Earnings Call Transcript - DOW Q4 2023

Operator, Operator

Greetings, and welcome to the Dow Fourth Quarter 2023 Earnings Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. 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 also will 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 fourth quarter results, full year highlights and operating segment performance. Jeff will provide an update on the macroeconomic environment, our strong financial position through the cycle as well as the modeling guidance. To close, Jim will provide an update on key milestones for our long-term growth and sustainability roadmap, which will continue to drive shareholder value. Following that, we will take your questions. Now, let me turn the call over to Dow Investor Relations' Vice President, Pankaj Gupta.

Pankaj Gupta, VP Investor Relations

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 Investor Relations' Vice President. And joining me 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 statement contained in the earnings news release and slides. On Slide 2 is our agenda for today's call. Jim will review our fourth quarter results, full year highlights and operating segment performance. Jeff will provide an update on the macroeconomic environment, our strong financial position through the cycle as well as the modeling guidance. To close, Jim will provide an update on key milestones for our long-term growth and sustainability roadmap, which will continue to drive shareholder value. Now, let me turn the call over to Jim.

Jim Fitterling, Chair and CEO

Thank you, Pankaj. Beginning on Slide 3, in the fourth quarter, we continue to execute with discipline and advance our long-term strategy in the face of a dynamic macroeconomic environment. Net sales were $10.6 billion, down 10% versus the year-ago period, reflecting declines in all operating segments. Sales were down 1% sequentially as volume gains in Packaging & Specialty Plastics were more than offset by seasonal demand declines in Performance Materials & Coatings. Volume increased 2% year-over-year, with gains across all regions except Asia Pacific, which was flat. Sequentially volume decreased by 1%, including the impact of an unplanned event from a storm that was equivalent to a Category 1 hurricane at our Bahía Blanca site in Argentina. Local price decreased 13% year-over-year, with declines in all operating segments due to lower feedstocks and energy costs. Sequentially, price was flat, reflecting modest gains in most regions. Operating EBIT for the quarter was $559 million, down $42 million year-over-year, primarily driven by lower prices. Sequentially, operating EBIT was down $67 million, as gains in Packaging & Specialty Plastics were more than offset by seasonally lower volumes in Performance Materials & Coatings. Our cash flow generation and working capital management enabled us to deliver cash flow from operations of $1.6 billion in the quarter. We continued to reduce costs and focused on cash generation, completing our $1 billion of cost savings for the year. And in the fourth quarter, we pursued additional de-risking opportunities for our pension plans, including annuitization and risk transfer of $1.7 billion in pension liability and a one-time non-cash and non-operating settlement charge of $642 million. We also advanced our long-term strategy while returning $616 million to shareholders. And we reached final investment decision with our Board of Directors for our Path2Zero project in Fort Saskatchewan, Alberta. Now, turning to our full year performance on Slide 4. Our 2023 results demonstrate strong execution and a commitment to financial discipline. Against the dynamic macroeconomic backdrop, Team Dow continued to take proactive actions. As a result, we generated $5.2 billion in cash flow from operations for the year, reflecting a cash flow conversion of 96%. We also returned $2.6 billion to shareholders through dividends and share repurchases. Our efforts continue to be recognized externally through industry-leading awards, certifications and recognitions, and we continue to outpace our peers on leadership diversity. I'm proud of how Team Dow is delivering for our customers, driving shareholder value and supporting our communities as we progress our long-term strategy. Now, turning to operating segment performance on Slide 5. In the Packaging & Specialty Plastics segment, operating EBIT was $664 million, up $9 million compared to the year-ago period. Results were driven by lower input costs and higher operating rates, where we closed out the year strong and hit record ethylene production levels on a full-year basis. Local price declines were driven by lower global prices, while volume increases were led by higher packaging demand, primarily in the U.S., Canada, and Latin America. Sequentially, operating EBIT increased by $188 million. This was driven by higher integrated polyethylene margins, the impact of planned maintenance activity in the third quarter, and higher licensing revenue. Moving to the Industrial Intermediates & Infrastructure segment, operating EBIT was $15 million compared to $164 million in the year-ago period. Results were driven by lower local prices in both businesses as well as reduced supply availability in Industrial Solutions. Sequentially, operating EBIT was down $6 million, driven by seasonally lower volumes in building and construction end markets, which were partially offset by seasonally higher demand for deicing fluid and higher demand for mobility applications. And in the Performance Materials & Coatings segment, operating EBIT was a loss of $61 million compared to a loss of $130 million in the year-ago period, driven by lower costs and reduced planned maintenance turnaround activity. Volume was up year-over-year, driven by higher demand in project-driven building and construction end markets. Sequentially, operating EBIT decreased $240 million, primarily due to seasonally lower volumes. Next, I'll turn it over to Jeff to review our outlook and actions on Slide 6.

