Greetings. And welcome to the Huntsman Corporation's First Quarter 2021 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Mr. Ivan Marcuse, Vice President, Investor Relations for Huntsman Corporation. Thank you. You may begin.

Thank you, Melissa. And good morning, everyone. Welcome to Huntsman's first quarter 2021 earnings call. Joining us on the call today are Peter Huntsman, Chairman, President, CEO; Sean Douglas, Executive Vice President, CFO; and Tony Hankins, President of Polyurethanes. This morning before the market opened, we released our earnings for the first quarter 2021 via press release and posted them to our website, huntsman.com. We also posted a set of slides on our website, which we will use on this call this morning while presenting our results. During the call, we may make statements about our projections or expectations for the future. All such statements are forward-looking statements. And while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the SEC for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. We also refer to non-GAAP financial measures, such as adjusted EBITDA, adjusted net income, and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted to our website, huntsman.com. I'll now turn the call over to Peter Huntsman, our Chairman, President, and CEO.

Thank you, Ivan. Good morning, everyone. Thank you for taking the time to join us. Let's turn to slide number three. Adjusted EBITDA for our Polyurethanes division in the first quarter was $207 million versus $84 million a year ago. This improvement versus the prior year was largely driven by improved margins due to higher prices, primarily in the component end of our business, which more than offset the approximate $10 million EBITDA impact related to winter storm Yuri that we experienced in February. Our MDI volumes declined approximately 7% versus the prior year's first quarter, primarily due to a fourth quarter 2020 turnaround at our Geismar, Louisiana facility, which we deferred to this year's first quarter, some impact related to winter storm Yuri, and our planned need to build inventory ahead of our scheduled Rotterdam turnaround. However, improved margins more than offset the decline in volumes. We will note that our differentiated MDI volumes, which include our automotive, elastomers, and spray foam businesses, were up 4% for the quarter. Demand trends in our core markets of construction and automotive have led to solid underlying growth in the quarter. When excluding the impact from storms and turnarounds, our insulation businesses, including spray foam and our composite wood products business, remain solid as markets such as North American residential construction and renovation remain strong. Many have inquired as to the impact of the reported ongoing chip shortage in the automotive industry on our Polyurethanes business. By the end of the first quarter, we haven't seen any impact on our customers as our automotive business was up 12% globally compared to the previous year. We believe this has been a result of our being more European-centric and supplying a market segment that is more skewed towards luxury automotive. So far in the second quarter, we are seeing a 2% to 3% drop in volumes due to chip-related slowdowns. We've reallocated this volume of MDI to other areas and expect to earn similar margins. We're also pleased to see a strong recovery in our global elastomers business, largely comprised of footwear along with other specialty end-use and industrial related markets. The improvement in footwear is being helped by the gradual reopening of economies, which is having a positive effect on the retail markets. The industrial side of our elastomers business correlates somewhat with global PMI, which has continued to expand around the world. Short-term and long-term fundamentals of our polyurethanes business remain positive. We are benefiting from some level of inventory restock; our own inventory levels remain below normal levels for this time of year. We're keeping an eye on the evolving reoccurrences of the COVID pandemic around various regions of the world. Overall demand reflected within our order book remains solid. Our margin within the first quarter benefited more than we had anticipated from ongoing tight conditions within the industry. In addition to various planned turnarounds within the industry, unscheduled outages compounded the situation. We were fortunate that our Geismar, Louisiana facility was able to continue largely uninterrupted while others were forced to declare force majeure due to damage caused by winter storm Yuri. Previously mentioned, we estimate the negative impact from Yuri on polyurethanes was approximately $10 million. This was largely a result of supply chain and raw material constraints. This is a testament to the team that we have at our Geismar, Louisiana facility and their ability to work through these conditions in a safe manner to keep it running. Currently in the Americas, we believe most of the industry capacity is in the process of returning back to full operating rates. Business conditions in China remain solid. Our margins in the first quarter exceeded our expectations. Given the completion of local turnarounds and some announced capacity additions within China, we've seen margins recently recede a bit, though they are generally firm. Within our PO/MTBE joint venture with Sinopec in China, where we own 49%, we benefited from very strong margins, largely the result of industry outages and stronger than expected demand in the quarter. As of the current moment and once in every four-year multi-facility turnaround at our Rotterdam MDI plant is nearing completion. We are highly dependent on many other chemical companies conducting turnarounds and everyone meeting a pre-agreed synchronized timeline to restart. Due to some delays with a