Greetings and welcome to the Huntsman Corporation Second Quarter 2021 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. As a reminder this conference is being recorded. It is now my pleasure to introduce your host Ivan Marcuse, Vice President of Investor Relations. Thank you sir. You may begin.

Thank you, Christine and good morning everyone. Welcome to Huntsman's second quarter 2021 earnings call. Joining us on the call today are Peter Huntsman, Chairman CEO and President; Phil Lister, Executive Vice President and CFO; and Tony Hankins, President of Polyurethanes. This morning before market opened, we released our earnings for the second quarter of 2021 via press release and posted to our website. We also posted a set of slides on our website which we will use on the call this morning while presenting our results. During this 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 diluted adjusted EBITDA, adjusted net income or loss, 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. I will now turn the call over to Peter Huntsman, our Chairman, CEO, and President.

Thank you, Ivan. Good morning everybody and thank you for taking the time to join us this morning. Let's start out on slide number three. Adjusted EBITDA for our Polyurethanes division in the second quarter was $208 million versus $31 million a year ago. Our Polyurethanes division continued to improve posting 13% year-on-year volume growth and 18% adjusted EBITDA margins. Our differentiated volume which includes our spray insulation, automotive, and elastomers businesses grew by 22%. As a reminder, during the second quarter, we conducted a major turnaround at our MDI facility in Rotterdam, the Netherlands. This turnaround occurs once every four years with many third-party supply facilities carrying out turnarounds at the same time. Downtime associated with the turnaround negatively impacted volumes and adjusted EBITDA by approximately $35 million in the quarter. This was $10 million more than we communicated to you last quarter as several third-party issues delayed our start-up and forced the plant to run at lower rates for an extended period in May and June. The good news is that this turnaround is behind us and operations at Rotterdam have returned to normal. Excluding the impact of the Rotterdam turnaround, our total volumes would have grown at 22% year-on-year as we were essentially sold out on our MDI units worldwide. We continue to see a strong recovery in our Americas and Asian regions with MDI volumes growing 15% and 13% respectively versus the first quarter. Significantly higher margins also drove year-over-year adjusted EBITDA growth in the quarter. Higher average selling prices offset higher raw material costs and unplanned outages. We believe that longer term supply and demand fundamentals in the MDI industry will remain balanced and margins will remain at a fairly healthy level for the foreseeable future. Growth in our core construction markets, including insulation adhesives and coatings, continue to lead the recovery in urethanes. All these sectors saw growth on a quarter-over-quarter basis even in Europe, where we had both planned and unplanned disruptions associated with the Rotterdam turnaround. North American insulation businesses, including spray foam and our composite wood products business, remains solid, as we see residential construction spending remaining robust, and commercial construction spending picking up. Our order book for spray foam has never been stronger, and we're implementing price increases to help offset higher raw material pricing and logistical costs. Elastomers, which included our global footwear business is another core growth platform for polyurethanes, and it continues to see strong recovery trends globally. Demand in both residential and industrial markets within elastomers remained strong. Results would have been even better this past quarter had it not been for shortages in some key raw materials and higher logistical costs. We expect our business to keep up the momentum for the remainder of 2021. Our global automotive business significantly increased year-over-year due to favorable comparisons. However, volumes were down mid-single digits compared to the first quarter due to the ongoing chip shortages, which have resulted in lower production rates industry-wide. That said, global demand in our markets is strong, and we were able to redirect volumes originally intended for the automotive market into markets utilizing similar chemistries. Our Polyurethanes strategy is to upgrade the quality of our portfolio. We will continue to redirect more of our plant's output to our differentiated businesses and limit the lower-margin component business. We will invest in our downstream businesses organically and where it makes sense through bolt-on acquisitions. Where we can generate higher and more stable margins through long-term contracts in our components business, we are doing so. Our splitter investment in Geismar, Louisiana, is consistent with this strategy. Once completed, the new splitter will allow us to produce more higher-value MDI molecules while maintaining the same total plant output. This investment is progressing very well. We're seeing strong demand for materials that are the output of this project and we're moving aggressively to complete this project as soon as possible to take advantage of these conditions. We now expect to complete construction at the end of the first quarter of 2022, earlier than originally planned. Once fully operational, we expect this project to contribute $30 million in incremental adjusted EBITDA on an annual basis and expect to see stronger margins next year, as a result of our earlier than planned completion. Our PO/MTBE joint venture with Sinopec in China, where we own a 49% interest, continues to benefit from very strong margins and is driving above-average equity earnings. We do see our equity earnings associated with this joint venture being lower in the second half of the year when compared to the first half of 2021. Overall, we remain very positive about the trends that we are seeing in polyurethanes globally. Demand is solid and the industry is toggling between balanced