Jeff Tate, CFO

Thank you, Jim. Before I begin, I'd like to mention how excited I am to have rejoined Dow last November. I've been connecting with key stakeholders, analysts, and shareholders, including many of you on this call today. And I look forward to meeting with so many others in the future. After four years serving in a CFO role outside of Dow, I'm pleased to see that Dow's culture of execution, commitment to advancing our ambition, and the focus everyone has demonstrated on delivering on our financial priorities since then remains. This is an exciting time for the company. As CFO, I'm proud to carry forward Dow's commitment to maintaining a disciplined and balanced approach to capital allocation over the economic cycle as we advance our growth strategies and deliver long-term value for shareholders. Now, for our outlook on Slide 6. As we enter 2024, we expect near-term demand to remain pressured by elevated inflation, high interest rates, and geopolitical tension, particularly in building and construction and durable goods end markets. That said, we are seeing some initial positive indicators. While inflation is still elevated compared to pre-COVID levels, the growth rate is moderating, supporting more stable economic conditions. In addition, the destocking that began in late 2022 has largely run its course, resulting in low inventory levels throughout most of our value chains. In the U.S., industrial activity continues to be moderate. In December, industrial production increased 1% year-over-year, and chemical railcar loadings are up 9.6% in January versus the prior year. U.S. consumer spending has remained resilient with retail trade sales up 4.8% in December. We're also encouraged by recent forecasts from the American Coatings Association, which expects market demand to grow approximately 3% in 2024 following three consecutive years of declines. In Europe, while inflation has moderated, consumer demand remains weak with retail trade sales down 1.1% year-over-year in November. In December, manufacturing PMI remains in contractionary territory and new car registrations fell 3.3% year-over-year after 16 consecutive months of growth. We continue to monitor China where we see improving conditions, which could provide a source of demand recovery following the Lunar New Year. Industrial production was up 6.8% year-over-year last month, exceeding market estimates of 6.6%. December auto sales also continue to be strong in China, supported by year-end incentives. In other regions around the world, industrial activity remains constructive. While India Manufacturing PMI remains expansionary, ASEAN Manufacturing PMI entered contractionary territory last month. In Mexico, November marked the 25th consecutive month of industrial production growth. On Slide 7, our competitive advantages, early cycle growth investments, and operational discipline position us well to capitalize on a recovery and deliver growth when economic conditions improve. Our differentiated portfolio with structurally advantaged assets, global scale, and strong cost positions enable us to competitively support global demand growth over the cycle. Healthy oil to gas spreads supported by growing natural gas and NGL production in the U.S. favor our cost advantage and ability to capture margin momentum. We've also taken actions to position the company for profitable growth, including ongoing execution of near-term investments that are expected to deliver approximately $2 billion in incremental underlying EBITDA by mid-decade. In addition, we've improved our cost profile, delivering $1 billion in targeted savings in 2023 that included lower plant maintenance spending and structural improvements to raw materials, logistics, and utility costs.