third-party supplier, our start-up is delayed. As a result, the total estimated EBITDA impact from this turnaround is now estimated to be around $25 million versus the initial $15 million estimate that we gave you last quarter. Our facility is about ready to start back up; we're hopeful that we will not experience any further delays that are outside our control. Putting it all together, we remain very positive about the trends that we are seeing in polyurethanes globally. Demand is good. The industry is balanced; substitution will continue, and areas driven by sustainable solutions, such as energy efficiency, are expected to follow trends that will have a very positive impact on the business for the foreseeable future. Looking into the second quarter, we see seasonal strength being partially offset by turnaround costs and potentially lower MDI margins in Asia. We would expect the second quarter adjusted EBITDA to be around 5% stronger than the first quarter, dependent upon the Rotterdam turnaround, which should be up significantly versus the year-ago period. Let's turn to slide number four. The Performance Products segment reported adjusted EBITDA of $63 million compared to $58 million in last year's first quarter. We saw growth in our Asia business and strong demand and margins for most of our division's products. This combined with lower fixed costs more than offset the approximate $14 million headwind that resulted from winter storm Yuri. Total volumes for the division declined 3% due largely to the storm and the recent discontinuation of certain tolling arrangements associated with the chemical intermediates business that we sold this past year. On a pro forma basis, we estimate that our underlying volumes were actually up 6% year-over-year, leading the way with strong demand in our performance amines portfolio, largely in our sustainability-related products, such as amines that are sold in new VOC-free polyurethane catalysts and into the wind market. Growth in the construction markets has also benefited our amines that go into coatings and adhesives as well as the maleic anhydride business that serves the UPR markets. Volumes increased 6% year-over-year within our maleic anhydride business. Raw material costs have been rising, but we've been successful in passing through price increases to offset higher costs. We believe that some of the lost sales in the first quarter due to the winter storm will be captured in the second quarter. This combined with some of the seasonal strength and improved margins should translate into EBITDA growth in the second quarter over the first quarter of about 5% to 10% for Performance Products. Let's turn to slide number five. Our Advanced Materials business reported adjusted EBITDA of $44 million, down 8% versus the prior year. The first quarter last year still experienced solid aerospace results before the global pandemic started significantly impacting the commercial aerospace industry. As a result, our aerospace sales were down approximately 40% year-over-year. This is the primary reason that our adjusted EBITDA declined year-over-year. As we previously stated, we believe our aerospace business bottomed in the fourth quarter of 2020. While we still anticipate full recovery to pre-pandemic levels will take at least a couple of years, we did see a sequential improvement in our aerospace sales, and we are encouraged that recovery is a bit better than we had anticipated. When excluding aerospace, the underlying volumes of our other core specialty businesses experienced growth year-over-year from improved trends as well as positive contributions from our recent acquisition of CDC Thermostat Specialties and Gabriel Performance Products. Our non-aerospace business EBITDA grew 8.5% over last year. While our non-aerospace EBITDA, including our recent acquisitions and divestitures, grew at 28%. The integration of both acquisitions remains on track and we're confident that we will achieve the run rate synergies that we communicated at the time each respective transaction was announced. We believe that overall fundamental demand is improving in our core businesses. Looking toward the second half of 2021, with improving fundamentals, as well as contributions from the recent acquisitions, we expect adjusted EBITDA for our advanced materials division to be about 10% better than the first quarter. Let's move to slide number six. Our textile effects division reported an adjusted EBITDA of $25 million for the first quarter, which is 25% above the comparable prior year period. Volumes in the quarter grew 10%. We saw an improvement in volumes across nearly every product category, including formal apparel, which has lagged since the onset of the pandemic when consumers began working from home in casual wear. We believe that the broad-based recovery in volumes reflects pent-up demand from consumers, in step with the reopening of economies as mobility restrictions are lifted. Consumer sentiment in the US and Europe has increased, as well as retail store sales in each region. We believe inventories in the retail channel are still below historical levels, supporting a very strong order book. Sustainability within this channel also remains a focus for our customers. This macro trend continues to favor our leading technology that are environmentally friendly in areas such as water reduction, which continues to gain share. Our textile effects division has come through two challenging years, including facing trade wars in 2019, followed by the global pandemic of 2020. We believe that this business is quickly returning back to where it was in 2018, and that should be reflected in our second quarter results as we move throughout the rest of the year. Before sharing some concluding thoughts, I'd like to turn a few minutes over to Sean Douglas, our Chief Financial Officer.

