentially? Or are there other factors you could call out that would buck that trend? Thank you.

I think plastics is going to continue to see solid volumes and we've got cost advantage. So I think you're going to continue to see plastics deliver through the fourth quarter. Silicones are positive. You could see the impact on volumes in the derivatives part. Because we're fully integrated, we have an advantage there. So silicones, I would think, are going to hold up well. II&I's condition is going to improve because we've got Glycol-2 back. We expect that to ramp to closer to $100 million by the first quarter. And coatings had a really solid second quarter. Even though I talked earlier about housing and some of the issues in housing, our volumes were very solid there. I think what's working in housing right now are obviously higher value homes, and some of the big homebuilders are actually delivering pretty good numbers. That tends to go through the contractor side of the business. So I think in those businesses, I would expect continued strength. Polyurethanes and construction chemicals are improving. You saw that even with some limitations that we had to turnaround downtime in the quarter. You saw volumes improving. Inventories are well under control. So I think if there are interest rate cuts that happen, you're going to see some positive impact there. And then it will be a question of how much of that will flow to the bottom line.

Your next question comes from the line of Frank Mitsch with Fermium Research. Please go ahead.

Thank you, good morning. I believe the first answer that you gave concerned polyethylene, and that came through fairly garbled. So I was just wondering, Jim, since you were very accurate in forecasting the April price increase. Obviously, June didn't go through, but I'm curious as to what your thoughts are with respect to July and the third quarter in general in terms of polyethylene pricing and margins? And then also on the Glycol-2 restart, there was an expectation that it would add about $100 million in the third quarter and $100 million in the fourth quarter. You're indicating today that it's $75 million in the third quarter, which makes sense as it ramps up; would you anticipate that $100 million coming through in the fourth quarter?

Yes, good morning, Frank. On pricing, we've got prices out around the world everywhere except Argentina for July and August in North America. We're seeing price increases in the market. That is going to stick in the quarter. So those prices are going to come through. Now the question is how much of all that comes through? I think what we put into the estimate is that we're going to see $0.02 per pound margin improvement. So net of price. And as I mentioned, I think ethane costs will come up through the quarter. I think it will come up $0.01 or $0.02 through the quarter, if you look quarter-over-quarter. So I think net of that ethane cost increase, you're going to see a $0.02 per pound margin increase in North America. I'd say volume on derivatives around the world supports that, and inventory levels support that. And I think there's the outside things that we can't predict, like will we have more hurricane activity, but inventories in the chain are low. So I would expect that it's going to go through. When it comes to Glycol, the startup was smooth and as expected. Obviously, we've got to get through the product mix, and we’ve got to get some safety stocks built back up, and that's part of the ramp-up that happens from $75 million to $90 million to $100 million. Could it ramp up more than 90% in the fourth quarter? I guess it could. I mean, usually, year-end, there's a little bit of seasonal slowness. So our expectation is it would probably ramp more into the first quarter.

Your next question comes from the line of Laurence Alexander with Jefferies. Please go ahead.

Good morning. I just wanted to follow-up on your discussion around potential tariff structures and how they might evolve. How do you think the response function in the industry with your customers has shifted that is if there is movement towards new tariffs, how significant a restock cycle do you see that triggering in advance?

I don't think there's been any movement yet regarding stocking up in anticipation of tariffs, mainly due to the uncertainty surrounding the election and potential policies. Additionally, it seems that China is uncertain about its own economic incentives until it has more clarity on the U.S. presidential election outcome. We're engaging in scenario planning to assess the potential impact. There are indeed antidumping activities occurring globally because of the challenges posed by certain products entering markets. Much work is being done behind the scenes, and I believe we will have a clearer view of the situation by the end of the year. However, at this moment, I haven't observed any increase in volumes or stocking as a result of this.

Your next question comes from the line of John Roberts with Mizuho. Please go ahead.

Thank you, Jim or Jeff, I'm looking at slide eight in the top exhibit on volumes. You've had relatively easy year-over-year comparisons for the last three quarters, and then you have that in the third quarter as well. But the fourth quarter begins, I think, more challenging year-over-year comps. If we have normal seasonality, will the fourth quarter be down in volume?

I still think you're going to see strength, John, in plastics. I don't remember if silicones had turnaround time in the fourth quarter last year. It should be up based on the downstream demand forecast that we've seen. Normal seasonality, I would expect out of coatings, but I think in plastics and silicone, you're going to see up. In II&I, because of industrial solutions and glycol-2 being back, you're going to see up. The question mark will be how much do we see in terms of demand uptick on durable goods, and that will be what determines whether PU is up or not.

Your next question comes from the line of Duffy Fischer with Goldman Sachs. Please go ahead.

Yes, good morning. Two questions. First, Jim, you made a comment that you thought your coatings raw material business did quite well in Q2. A lot of the paint companies have come out and their volumes seem weak. So can you just kind of triangulate that? And then for Jeff, the other assets and liabilities on the cash flow statement has eaten almost $1 billion of cash so far this year, which is much higher than normal. What is that? And what happens with that going forward?