Jim Fitterling, Chair and CEO

Jim Fitterling: Thank you, Jeff. Moving to Slide 9, our Decarbonize & Grow and Transform the Waste strategies uniquely position us to capitalize on demand for more sustainable and circular solutions across our attractive market verticals. Altogether, by 2030, these investments enable us to deliver an increase of more than $3 billion to our underlying earnings through the cycle, while reducing scope 1 and 2 emissions by 5 million metric tons and commercializing 3 million metric tons of circular and renewable solutions annually. In November, we reached the key milestone as our Path2Zero project in Fort Saskatchewan, Alberta achieved final investment decision by our Board of Directors. We also continue to advance our Transform the Waste strategy via intentional actions, strategic partnerships, and offtake agreements. In the fourth quarter, Valoregen's 15,000 ton per year mechanical recycling line in France achieved mechanical completion. And Mura Technology in the UK commenced commissioning, which is expected to contribute 20,000 tons per year of advanced recycling capacity. Both Valoregen and Mura expect to reach commercialization in the first half of this year. As a next step of our sustainability strategy, Dow has established a Green Finance Framework, which was published on our Investor website today. This allows us to further align our funding with our goals and targets, while also providing an opportunity for the investor community to take part in the execution of our sustainability strategy. Altogether, we remain confident in our long-term earnings growth with continued focus on a more sustainable future, while maintaining a disciplined and balanced approach to capital allocation. Now, turning to Slide 10, polyethylene demand is expected to continue to grow at approximately 1.2 times to 1.4 times GDP through 2050. A growing population, regulations, and consumer preferences support this. And our customers have expressed an increasing need for low and zero carbon emissions and circular products. As global demand grows, no new cost-advantaged ethylene capacity is expected to come online in North America until the late 2026 to 2027 timeframe, which is expected to tighten the supply-demand balance in the near term. We are well positioned to capture new and growing demand with our existing assets and partnership agreements. In addition, we are investing in low-carbon emissions infrastructure to capture growing demand for polyethylene as you will see on Slide 11. Our Fort Saskatchewan project will build upon the strong foundation of our Texas-9 cracker where we have proven our best-in-class execution, capital efficiency, reliability, and emissions reduction. Canada's feedstock cost advantage provides Dow with lower cash costs compared to the rest of the world, even more advantaged than the U.S. Gulf Coast. We also anticipate potential upside from the commercialization of low and zero emissions products. Total CapEx spend is expected to be $6.5 billion on this growth project, excluding any incentives, with Dow's total enterprise CapEx to ramp in 2024 to approximately $3 billion and exceed depreciation and amortization levels annually through 2027. We remain committed to keeping our CapEx within D&A across the economic cycle and expect to return to those levels as we complete this project. We expect to receive governmental support totaling more than $1.5 billion in cash and tax incentives that will bring the net capital outlay for this project to $5 billion. The majority of these incentives are expected to be received by Dow through 2030, which is closely aligned with our CapEx deployment for the project. We will begin construction in the first half of 2024 with Phase 1 startup of approximately 1.3 million tons per year of capacity expected in 2027. In Phase 2, we will add another 600,000 tons of capacity, which is expected to start up in 2029. Phase 2 also includes the retrofit of our existing cracker, reducing net 1 million metric tons per year of CO2 Scope 1 and 2 emissions. Closing on Slide 12, the actions we've taken since the spin-off have strengthened our balance sheet, increased cash flow, and enhanced the financial flexibility and resilience of our business. In 2023, we built on that foundation moving swiftly to deliver $1 billion in cost savings and focus on cash generation as economic conditions remain challenging. As a result, we delivered on all of our capital allocation priorities, including a fully funded dividend, $625 million of share repurchases and growth investments, all while maintaining the strongest balance sheet we've ever had at this part of the cycle. With all of our debt at fixed rate, we have no substantive debt maturities due until 2027 and $13 billion of available liquidity. Additionally, we have returned approximately 90% of our net income to shareholders since the spin, well above our 65% target across the economic cycle. With global reach, presence in attractive end markets and advantaged cost positions in early-stage growth investments in flight, we are well positioned to capture attractive growth opportunities as economic conditions recover.

Pankaj Gupta, VP Investor Relations

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 as well as the following Q&A. Operator, please provide the Q&A instructions.

Operator, Operator

Your first question comes from the line of Hassan Ahmed from Alembic Global. Your line is open.

Hassan Ahmed, Analyst

Good morning, Jim. A couple of times through the prepared remarks you talked about inventory. It just seems that there are two camps out there in terms of the thought process with regards to what a potential restocking may look like, and I'd love to hear your views about that. On one side of the debate, people are sitting there and saying, hey, look, since the second half of 2022, the destocking was quite significant, and maybe as and when we should expect an equally impressive restock. But then on the other side of the camp, you have some of the folks sort of debating that buying patterns across the supply chain have changed quite dramatically coming out of the pandemic and maybe a restock may not look that impressive. So, I'd love to hear your views. And if you could also sort of elaborate on that within some of the main product chains, be it polyethylene, polyurethanes, and the like?

Jim Fitterling, Chair and CEO

Good morning, Hassan. That's a great question. One reason that December and the fourth quarter turned out stronger than anticipated, particularly in Packaging & Specialty Plastics, was because 2023 was quite mixed. In December, we typically see a slowdown as people manage cash and avoid purchases, but that wasn’t the case for us. We actually saw strong demand throughout the month. I don’t think this is a sign of restocking; rather, I believe it reflects low inventories across the supply chain while consumer demand remained resilient, prompting continued purchases to maintain supply chains. Overall, it appears there’s no surplus inventory in nearly all businesses along the value chains today. With demand rising, companies are compelled to buy to keep their operations well-stocked. Additionally, inventories are low in sectors like P&SP and Industrial Solutions due to opened arbitrage opportunities and our global footprint, where 85% is in areas that utilize light cracking for ethane and propane, which have provided a significant advantage. This contributed to our record-setting ethylene production this year. I wouldn’t say we’re in a restocking cycle yet; it seems people are focused on achieving a soft landing. We’re noticing positive signs, such as housing permits, but housing demand won’t materialize until interest rates decrease. If interest rates drop in the second quarter, we could see an uptick in housing construction showing more impact in the later part of the year. Remember, energy costs are low, leading people to feel comfortable with reasonable purchasing prices right now, which might reduce the urgency for significant restocking. However, this could change as energy prices rise and demand increases, at which point we should monitor the potential for restocking closely. It may just be a bit early for that now.