Thank you, Peter. Turning now to slide seven. We were pleased to see a continuation of a strong recovery in the first quarter of 2021. The adjusted EBITDA increased by $124 million year-over-year and by $49 million quarter-over-quarter. This is in spite of approximately $25 million of negative impact to EBITDA in the first quarter of this year from winter storm Yuri that slammed the Gulf Coast in February. The overall decrease in volumes year-over-year is primarily attributed to our aerospace business, where sales in the prior year period were strong before the pandemic. As Peter has commented, aerospace revenues were down approximately 40% versus the prior year. However, they have bottomed, and we saw a meaningful improvement in the first quarter this year versus the fourth quarter of the prior year. Variable margins significantly improved year-over-year and quarter-over-quarter as demand for products has steadily improved, and increases in our sales prices have exceeded increases in our raw material prices, allowing overall adjusted EBITDA margins to recover to mid-teens. Turning to slide eight. Regarding synergies from recent acquisitions, we have now exceeded the $20 million target we set, facilitated by combining our polyurethane spray foam businesses and creating our Huntsman Building Solutions platform. With respect to the CVC Thermoset acquisition, we estimate having already achieved a current annualized run rate of approximately $9 million of synergies and are on target to achieve $15 million near the end of 2021. We are also on target to achieve the Gabriel synergies of $8 million by early 2023. With respect to our cost realignment and optimization efforts, we remain on target to deliver as previously shared. Of the $40 million polyurethanes target, we estimate having achieved an annualized run rate of approximately $15 million to date. Within advanced materials, having a $10 million target savings, we have achieved an annualized run rate of approximately $7 million to date. During 2021, we estimate a total net cash spend related to all these combined initiatives of approximately $70 million, of which approximately $15 million is CapEx related. Now turning to slide nine. We ended the quarter with approximately $2.1 billion of liquidity. During the first quarter, we redeemed in full our 2021 euro notes at par by paying the US dollar equivalent of $541 million. We also completed the acquisition of Gabriel Performance Products for approximately $250 million. Our net leverage ratio as of March 31st, 2021, based on an LTM adjusted EBITDA, is approximately 1.2 times. We expect to spend approximately $330 million in capital expenditures this year. This includes an estimated $80 million of spend on our Geismar splitter that is expected to be completed mid-next year. This also includes a current year incremental spend of approximately $30 million on high return growth projects commenced this year in our core downstream platform. As a reminder, we announced on our prior call that we had collected approximately $73 million from the sale of property in Switzerland, which we are, in effect, reinvesting in these growth projects. We built working capital in the first quarter, although to a lesser degree than originally expected, given the impact of winter storm Yuri. However, our inventory levels, particularly within our polyurethanes business, where we are just coming out of our quadrennial cluster turnaround in Rotterdam, remained tight. Our free cash flow for the first quarter of 2021 was less negative than we had anticipated, largely because of lower working capital levels and higher adjusted EBITDA than originally expected, given the strong recovery. On our prior earnings call, we had shared that we expect that our free cash flow conversion for this year to be somewhere near 20%. Given our current outlook on this year, we would estimate this to be more around 25%. On a pro forma basis, considering the incremental spend on growth projects, synergy and cost optimization initiatives, our estimated cash conversion is more toward 40%. In light of our strong balance sheet and confidence in maintaining strong free cash flow, we announced yesterday that our Board of Directors had approved a $0.10 per share per annum increase in our dividend. This is a 15% increase. Peter has repeatedly commented that we would maintain a competitive dividend. We remain committed to maintaining a strong balance sheet and strong free cash flow while we continue to build our downstream businesses, realign our costs, and return value to shareholders. Peter, back to you.