Yes, Duffy, I'll take coatings. On coatings, mix is part of it. So in addition to our contextual coatings, where, as I mentioned, I think in the contractor space and with customers who are in that space, we've done quite well. We also saw traffic paint improvements that have been driven by infrastructure projects along with good uptime. I think we've been delivering on market share gains across that taking advantage of our good cost position. Jeff, on the cash side?

Yes. Duffy, the primary driver is we had a reduction in long-term tax payables related to some of our tax audit reassessment over the period. As you may recall, even in the first quarter, we had a significant item more specific to one of our regions as well. So those things were somewhat unique from that vantage point here. So it should stabilize here moving forward.

Your next question comes from the line of Patrick Cunningham with Citi. Please go ahead.

Hi, good morning. I'm curious about siloxanes pricing in Asia. Would you say this reflects ongoing oversupply issues, or is the pace of demand recovery not as strong as anticipated? I thought there was a bit more confidence in the pricing environment in the second quarter. Has that changed over the past couple of months? Thank you.

Yes. Good question, Patrick. I mentioned on the call, the difference between integrated and non-integrated players, some of the weakness in siloxanes in Asia is from the non-integrated players and the capacity overhang. Capacity additions have slowed. We do think we're going to start to see as we move into next year some pricing improvement on siloxanes. We've been working to make investments in downstream silicone products, which have all been doing well, and we continue to move that way. Really trying to drive that volume growth for those downstream derivatives and sell less into that merchant siloxanes market and more into the downstream derivatives. You're seeing that start to come through in the volume in the second quarter. That was one of the big drivers. So we see good volume growth year-over-year and that’s impacted by trade dynamics.

Your next question comes from the line of Mike Leithead with Barclays. Please go ahead.

Great, thanks. Good morning. Jim, just a bigger picture question. DOW is obviously investing a lot for medium-term growth. You've laid out a lot of 2025 and 2030 expansion targets. But at the same time, the overall demand backdrop since about mid-'22 has probably been materially worse than you or anybody has thought at that time. So as that timing gap between near-term weakness and medium-term growth sort of closes, I mean, 2025 is only five months away now. Does that give you any pause at all in some of your investments? Do you need to rethink or pivot any of these expansions in a lower for longer economic scenario?

It's a good question, Mike. But I would also ask you to think about it in an even longer-term time frame; it takes years to plan and make these investments. We have to look at what's happened in plastics. Since 2019, we've seen a 20% increase in volumes in plastics; you can't obviously respond to the market when you see the increase and start to get this capacity in place. You've got to get in place to take advantage of the mid-cycle and the upcycle ahead of time. So typically, when we're at this point in the cycle, it's a common question. But we've got to look through at the long-term trends, and the long-term trends for plastics say the growth will continue. We've tried to move into the areas where there is differentiation and there are higher growth rates. Whether that's silicones, whether that's plastics, whether that's industrial solutions on the higher value specialty EO derivatives where we're investing, that's where the dollars are going.

Your next question comes from the line of Chris Parkinson with Wolfe Research. Please go ahead.

Great, thank you so much. Jim, in your $2 billion of mid-cycle upside for PNSP, I understand there are obviously a lot of moving factors there. But if we stick to the U.S., can you just offer some insights in terms of what you're expecting in terms of integrated PE margins, just given where the current SD dynamic is, export trends, NGLs? Just any color in terms of kind of getting that back would be especially helpful. Thank you.

Yes. So mid-cycle margins typically run in the range of $0.27 globally, but that can run from in Europe, maybe $0.20 mid-cycle margins to Americas $0.32. When we've gotten to peak, the global average on peak would tend to be more like $0.48. And maybe that range would run from Europe being in the $40 million range, 38% to 40%, and Americas being as much as 56%. So that's kind of what the outlook is. And of the $2 billion of upside, I'd say some of that is capacity debottlenecking and things that we're adding. So about $800 million of the $2 billion is from additions and tweaking on making some more higher-value products available, and then the rest of it will come from margin expansion.

Your next question comes from the line of Aleksey Yefremov with KeyBanc. Please go ahead.

Good morning everyone. Jim, looking at ACC numbers, North American polyethylene demand this year is roughly at the same level as in 2018, 2019. Do you have any thoughts on this observation? Do you think there's another leg up for U.S. polyethylene demand?

I do. I think when we look at North American demand, we're starting to see the total domestic demand plus exports getting north of 5 billion pounds. So this is a step-up. Obviously, exports have been a big driver historically; 30% of total demand was export, you're running about 45% of that demand in 2023. Also, I would tend to look at not just U.S. data but also look at Mexico; we’ve moved product into Mexico the same way we move into the U.S. market. And as I mentioned, one of the biggest consumption increases has been in Mexico with manufacturing reshoring moving into that area. So I think we're seeing good volumes this year in the U.S. and I think we're going to continue to see that improve at a steady rate.

Your next question comes from the line of Arun Viswanathan with RBC Capital Markets. Please go ahead.

Thank you, everyone, for joining our call, and we appreciate your interest in Dow. Also we understand there were some technical issues and audio issues to start at the early part of the Q&A. We do apologize for this. As a reminder, we do post a transcript to our investor website, and we'll do so as quickly as possible today to make sure everything is addressed. This concludes our call. Thank you for your time, and thank you for your interest in Dow.

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