Operator, Operator

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

Mike Sison, Analyst

Hey, guys. Nice end of the year. I'm just curious, you had good volume growth in PSP in the Q4. Do you expect that to continue into the first? And maybe any thoughts on how your operating rates for polyethylene will sort of improve sequentially and the cadence for the year?

Jim Fitterling, Chair and CEO

Yeah. Thanks, Michael. Good question. Operating rates in the advantaged regions, especially Canada, U.S., Gulf Coast, Argentina, were strong through the end of the year. I mentioned ethylene production record. We saw rates above 90% in those regions for the fourth quarter. And obviously, we saw a little bit of an improvement in Europe. I'd say the Suez Canal situation means not as much material from the Middle East is flowing into Europe, and so that's given Europe a little bit of a lift on operating rates as we go into the first quarter, and of course with propane being where it is, we're cracking LPGs in Terneuzen and Tarragona, and that's helping out a bit there. I would say I think P&SP is going to continue to see good volume growth. That's what our outlook is going forward. The Industrial Solutions is holding up relatively well. We have our own self-inflicted issue with the Plaquemine Glycol plant, but I'm expecting that back up in second quarter. And we're watching carefully on construction chemicals demand and durable goods to see if we see an uptick there. We saw some good movement in consumer electronics, and so that's got me a little bit optimistic.

Operator, Operator

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

Vincent Andrews, Analyst

Hi, thanks. Maybe two quick ones for me. Just on Slide 7, you have some project starts that are going from '24 to '26. Talk about how material some of that might be for 2024? And then also if you could just give us an update on what you did with the pension ending the year?

Jim Fitterling, Chair and CEO

Yes. On project starts, we've got the things that we've got coming up, obviously, is we've got some alkoxylation capacity that came up in '22 and '23, it's running really well. We started up the MDI distillation facility in Freeport in the third quarter. I think that will start to show some positive benefit to us as we move forward. That's about a 30% increase in MDI distillation and also reduction of a footprint getting us out of the La Porte site. We've got CDF alkoxylation, second wave expansion in the fourth quarter of this year, and then Terneuzen in the fourth quarter of 2025, both of that supports growing demand and energy and also consumer solutions and pharma business, so that's good. Amines business for carbon capture is growing well, and so that's good. If you look at the plastics industry, there's really no new capacity coming out in plastics, say one train at the Shell plant in the United States. Otherwise, all the plastics capacity is in the market, inventories are low, export channels running strong, and we saw volume growth year-over-year in the fourth quarter. So, I feel good about the overall outlook for plastics as we're going into 2024. When you get into polyolefins, our polyurethanes and propylene oxide, a little bit different story. That capacity come on in China. We've seen the same in siloxanes last year. I think we're working through that. The silicones growth is going to eat up that siloxane capacity, but we've got to see the durable goods market and the housing markets come back to tighten up PO. Propylene Glycol side has been strong. But as you know, housing and automotive drive PPE a lot. Those two things drive the propylene markets and we're going to keep a close eye on them.

Jeff Tate, CFO

Sure, Jim. As we've been communicating to the Street here in recent quarters, one of the things that we're consistently looking to do as we're solidifying our financial position is look for ways to derisk our pension plans. And one of those could be around annuitization as well as risk transfer of our liabilities. So specifically in the fourth quarter, we were actually able to reduce our pension liabilities by $1.7 billion. The execution of those transactions did not require any additional cash from the company. As Jim mentioned in some of his opening remarks, the impact of that was a one-time non-cash non-operating settlement charge of $640 million in the quarter.

Operator, Operator

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

Jeff Zekauskas, Analyst

Thanks very much. Recently, there was a cold snap in Texas. And I didn't notice that there was any penalty in EBITDA for the first quarter. Are you still assessing what the amounts might be, or do you think that it's zero? And then, secondly, you pulled out $1 billion in costs. Can you allocate the $1 billion across your three segments?