and tight at this point in time. Substitution will continue to help drive MDI growth and our sustainable solutions products, which deliver increased energy efficiency, are expected to follow trends that will have a very positive impact on MDI demand for the foreseeable future. Looking into the third quarter, we see general demand fundamentals remaining solid or better, and lower turnaround costs are already impacting the bottom line of the business in a positive manner. Even with typical seasonality and lower joint venture earnings, we would expect our Polyurethanes third quarter adjusted EBITDA to be between $240 million and $260 million. Turning to slide number 4. Let's talk about our Performance Products segment, which reported an adjusted EBITDA of $88 million compared to $29 million in last year's second quarter. The improvement in this division was partially due to a strong finish in the first quarter with sales migrating into the second quarter. The division also benefited from stronger pricing and margins due to tighter markets, competitor outages and better pricing discipline. Accordingly, our amines and maleic portfolio has recovered quicker and performed better than we expected at the beginning of the year delivering over 20% adjusted EBITDA margins in the second quarter. Performance Products' strong financial results not just in the second quarter, but increasingly across the last several quarters, reflect a refresh of the business strategy implemented after the sale of our Chemical Intermediates and Surfactants businesses. This division is focused on targeted growth in our specialty amines, carbonate and catalysts, while driving commercial excellence across the entire segment including our maleic anhydride business. These changes are already bearing fruit and are expected to have a meaningful positive impact on earnings moving forward. Volumes in our Performance Products segments were up 25% versus favorable comparisons in last year's second quarter, and importantly are now at or above 2019 demand levels in most of the division's core markets. Leading the way are amines used in polyurethane catalysts, construction and composite markets. Construction demand is also having a favorable impact on maleic anhydride volumes sold into UPR. Opportunities to make bolt-on acquisitions in this segment tend to be more limited and in some cases do not exist as we are building new markets. As such Performance Products remains focused on driving growth, primarily through high-return low-capital organic investments. These investments include projects to develop catalysts serving the VOC-free polyurethanes market, ultrapure carbonates into lithium batteries, and high-purity amines used in semiconductor manufacturing. We expect these investments will begin contributing in a meaningful way in the next two to three years. We see overall demand for Performance Products offerings remaining solid for the foreseeable future. In the third quarter, while there will be some typical seasonality planned turnaround and more balanced amine markets, we still expect third quarter adjusted EBITDA to be between $75 million and $80 million. Moving to slide number 5. Advanced Materials reported adjusted EBITDA of $58 million in the quarter, a significant improvement year-over-year driven primarily by the continuing recovery of our core industrial businesses and improving contributions from our recent acquisitions. Excluding the acquisition of Gabriel Performance Products, sales revenue in Advanced Materials increased by 42% compared to the second quarter of 2020 generating adjusted EBITDA margins of 19%. Aerospace results were flat in the quarter versus the prior year. Although, we saw another quarter of sequential improvement, which we expect to see again in the third quarter. We still think a full recovery to pre-pandemic levels in this segment will take another year or two given our exposure to the wide-body planes used more in international travel, but we're encouraged that the recovery is tracking better than we had anticipated earlier this year. Excluding aerospace, sales in our other core specialty businesses experienced growth year-over-year and are now slightly above 2019 levels. Additionally, the integration of CVC Thermoset Specialties and Gabriel Performance Products continues on plan. We remain confident that we will achieve the total run rate synergies of $23 million we communicated at the time each of these respective transactions were announced. Overall, our Advanced Materials division is tracking well and as aerospace recovers, we expect this position to consistently generate adjusted EBITDA margins in excess of 20%. We will continue to grow this division organically and through targeted bolt-on acquisitions. Third quarter adjusted EBITDA for Advanced Materials should look similar quarter-over-quarter subject to typical seasonality and be between $50 million and $55 million. Moving to slide number 6. Our Textile Effects division reported an adjusted EBITDA of $28 million for the second quarter. The recovery in earnings has been driven by higher sales which more than doubled compared to the second quarter a year ago and demand has returned to pre-pandemic levels in our key markets. We saw volume improvements across every product category when compared to the prior year and generated 14% adjusted EBITDA margins in the second quarter. Consumer sentiment in the US and Europe continues to improve and retail store traffic and sales in each region are showing positive signs. Sustainability within the retail channel remains a focus for our customers and for us. This macro trend favors our leading technologies that are environmentally friendly in areas such as water reduction which continues to gain share. Some of our Asian customers were adversely affected by the renewed restrictions associated with the return of higher numbers of COVID cases in certain regions towards the end of the quarter. While we are watching these dynamics closely we still see adjusted EBITDA in the third quarter to be well above pre-pandemic levels. Before sharing some concluding thoughts, I'd like to turn a few minutes over to Phil Lister, our Chief Financial Officer.