Thanks, Sean. Let's turn to slide number 10. A topic of increased focus by our investors and analysts is how much of Huntsman's business is sustainable. The most obvious and surface-level answer to this is that it points to our large and growing businesses that address markets such as energy efficiency, lightweighting, alternative energy, and water reduction. But the fact of the matter is that, in my opinion, nearly all of our business address sustainability in a very real way. At Huntsman, we continue to look for ways to do more with less, helping to bring real and sensible solutions to our customers. Just for the record, the US chemical industry is responsible for only about 3% to 4% of the total US greenhouse gases, and Huntsman's emissions are significantly lower than our peer group. With recent divestitures, emissions at Huntsman have gone through a significant step change for the better. We'll be reporting these numbers in addition to how well we're tracking in order to achieve our Horizon 2025 targets within our upcoming sustainability report. We have been issuing this annual report since 2010. Sustainability is nothing new at Huntsman. We continue to look for ways to improve our operations and reduce our emissions. While we are open to looking at opportunities such as electrifying our facilities and utilizing other alternative energy sources, the adoption of many of these technologies are decades away and in some cases, do not even exist today. In Huntsman's view, the best way to reduce carbon emissions is to bring solutions to our customers that help them reduce their emission footprint. Examples of this would be our insulation business, including spray foam, which is also able to utilize our TEROL polyols that use feedstock made up of up to 60% recycled PET waste. Other examples are in the lightweighting of airplanes and other forms of transportation. We're also helping to improve batteries through our ultrapure ethyl carbonate portfolio. I could go on naming many other examples that help reduce emissions. And we've maintained that Huntsman is actually carbon-negative, as we provide amines and solutions to help our customers and end-users reduce their emissions well beyond the emissions that we are actually generating. And our best sustainability stories are in some of our biggest and most profitable businesses. We're very excited about where our company is heading and are looking forward to increased energy standards and the trillions of stimulus dollars that are flowing globally towards the construction, manufacturing, and transportation sectors. Our business is sustainability, and we expect to benefit significantly from such global trends and measures that are being taken. Another often asked question from investors is where we are relative to our current view of normalized EBITDA. With the exception of our Chinese and European MDI components of polymeric sales, we have been temporarily experiencing above-average margins. The remaining businesses within our portfolio are approaching or already at historical normalized levels. Having said that, we're still a far cry from every cylinder running. When our new Geismar splitter is completed and fully integrated, it will contribute around $30 million of additional EBITDA. We have yet to fully capture all synergies in our newly acquired advanced material assets, which will add another $15 million of annual EBITDA per year. We also have yet to capture approximately $40 million of annualized cost savings per year from our cost optimization plans. On each of these EBITDA enhancements, we are on target to deliver as committed. Furthermore, we're still running greater than $50 million per year shy on aerospace, which we fully expect to recover over the next few years. With the exception of commercial aerospace, which we expect will eventually fully recover, our portfolio is stronger and better than it was pre-COVID. We made good strategic decisions during COVID to build out our core businesses. We are spending additional capital on high-return projects that will bolster these businesses and complement continued M&A opportunities. These capital projects provide excellent growth opportunities in areas such as battery, semiconductors, and other mega trends. On our last call, I mentioned that we felt optimistic about rebounding back to our normalized levels of about $1.1 billion of adjusted EBITDA. With the results of our first quarter, combined with a number of self-help projects in which we are now engaged, I feel we should see a year-end total that may be very near to 2018 levels. Finally, I'm pleased to announce that because of our strong reliable balance sheet and confidence in generating consistent, strong free cash flow, we're increasing our annualized dividend amount by $0.10 per share from $0.65 to $0.75. This represents a 15% increase. We continue to look at appropriate M&A opportunities to set our core platforms for growth, offering significant synergies, expand our margins, and free cash flow conversions. As we have said consistently, we are committed to our investment-grade balance sheet. We will be disciplined in consistently applying prudent financial criteria to each of these acquisitions. In short, I feel that we're off to a very good start this year. Now, on a personal note, we announced earlier this month that our CFO, Sean Douglas, is resigning to accept the calling to serve in the senior leadership of his church. For the past four years, Sean has been at my side. He's been a wonderful CFO. However, over the past 30 years, Sean has also served the broader interests of this company and our foundations. During Sean's tenure, we have transformed this company from a polystyrene plastics producer laden with five to eight times debt to an investment-grade market leader in differentiated and specialty chemicals. Sean, you led this company, our foundation, and the culture we embrace today far better than how you found it. That, my friend, is a true legend. Thank you. Operator, at this time, we'll take any questions that are ready to go.

Thank you. Our first question comes from the line of Bob Koort with Goldman Sachs. Please proceed with your question.

Thank you. Good morning. Peter, I guess, one comment I consistently hear from shareholders is maybe a desire for some return of capital via repurchase rather than dividends. It sounds like you're pretty optimistic about the forward, and you talked about maybe the M&A market's got a little froth to it. So when would you expect you guys to start deploying some of that capital towards a share repurchase resumption? Thank you.

Well, Bob, it's very good to hear from you. Yeah, that is something that we're continuously looking at. It's something that I think I publicly have stated that our number one priority is our cash to deploy that capital into investment opportunities, M&A opportunities. And beyond that, we're going to be very carefully looking at share repurchases and dividends. And we obviously made a decision on dividends here in our last board meeting that took place two days ago. But I think that's something on an ongoing basis. My preference would be to see us deploy our capital smartly into M&A opportunities where we've got a good fit. We've got some built-in synergies and an opportunity to expand our product portfolio and technology. I think that's probably the fastest way to create shareholder value. Though having said that, just because we have it, it doesn't mean we are going to be forced to spend it. So I think that we'll continue to be prudent, and we continue to look for those opportunities. And the share buybacks will continue to be part of that evaluation going forward.

Thank you. Our next question comes from the line of Alex Yefremov with KeyBanc Capital Markets. Please proceed with your question.

Thank you. Good morning, everyone. Sean, congratulations on moving on to new adventures. Peter, could you talk about the component MDI market in China? It's been soft lately. What do you think is going on there? When do you - do you have an idea whether we could see stability or maybe even improvement in the China market?