Jim Fitterling, Chair and CEO

Sure. I'll address the cold snap, and then Jeff can look at the costs. Regarding the freeze, it’s worth noting that this is the third consecutive year we've experienced freezing conditions on the Gulf Coast. Each year, we’ve enhanced our plans to prepare for these events. This year, we expect the lowest impact compared to the previous two years. The most significant effects were felt at Deer Park and Seadrift, but nearly all operations are back up and running now, allowing us to recover quickly. While we experienced some challenges, we managed to navigate them well without disrupting any customers due to downtime. We anticipate a strong recovery and expect operations to be running at full capacity by the end of this month. Overall, the impact was not significant enough to factor into our first-quarter estimates. Our biggest challenge for the first quarter will come from several turnarounds, estimated to cost about $200 million. Additionally, we project a margin increase of around $200 million and a decrease of $150 million due to the turnarounds. This is the main focus for our first-quarter guidance for 2024. Jeff, would you like to break down how the $1 billion in costs is distributed across the business?

Jeff Tate, CFO

Absolutely, Jim. In the simplest terms, about 50% of those cost savings are in P&FP, 20% to 25% are in the other two segments, respectively, and we also have a little bit in corporate as well. So, pretty well distributed based on our operations and our revenues as well.

Jim Fitterling, Chair and CEO

We ended the year at a $1.4 billion run rate on that. So, if you look at full year 2024, Jeff, we still got another $400 million coming in in terms of the cost savings for '24, but we have $200 million of higher turnarounds in 2024, so net-net $200 million coming into 2024. I hope that covers what you're looking for.

Operator, Operator

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

Steve Byrne, Analyst

Yes. Thank you. I'd like to get some help from you on why were the earnings in PM&C so much lower than what you were expecting, say, in the third quarter slide deck. Would you attribute this to just lower pricing, higher raw materials? Help me on this one. And maybe in particular, coatings, you've got a key customer raising price and targeting mid-single digit lower raw materials. Your propylene costs are higher. Why not able to push more price in this segment, or cut back on operating rates or something along those lines? What's your outlook for that segment?

Jim Fitterling, Chair and CEO

Yes, good question, Steve. Starting at the top, siloxanes and monomers in the silicones and coatings are both oversupplied, which put pressure on volume and pricing in the quarter. Volumes decreased sequentially across all regions and markets, which is not unusual, especially in coatings and monomers; this is pretty typical in the fourth quarter. However, silicones were a bit softer, and that was the biggest difference. Year-over-year, prices were down due to supply and demand issues for both siloxane and acrylic monomers. The binders business and coatings held up relatively well, actually achieving decent volumes in the fourth quarter. What we supplied to our downstream coatings customers looked good. Our outlook going forward is a 3% increase this year in downstream coatings, and I would say downstream silicones demand continues to hold up pretty well.

Operator, Operator

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

Josh Spector, Analyst

Yes, hi. Good morning. I was wondering if you could comment on your polyethylene price assumptions in the first quarter. I think within your bridge, you talk about lower costs and some other moving pieces, but there's not really anything there on price. So, are you assuming that you get positive pricing in February and March like some of the consultant data shows? Are you assuming something different? Thank you.

Jim Fitterling, Chair and CEO

Good morning, Josh. We've got $0.05 price increases on the table for January and February. I would say, globally, we're looking pretty flat quarter-over-quarter on pricing. I'm expecting to see some price up in EMEA. I mentioned the Suez Canal and the impact that had on Middle East volumes going up into EMEA. So, I think we're going to see that up. I think we're going to see price up in Asia Pacific. I think we're going to see it relatively flat in the Americas. Integrated margins for the Americas ought to be about where they were in the fourth quarter. Integrated margins in Europe should be up a few cents, that's what the market markers will look at right now.

Operator, Operator

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

David Begleiter, Analyst

Thank you. Good morning. Jim, you highlight the U.S. chemical railcar loading is up 10%. What do you think is driving that? And given the strong start to the quarter, do you expect volumes to be up in all three segments in Q1? Thank you.

Jim Fitterling, Chair and CEO

I believe that on chemical railcar loading, industrial production in the U.S. is beginning to recover. The U.S. possesses a significant cost advantage, and operating rates across most sectors are increasing. Although it can be challenging to predict when destocking will end, we observed signs in December that it has progressed. Consequently, any downstream demand is resulting in orders, which is reflected in the railcar loadings. Additionally, remember that railcars also service the Mexican market, which has been performing well, benefiting from near-shoring. Therefore, with volumes from both China and Mexico increasing, I see this as a positive development. I anticipate volume growth across all three segments for 2024, and I expect this to begin materializing soon.

Operator, Operator

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

Dan Rizzo, Analyst

Hi. Thank you for taking my call. Can we just discuss your strategy on mechanical recycling? What do you expect by 2030? And longer term, do you expect that to outgrow the market?