Thank you, Peter. Turning to slide 7. We were pleased to see the continuation of a strong recovery across the portfolio. Adjusted EBITDA increased by $280 million year-over-year and by $45 million or 16% quarter-over-quarter. The improvement in EBITDA from the prior quarter is in spite of an approximate $35 million impact from the extended turnaround at our Rotterdam MDI facility. In particular, we were pleased with the performance of both the Advanced Materials and the Performance Products divisions both of which achieved strong adjusted EBITDA margins in the quarter and where we are investing inorganically and organically to grow these two divisions. The increase in volumes year-on-year is primarily attributed to strong growth since the depth of the global pandemic across the majority of our portfolio and businesses. Variable margins significantly improved leading to adjusted EBITDA margins moving into the high teens at 17%. Sales price increases exceeded some rapid increases in raw materials, which have occurred since the beginning of the year. Turning to slide 8. We continue to make good progress with the integration of our recent acquisitions. A reminder that our Huntsman Building Solutions target synergies have been exceeded and our Advanced Materials acquisitions of Gabriel and CVC remain on track to deliver $23 million of synergies. In addition, our cost optimization plans also remain on track with our program and Performance Products fully completed. In total, we expect to achieve full year acquisition synergies and cost optimization of approximately $90 million in 2021 with a target of approximately $110 million in 2022. Turning to slide 9. We had a use of free cash flow from continuing operations of $83 million in the second quarter, as a result of the extended turnaround at our Rotterdam MDI facility. The Rotterdam MDI turnaround is now behind us for another four years and we anticipate significant free cash flow generation in the second half of the year. Consistent with remarks made on our last earnings call, we anticipate a free cash flow conversion rate to adjusted EBITDA of approximately 25% for the full year. As Peter indicated, our MDI splitter project is now scheduled to come online earlier than previously anticipated. As a result due to the acceleration of this project, capital expenditures for 2021 will now be $355 million to $360 million, approximately $25 million to $30 million higher than previously indicated. This acceleration of spending in 2021 along with increased adjusted EBITDA from the earlier start-up of the splitter will contribute to a targeted free cash flow conversion of approximately 40% in 2022. Should present demand trends continue, we see no reason why we should not be targeting and meeting or exceeding a 40% free cash flow conversion after this year. During the second quarter, we received a $28 million earnout related to the sale of our India DIY business, bringing gross proceeds to $285 million and a multiple of approximately 15 times 2019 adjusted EBITDA on the sale of the business. Our balance sheet remains strong with $1.9 billion of liquidity and a net debt to adjusted EBITDA leverage of one-time at the end of quarter two. During the quarter, we completed an offering of $400 million in 2.95% senior notes due in 2031 and used the net proceeds and cash on hand to redeem in full $400 million a 5.125% senior notes due in 2022. Combined, these transactions will save approximately $9 million in annual cash interest. Finally, addressing capital allocation. Following the divestment of approximately one-fifth of Huntsman's portfolio to Indorama in early 2020, we have focused on building our core platforms through targeted bolt-on acquisitions. Where it makes sense from a valuation perspective, this M&A strategy will continue, as we intend to grow our core platforms, particularly in our specialty and downstream businesses. As a reminder, we increased our dividend by approximately 15% earlier this year and we currently have an approximate 3% dividend yield on our equity. In addition, we have an existing share repurchase plan authorized by our Board of up to $1 billion, of which we have bought back $580 million prior to the global pandemic. We have placed share buybacks on hold during the pandemic. Taking account of market conditions and an appropriate return on capital, we anticipate resuming some level of share repurchases in the second half of the year. Peter, back to you.