Well, I think that we did see some tightness that really started in the fourth quarter where we saw component prices, the more commoditized end of our business, that we saw really over about a two-week period, we saw component prices rise about 20%. Again, that's a 20% increase in prices over a two-week period. This was largely driven by outages and very strong economic demand taking place as China recovers its economy in a post-COVID world. I would say that in the fourth and first quarter, we probably would have somewhere around $40 million or so of over-earnings, and of that $40 million-ish, about one-third of that was European, and two-thirds of that was China. We have a lot of our more commoditized component businesses in North America that are more dependent on formula pricing. And so we don't see the price increase in North America like we do in the rest of the world, nor do we see the sudden drops in North America like we do the rest of the world. As we look into the second quarter, I think that we'll probably see that over-earn on those similar sort of ratios, probably around $20 million give or take a couple of million. I would say, though, that as we look at pricing over the course of the last couple of weeks, it is stable. I don't see it falling at the present time. And I think that we ought to hope that throughout the rest of the second quarter and beyond, we ought to see some stability in that pricing. I will just note that from the public notifications that have been discussed in China, as well, we have some significant turnarounds that will be taking place in the third and fourth quarter in the industry, that will be impacting China later in the year as well. So as I've said in past calls, I think as we look at the overall MDI capacity utilization, we're probably globally, right now, running pretty close to 90%. So you see a large disruption or closure around the world, and you'll see the impact of that, I think, reverberate pretty quickly.

Thank you. Our next question comes from the line of Kevin McCarthy with Vertical Research Partners. Please proceed with your question.

Good morning. Peter, I was wondering if you could update us on your view of supply chain inventory in Polyurethanes. We hear a lot about tightness in both isocyanates as well as polyols going into urethanes. What did your volumes run at HBS? And what is your outlook for the next few quarters as these dynamics start to normalize?

When I discuss our vision regarding orders and similar matters, it’s important to note that I’m likely looking just a month or two ahead and not making predictions for the entire year. We are observing some trends, and our inventories are quite low. We could potentially move more products through HBS if they were available. While we have the option to limit customer orders, we are committed to fulfilling existing contracts. Currently, we are experiencing significantly stronger growth in our HBS business than usual. This growth can be attributed to new housing developments and the increased demand for insulation in Texas following the severe freeze. The trends in energy conservation are also noteworthy, particularly with potential tax incentives for homeowners who are re-insulating with better products. I believe we are poised to gain market share in our HBS business and the targeted downstream MDI sectors. Overall, our inventory levels across the entire supply chain are quite low from our perspective.

Thank you. Our next question comes from the line of Mike Sison with Wells Fargo. Please proceed with your question.

Hey, guys. Nice start to the year and congrats again, Sean. We'll miss you. Peter, when you think about polyurethanes, it looks like it's going to have a record year in '21. I know it's a little bit early, but when you think about growth in '22 and beyond, can you maybe walk us through what the variables are in terms of continuing to grow that business? How does the split or affect it? I know you're more differentiated now, and then maybe acquisitions potentially over the next couple of years, and where can that EBITDA potentially go?

Well, I think we have a great opportunity, and it's a great question. I think we have a great opportunity to increase our margins. I've said in the past that I'm not sure our Polyurethane business necessarily needs more tonnage. Though, again, I want to be very clear, we are going to be operating our facilities and debottlenecking them and trying to get every ton out of our facility the very best we can. However, I think that we need to focus on how do we maximize the margin on a per ton basis. As we look at that going forward, I think there will be opportunities for us to align ourselves with customers that are further downstream, customers that are taking a higher blend of products that are coming out of our MDI splitters. We will continue to invest and grow our downstream businesses like HBS. We're going to keep looking at acquisition opportunities, not just in spray foam, but in other areas where we can consume, particularly the lower margin, more commoditized grades of our MDI and consume those internally. Again, I think we've got a great portfolio of volume within our business. We have an excellent opportunity, I think, to continue to look for ways where we can expand incrementally on that volume. But I think that what we will be mostly focused on is how do we upgrade the pricing and how do we take the lowest margin segments of that business and continue to elevate those. That's why we've invested in our splitter. We continue to invest in cost reduction. We'll align our R&D around those customers and those applications that return us the most money. We believe longer-term sustainability will continue to be very important for us. From a macro perspective, when I look at the overall industry, I just don't see a lot of new capacity being added over the next couple of years. It's going to be coming into a market that is operating probably somewhere in the very high 80% to 90% capacity utilization.

Thank you. Our next question comes from the line of Frank Mitsch with Fermium Research. Please proceed with your question.

Hey, good morning. And Sean, it has been a pleasure to work with you. So obviously, wishing you all the best. And if I could also wish you an early happy birthday.

Thank you very much. I am an old man now, too. So Frank, thank you very much; much appreciated.