Jim Fitterling, Chair and CEO

I believe that when we consider polyethylene demand, both mechanical recycling and advanced recycling are poised for continued growth, driven by various demand factors. We are currently engaged in discussions regarding a global plastics treaty, with significant conferences planned in Ottawa at the end of April and early May, followed by another in Korea later in the year. There is a growing consensus in the industry, along with input from consumer brand owners and NGOs, emphasizing enhanced producer responsibility to promote circularity, along with mandates for recycled content, and support for all recycling methods and bio-based products derived from waste or alternative feedstocks. For instance, we are working on a project to produce bio-based materials from corn production waste. Expect to see increasing demand for all of these initiatives. We are ramping up capacity in Europe, driven by enhanced producer responsibility and strong downstream demand. This trend is evident across the United States and Canada, and I believe it will expand globally. Over time, we will likely witness a shift towards low-carbon fossil fuel solutions, as seen in our work in Alberta, where we aim to produce plastics from fossil fuels with zero CO2 emissions. Both advanced recycling and mechanical recycling will be key focus areas, and we will strategically invest in different regions according to market demand. Customer response has been positive, showing robust volume growth and pricing advantages over virgin materials, which are currently at relatively low levels. We are also committed to obtaining ISCC PLUS certification for our plants to ensure we can authenticate the recycled content for our customers.

Operator, Operator

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

Kevin McCarthy, Analyst

Yes, good morning. Jim, on a year-to-date basis, we've seen polyethylene export prices rise by, let's say, $0.04 to $0.05 a pound. I'm curious as to what you think is driving that. Would you attribute that pattern to better demand or some of the logistics challenges that have emerged in the Red Sea or perhaps other factors? And then maybe as a related question, if you don't have any unplanned outages, how hard do you think you might be able to run your U.S. Gulf Coast ethylene-linked assets in the first quarter? Just trying to get a sense of whether the export market might be strong enough to lift up the U.S. domestic market.

Jim Fitterling, Chair and CEO

Good question, Kevin. Looking back at 2023, the limitations on polyethylene export volumes and prices were primarily due to supply chain issues, particularly in getting marine pack cargo moving. This situation improved significantly as the year progressed. December turned out to be one of our strongest months for polyethylene export sales, and we have a full export channel ready. Overall, we're maximizing production in Canada, the United States, and Argentina. During the latter part of the year, especially in the fourth quarter, we operated our crackers at rates exceeding 90%. If there are no freezing impacts or other issues, we intend to keep these operations running at a high capacity. The arbitrage seems favorable, and we have seen double-digit volume growth in plastics exports to China this year. We also experienced year-over-year increases in our P&SP and slightly in our Consumer Solutions segment, although we faced challenges in Industrial Solutions due to the outage in Plaquemine. Overall, the market conditions suggest that we can manage these export volumes even with a relatively subdued GDP scenario in China. Looking ahead to 2024, I'm optimistic about the steps we are taking to improve our performance. For our full-year EBITDA projection, we estimate around $300 million in margin expansion, starting from $5.4 billion in EBITDA for 2023. We expect approximately $800 million in volume growth across all three segments, although turnaround costs might impact us by $200 million, along with around $100 million from improved equity earnings in our joint ventures. Overall, this positions us for a net EBITDA range of about $6.4 billion to $6.5 billion for 2024. Additionally, a soft landing scenario in the U.S. should benefit the domestic market, where we have observed solid domestic polyethylene volumes as well.

Operator, Operator

Your next question comes from the line of Frank Mitsch from Fermium Research. Your line is open.

Frank Mitsch, Analyst

Good morning. And Jeff, nice to hear your voice again. Hey, Jim, really appreciate that walk up into 2024. I want to take a step back to Slide 7, where you talked about the projects mid-cycle that started up in 2022, should contribute $400 million. The projects that started up in '23 should contribute another $400 million. Can you just look at those $800 million worth of mid-cycle earnings and suggest what you're anticipating they're going to contribute in 2024?

Jim Fitterling, Chair and CEO

Yeah. I think, Frank, I think coming back to that and I probably didn't answer what Vince was asking very well at the beginning. I think you're probably looking back half of this year to 2025 before you start to see mid-cycle types of returns. We're not to mid-cycle yet. I mean, obviously, we're navigating the bottom here. But I think with interest rates potentially coming off in the first half of the year some amount that stimulates some demand and mid-cycle probably get there. So, maybe $300 million to $400 million of that you'll see in 2024, the balance into 2025.

Operator, Operator

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

Duffy Fischer, Analyst

Hey, good morning. If you could just on the $50 million to $100 million on the equity income improvement, can you walk through your major JVs and just kind of say what's additive, what's subtractive from that number?