Yes. I mean the reason why I knew it, Peter informed me as to what he was planning on getting you, and you are going to be so surprised, it's fantastic.

And my wife will be even more surprised.

Frank, if I'm trying to level set here for the second quarter, I'm doing a lot of puts and takes in terms of the guidance, etc. It's coming up around $320 million of EBITDA, and if I figure in $25 million, that includes a $25 million negative impact from the turnaround. However, you're over-earning by about $20 million as you just said. So that kind of gets us back to that $320 million level. If that's right, you indicated that normalized EBITDA, people have thrown around the number of $1.1 billion. It doesn't seem like we're that far off from that level. Is my math quasi right? And am I in the ballpark here? Frank, probably one of the few times you ever heard somebody tell you this, but I think your math is probably pretty close. Now the fact that a dyslexic like me is telling you ought to worry you. When I look within our own guidance and our own expectations to what I'm presenting to our Board of Directors, we're singularly a few million dollars apart one way or the other. Again, I think from what we have in the second quarter and from what our vision is for the rest of the year, I would concur with what you're saying.

Thank you. Our next question comes from the line of Hassan Ahmed with Alembic Global Advisors. Please proceed with your question.

Good morning, Peter. Good morning, Sean.

Good morning.

Sean, was great working with you. Best of luck, my friend.

Peter, question, just wanted to revisit MDI pricing in China, particularly with sort of a focus on the second half of the year. I mean I know the first half has been a little tricky. We saw, obviously, some incremental capacity coming online. There was chatter of, call it, some inventory rebuild leading into the Chinese New Year. So obviously, with all of these puts and takes in mind and something that you mentioned about sort of incremental turnarounds in the back half of the year, could we be in a situation relative to right now in H2 in China where supply-demand fundamentals are actually tighter, and we may see potentially another run-up in pricing there? I think that right now, we're probably looking at a pretty stable environment. I mean that's what we'd like to see. I talked earlier about that run-up of kind of 20% in a week or two. I see prices have kind of gone back to that pre-Chinese holiday timing. They feel like they've stabilized in this area. I think that with a number of the facilities that are back online in China and the economic growth that they've been experiencing, slowing just a little bit but still showing significant growth, I think we're looking at stability between now and the end of the year. Now having said that, there have been some very large turnaround and maintenance work that includes over 1 million tons of capacity that has been pushed off for the second half of the year. But usually, those projects will build inventory beforehand. Unless there is some unforeseen problem with restarts or something of that nature, we hope to see stability throughout the rest of the year.

Thank you. Our next question comes from the line of John Roberts with UBS. Please proceed with your questions.

Thank you. Best wishes as well, Sean. We hear another company in the epoxy market is targeting 30% EBITDA margins. Do you think Huntsman has a better or worse mix than the competition? And any thoughts on that kind of target?

I think our mix is far, far better than the competition, but I'm slightly biased in saying that. Without knowing who you're talking about or anything, look, if we're able to earn it, we're going to earn it. I think we've got a great batch of customers, and I think that, again, we are probably a bit different than our competition in the amount of volume that we're moving into the aerospace industry. That might seem like a bit of a frustrating position for us to be in right now. But I think over the past decade and over the decade to come, that position is going to serve us extremely well. It's been a very reliable earner for us with margins that are on the high end of our spectrum of customers worldwide. I think that in an area like epoxies, I really don't compare us with our competition because we really don't compete a great deal with the more widely recognized epoxy producers around the world. I think our biggest competitors in that business are smaller blenders and formulators that are downstream, and those are the people that we probably are competing more aggressively against. I say that tongue-in-cheek about us being far superior to our competition. I just don't see us competing head to head with a lot of them.

Thank you. Our next question comes from the line of Matthew Blair with Tudor, Pickering, Holt. Please proceed with your question.

Great. Good morning, everyone. Thanks for taking my question. Congrats to you, Sean. I had a question about Huntsman's EV exposure. Could you just generally talk about how much product you would place on an EV versus a traditional ICE vehicle?

Yeah. And Matthew, I hope you recognize your question from last quarter about the dividend. So you have a profound influence on our thinking as a company. Thank you very much. Look, on an EV vehicle, the biggest difference between an ICE vehicle, internal combustion engine vehicle or an EV is going to be the motor and probably the weight. As you think about that, we don't really supply a whole lot into the motor and drivetrain. So we're not going to lose anything on that end of the spectrum. On the battery side, we have several formulations and a number of projects that we're presently looking at, particularly with the battery industry. We think that there are significant opportunities for this company to be involved in carbonates and other chemistry that we will be supplying. We hope to be in a position to announce some of these joint ventures in the near future by working with the battery manufacturers. On the EV side, from the powertrain side, I would see that it's a plus for Huntsman. We actually would be selling more into that area. The other category between an ICE and the EV that I see is overall weight. Most of these EVs are going to be completely redesigned from the ground up or from the frame up, and they will be very conscious about weight. And when you think about lightweighting, usings composite materials rather than metal and think about adhesion instead of welds, that is certainly going to be an advantage to Huntsman as well when you think about light weighting. But I also think that lightweighting is going to be on both EVs and ICE. The third area, when you think about comfort and sound insulation, polyurethanes—if you're driving a car where you can drive for hours on end and not have a sore back, you probably are sitting on an MDI-produced seat. If you're getting out after an hour or so driving to your store and your grouchy, you're probably sitting on a non-MDI seat. As these cars are being redesigned and refocused, we hope that they're moving towards more comfortable seating. But that's going to take place in both ICE and EV. I believe that if you were to take my preference, I would think that we're going to be advantaged more by an EV than we are by an ICE vehicle.

Thank you. Our next question comes from the line of Angel Castillo with Morgan Stanley. Please proceed with your question.

Hi. Thanks for taking my question. Just wanted to touch on Performance Products. Very solid quarter there, and the margins for EBITDA look to be above 20%, so 2Q, also very strong. Just curious, as we think about that margin versus what you've done historically in that segment, I believe in the past, you've talked about this business as a scenario where you could improve and then continue to drive better value there. How do you think about margins for the longer term? And just how do we think about the progression from 2Q to the back half of the year for Performance products?

On the back half of the year, one of the advantages we do have on the first half is going to be the reliability and consistency of manufacturing that we've had. In the second half of the year, we're going to have several smaller turnarounds. These are facilities that, by and large, don't come down every couple of years; they usually come down for a week or two every year. We're going to see some of those in the second half. So if we're muted in the second half, it's not because—those probably will impact the quarterly numbers by $5 million to $10 million. Now having said that, from a manufacturing standpoint, when we last saw EBITDA performance on a quarterly basis at the level we are today, the majority of the profitability in the business was coming from a single application, and that was wind, largely coming from China. So as we look at the wind contribution margin today versus five to six years ago, that was about 60% higher. We've diversified our customer base more than just being reliant on one product. I would also say that when we look back in past years when we operated at this level of profitability, we also had a number of competitors operating at sub-capacity design. The maleic prices right now are strong. Everybody is running UPR downstream, and margins are strong because we have good applications and a good customer base, not because competitors are down. When I look at the overall margin today in Performance Products, yes, I think you're correct; it's a good margin now. That hopefully won't just be the case, barring maintenance projects planned for later in the year. This is not to be a 20% sort of margin business. I think the long-term prospects are very strong.

Thank you. Our next question comes from the line of P.J. Juvekar with Citi. Please proceed with your question.

Yes, hi, good morning, Peter.

Good morning.

And good luck to Sean. Sean, thank you. We'll miss you. For your slide 10 for ESG efforts, and my question is, you're taking recycled PET bottles into TEROL polyols. You mentioned you can take up to 60% rPET. One of the peers, Eastman, is doing molecular recycling of PET. So I guess my question is, with demand for recycled PET going up, and PET being much easier to recycle than polyethylene, do you think those rPET prices could go up?

No. I don't see that happening anytime soon. As I look at the source of our PET, we're taking both post-consumer and post-industrial scrap. I cannot speak for Eastman, just for our efforts. We're using the equivalent of 1.25 billion to 1.5 billion bottles a year of recycled PET. That's a small dent. We've got a lot more that we can be doing as an industry. The challenge of recycling any plastic is to be able to upgrade the value of it. I commend companies like Eastman and our efforts. The challenge is upgrading the value of it. Anyone can take a used plastic, melt it down, and make it into a park bench. But to convert billions of pounds of plastics into park benches is not feasible. We must take a PET bottle or polyethylene, and upgrade it into something of equal or greater value. I think these are the initial steps. I wish I could say that we are taking 100% of the world's PET consumed, but we have real work ahead of us.

Thank you. Our next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed with your question.

Thanks very much. I have a question on the polyurethane slide. Your MDI volumes decreased 7% year-over-year, but the year-over-year volumes were flat. How fast did the non-MDI volumes grow in the quarter? What are they? And are the margins comparable to MDI?

I think that as we look at that, most of that volume is around polyols. That's what we're blending with MDI to create specific effects, downstream effects, and so forth, particularly in HBS. As we're doing that, that's certainly an area we want to continue to enhance as we're blending more polyol with MDI and because in doing that, we're creating greater differentiated chemistry.

Thank you. Our next question comes from line of David Begleiter with Deutsche Bank. Please proceed with your question.