Jim Fitterling, Chair and CEO

Yeah. Sure. I think you're going to see on the Sadara JVs year-over-year should be up, I don't know, I'd say about $100 million. Remember they had some outages in the first part of the year. So they had some volume impact in the first part of the year. And obviously, they're seeing the same improvements in arbitrage that we're seeing out of U.S. Gulf Coast. You're going to see Kuwait JVs up about $60 million. Obviously, that's the strength on ethylene glycol. We saw a bit of that in the fourth quarter and their ability to run hard as well. I think the Thai JVs will be down. A lot of pressure obviously on naphtha cracking and they're based on naphtha cracking. So, I expect them to be down about $20 million, and then everything else down about $30 million. So, net-net, you're up about $100 million.

Operator, Operator

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

John Roberts, Analyst

Thanks. And it looks like a pretty smooth transition in finance, so congratulations on the stability there. I believe you were considering some additional infrastructure divestments. Could you give us an update on that?

Jim Fitterling, Chair and CEO

Sure. And nice to hear your voice on the call, John. Welcome back. Yeah, we've got a number of non-product producing infrastructure assets that we continue to evaluate. We have in flight for this year greater than $1 billion. I think maybe even greater than $1.5 billion of additional cash proceeds from transactions related to that. We had a very successful divestiture in 2020 of our rail and marine infrastructure assets, and that is working well. And the idea was there was to liberate some cash, but keep a competitive cost structure. And that same mindset is in place here. And we think obviously the cash proceeds are going to help us with reinvesting in revenue-generating assets like the Alberta project as we move forward. And then, the other cash-related kind of unique levers to Dow for the year is we've got the last part of the settlement from the Nova litigation, we should wind all that up and that's about $500 million for the year. So, I'd say net-net, we're pursuing north of $1.5 billion plus the Nova litigation to try to get those kind of unique cash levers into the company.

Jeff Tate, CFO

Yes, Jim. Good morning, John, and thank you. The only other thing I would add is that we will continue to focus on opportunities for structural working capital improvement. If you recall, we reduced our cash conversion cycle by eight days since the spin. Tremendous work has been done by Team Dow. We aim to achieve at least another one to two days of improvements, which should also provide us with another unique cash lever.

Operator, Operator

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

Patrick Cunningham, Analyst

Hi, good morning. You mentioned that the turnarounds in II&I may be more concentrated in the first quarter, with Plaquemine coming back in the second quarter and Freeport increasing MDI distillation. Should we anticipate a more substantial sequential earnings improvement throughout the year, and could you provide some guidance on where we might finish the year for this segment? Also, could you briefly discuss the factors influencing the direction of MDI and MEG spreads as we enter the first quarter? Thank you.

Jim Fitterling, Chair and CEO

Yeah. I think generically that's true, Patrick, that I think you'll see that build through the year. First quarter, obviously, we mentioned the turnaround. But second quarter, we expect to get Glycol 2 back in Plaquemine, that will be positive. And then the third quarter will be more positive, so it will ramp into the back half of the year. On isocyanates, obviously, the biggest driver is on construction-related and durable goods-related markets. Obviously, there's some impact in automotive as well, any of the rigids is where most of that volume gets consumed. So as those volumes start to pick up, you'll start to see MDI take off. And that's usually a driver of value across the entire portfolio, both the polyols and the MDI side of things. So, I'm hoping that we start to stimulate some of that demand in the back half of the year. And I think it was what China is doing in the markets and what the financial markets are trying to do to stimulate some things could be between U.S. interest rates and what's going on in China that we see some momentum build in the back half of this year.

Operator, Operator

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

Mike Leithead, Analyst

Great. Thank you. Good morning. Two questions on your Sadara joint venture. First, I believe there was a report earlier this month that Aramco is raising feedstock prices. Will that impact Sadara, or should we expect input costs there to remain relatively flat? And second, EBITDA remains quite depressed right now relative to net debt at the JV. Can we expect any further restructuring or cash infusion needed over the next year or so? Or is the runway there sufficient to get back to, say, more mid-cycle type EBITDA levels?

Jim Fitterling, Chair and CEO

Yeah, it's a good question. We've had no cash contributions that needed to be made to Sadara in '21, '22, '23. I'm not expecting any going forward. Sadara itself, like us, when you navigate the bottom of the cycle, it's focusing on self-help actions to try to pull levers to keep costs down. There is talk in the kingdom about a raise in feedstock prices, and so we'll obviously have a look at things that we can do within Sadara to offset those costs. But those haven't taken hold just yet. And then obviously, the market comes back. Sadara is very levered to oil price. And so, oil clears the market for plastics, especially because that drives the Asia Pacific operating prices and costs. And so, when oil price comes up, which the expectations are that's going to be constructive as we move into '25 and beyond, there hasn't been a lot of investment in oil production. Demand is back above where we were pre-pandemic, and yet we have big parts of the market that are not back about where we were pre-pandemic. So, I think the outlook for demand is that the demand is going to come as the global markets improve, but the supply is going to lag. And so, we're sitting here at $80 oil, that could firm up. You could start to see the top end of oil be pitched more toward $90, $100 as you get into the '25, '26 timeframe. And that has a pretty substantial impact to the bottom line in Sadara. So near term, we're going to navigate our cost at Sadara to keep the cost down and to be able to handle those feedstock costs longer term, obviously lean into the market as the economy improves.

Operator, Operator

Your next question comes from the line of Aleksey Yefremov from KeyBanc Capital Markets. Your line is open.

Aleksey Yefremov, Analyst

Thanks. Good morning, everyone. Jim, you just made a couple of comments that siloxanes capacity could be absorbed by demand growth. And to me, you sound a little more positive here than in the past. Do you think this upstream silicones market could see margin uplift maybe within the next 12 months? Or is this a longer-term project?

Jim Fitterling, Chair and CEO

Yeah. If you look at the amount of capacity that's coming on in 2024 versus what came on in '23, it's down quite a bit. You've got a couple of projects. There's four projects in China that are coming on, and I think a couple of them could delay beyond 2024. The downstream markets have been continuing to grow, and we've been continuing to invest in debottlenecking. It's just the amount of upstream that's come on has added to that. The other positive that's happened is, obviously, silicon metal prices have come down too. And so, that helps on the input side of things. So I think you're going to see that as the downstream demand continues to improve and as global coming continues to improve, we're going to see that as the project pipeline for buildings continues to grow, and remember, this goes into everything. It can go into high-rise buildings, it can go into new airports, it can go into schools, and all kinds of other construction. Those are big volume pools. I think as you start to see construction activity pick up, then you're going to see that ramp. We're seeing strong demand in areas, obviously, EVs were a big part of it, 5G and connectivity is a big part of it, data centers. So as you're looking at things like how to handle cooling on data centers, silicon fluids or dielectrics and some immersive cooling applications in data centers, which are big energy hogs and need energy efficiency, that's a growth area for us as well. And then, the normal downstream demand in consumer goods and beauty care products continues to be good. So, I'm optimistic. Maybe it may take more into late '24 and into '25 to see it, but I do feel like we're going to start to move toward mid-cycle in 2025.

Operator, Operator

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

Arun Viswanathan, Analyst

Thank you for taking my question. That's a good transition to what I was considering. If you look at the guidance for Q1, it appears to be around $1.3 billion for EBITDA, give or take. Annualizing that would reach about $5.2 billion, and factoring in some seasonality might bring it closer to $6 billion. Would you see that as reflecting trough-like conditions? As you progress through 2024, what aspects are you excited about that could lead to a mid-cycle performance by the end of the year? Additionally, could you share your expectations for growth in China going forward? It's likely we'll see a slower growth environment in the next four to five years compared to the previous period. I’d like to hear your thoughts on that as well. Thank you.

Jim Fitterling, Chair and CEO

I believe the positive aspects for us moving forward include the absence of new capacity in Packaging & Specialty Plastics, high operating rates in all cost-advantaged regions, and an opportunity for exports to China, which has shown double-digit growth for us. We are successfully moving products into India, and Mexico has been performing strongly, with a significant amount of plastics transported by rail. In the Americas and Asia Pacific, our expectation is that as China recovers, the rest of Asia Pacific will follow suit. However, our outlook for Europe is mixed. While energy costs have improved in the short term, which alleviates some pressure, Europe faces structural challenges if energy prices do not decrease further. This situation impacts consumers and demand, as well as the industrial economy. Fortunately, we have cost advantage positions that will help us navigate these challenges. In the latter half of the year, we expect Industrial Solutions to return to full strength and our new projects to contribute between $300 million to $400 million to our volume growth. The margin expansion is anticipated from the oil to gas spread in our existing business and stronger polyethylene pricing this year. We expect to ramp up in 2025, getting back to a mid-cycle run rate while actively managing cash and maintaining a strong balance sheet. We plan to be proactive with the Alberta project, similar to our approach with Texas-9, seizing the opportunity to secure low construction costs as we move forward.

Operator, Operator

This ends our question-and-answer session. I will now turn the call back over to Mr. Gupta for closing remarks.

Pankaj Gupta, VP Investor Relations

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

Operator, Operator

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