Thank you, Peter. Just on aerospace, with that market beginning to bottom return as we speak, do you think you could still get back the entire, I think, roughly $80 million of EBITDA loss last year? Or could you even do maybe better going forward?

Well, I think we'll do better going forward. I believe that the idea that you're going to be producing planes five, 10 years from now with the aluminum content that you had a couple of years back is unlikely. The next generation of the Airbus 320, the Boeing 787, and so forth, will increasingly incorporate more carbon composite materials per plane. I'll also note that with the recent acquisition of the CBC Specialty Polymers Group, we've gained additional exposure there. Although it has been a bit frustrating for us this year, I believe longer-term, that additional exposure into the aerospace business will significantly contribute. We aim to nurture it and carry it forward because I think it will contribute to normalizing our EBITDA in the aerospace space.

Thank you. Our next question comes from the line of Matthew DeYoe with Bank of America. Please proceed with your question.

Good morning, everyone, and I guess just to reiterate everyone else's sentiments, congrats on your next steps. It seems to be a little bit of a theme here for Huntsman's CFO, so good luck there. Peter, you touched on this a little bit. Obviously, we have some MDI over-earning in the short term, but we're probably nearing the end of the global capacity build-out. Even if we loosen up here a little bit in the second half, how long do you think it takes before we tighten again? And what do you envision for earnings or at least maybe margins for the industry between 2022 to 2024?

Well, I am not sure we’re—I certainly can’t speak for the industry because we’ve seen a real bifurcation of corporate strategies in the last couple of years. We've certainly committed to saying we're going further downstream. We're going to buy those assets; we're going to partner with others and so forth. We're not stressing our balance sheet or funding it ourselves for $1 billion MDI capacity projects. We'd be willing to participate through partnerships, but we will be deploying further capital as we look at it on a downstream basis. Those of our competitors prioritize the upstream, adding capacity and so forth. We're comfortable with our direction focused on higher margin and greater stability. Again, I'm not saying we're going to get tighter and tighter as an industry, but if we project out a 6% growth and a normal incremental expansion of 2% to 3% growth per year, you just have to keep in mind that the industry will get tighter over the next couple of years. And it is a regional industry, largely. You're going to see some parts of the world tighten more than other parts. But largely, I think it will be a balanced industry over the next three to five years.

Thank you. Our next question comes from the line of Adley with Jefferies. Please proceed with your question.

Thank you. Good morning, guys. Peter, in terms of the impact of the semiconductor shortage on auto production, you've talked about maybe reallocating some of those products to other end markets. Can you elaborate on what end markets you supply and that have similar or better margins than that? And what those markets on the supply chain?

Sure. As announced earlier, we've got Tony Hankins here, our divisional President of Polyurethanes. So, Tony, why don't you answer that?

Thank you. Good morning. Thanks for the question. The automotive products we manufacture are specialty formulations going into the high-end auto market. However, there are commonalities with other markets such as high-end furniture, for example, where we supply viscoelastic grades into high-end furniture. So there's a direct comparison between high-end seating and the high-end furniture. The margins there are good or even better in some cases than the auto market. There's an opportunity, and that market is growing quickly at the moment. We are fully sold out into those areas. It's very easy for us to divert products into those other high-end opportunities we have.

Operator, I think we'll take one more question. We've got Lindell, who's starting their call at the top of the hour, and we’d hate to deprive my friend, Bob Patel, of his audience. So I have a couple of good tax questions I could think of. But anyway, let's take one more question, operator. And we'll wrap up the call.

Thank you. Our final question this morning comes from the line of Arun Viswanathan with RBC Capital Markets. Please proceed with your question.

Great. Thanks. Maybe you can just comment a little bit on the long-term, Peter, and congrats, Sean, as well. But you noted $1.1 billion of normal EBITDA. What would you kind of view as peak at this point with the changes that you've made to the portfolio? Thanks.

I'd hesitate to use the word peak just because I hope that if our portfolio is truly integrated downstream, we might see instances where our more commoditized products are undergoing above-average margins, which could induce higher than normalized earnings for a quarter or two. But as I think about peak performance in our Performance Products or Advanced Materials, even Textile Effects and the majority of our MDI products in polyols and so forth, I don't see those products really peaking, if you will. I see them growing better than GDP, and I hope we can do that for the long run as we aim for margin expansion faster than GDP growth. Depending on the macro economy, which we're also dependent on, I would hope that we would see a normalized number that continuously improves and equates to EBITDA improvements generating cash of around 40%, high 30s, to 40-ish percent, with consistency over the last five or six years.

Thank you. Ladies and gentlemen, this concludes our question-and-answer session, and this concludes our call today. We thank you for your interest and participation. You may now disconnect your lines.