Thank you, Phil. I think the results of this past quarter marked a significant milestone and our recovery from the recent calamitous results of the past five quarters due to a global pandemic. The last time we had a quarter of this level of EBITDA was in 2017 and 2018 during a time when our Polyurethane business was enjoying unusually strong market conditions. At that time, MDI made up as much as 74% of our EBITDA. I think it is worth pausing and asking what is different today and what more is there yet to come. This past quarter, Polyurethanes made up 54% of our adjusted EBITDA as we see the result of a stronger performance products and recovery in Advanced Materials and the Textile Effects business that is likewise seeing a return to normality. I hardly see the second quarter as being peak results. As I look at the coming quarters, we will see the effects of the completion of our Geismar, Louisiana MDI splitter that will start generating EBITDA in the second quarter of next year. We'll also see the benefits of an additional $20 million of cost savings as we streamline our Polyurethanes business. Our Polyurethanes spray foam business has been constrained due to raw material supply issues that will be resolved in the second half of this year. MDI remains well balanced. However, during the second half of this year just over 10% of the global capacity of MDI will be lost due to announced closures for needed maintenance work. This will take place at a time when our facilities ought to be operating at design rates and sold out. In our Performance Products division, we saw strong margins and some one-time benefits, but the core of this business has fundamentally changed. We've expanded our customer portfolio, controlled costs and exercised better pricing discipline. We've initiated projects that will continue to change this division as we expand production of our urethanes catalyst capacity, our products feeding the semiconductor business and carbonates that will make us one of the largest sources of battery-grade carbonates in the Americas. These projects will be completed by 2023. Our Advanced Materials division has gone through a meaningful change this past year, as we've purchased and integrated our recent acquisitions of CVC and Gabriel. We'll see further cost optimization and commercial synergies in excess of $13 million by 2023 building upon the $10 million we will achieve this year. We will also see the return of our aerospace business that will further enhance our EBITDA by an additional $40 million to $50 million that is fully recovered. Our Textile Effects business will not only see the continued recovery of its retail customer base, but the completion of our Bangladeshi expansion that will deliver $10 million annually. In short, in the coming quarters the groundwork is being laid for over $150 million of additional EBITDA that will take place across our businesses. Aside from aerospace this assumes no further recovery in the market. Additionally, we have a very strong balance sheet that affords us to aggressively pursue M&A opportunities. This will be done where we have true synergies growth opportunities and the ability to stabilize our earnings. Having said that, I am surprised at some of the multiples that have been seen in some of the recent transactions in this industry. As I have said before, we will be disciplined. The quality of our earnings will continue to be of paramount importance. This past quarter notwithstanding when we experienced a perfect storm of third-party outages, unplanned inventory build and associated lost sales most of which will be recovered in the second half of this year, we are confident of our ability to deliver greater than 25% free cash flow to EBITDA this year. Should present market conditions prevail, we will see this percentage of free cash flow to EBITDA increase to 40% this next year. Finally, as Phil mentioned in his comments, we continue to pay a competitive dividend and will be reviewing our purchase of Huntsman shares. These share purchases will be determined by alternative uses of capital, as well as the return on any such capital employed. In short, we hardly see these market conditions as anything but a normalized level with plenty more opportunity yet to come. Operator at this time we will turn over to any questions.

Our first question comes from Frank Mitsch with Fermium Research. Please go ahead with your question.

Good morning. And congrats Phil on being named CFO. Peter working through the numbers, it looks like you're expecting third quarter to be better than the second quarter in terms of EBITDA and that typically is not the case with Huntsman. I think you have to go back several years to find something like that. So, given that you're not anticipating to see kind of that typical seasonality or are there other factors at work in terms of inventories, etc. What does your early read on fourth quarter suggest? That is typically, you see even greater seasonality in the fourth quarter? Is this an anomalous year? How should we be thinking about the seasonality impact on Huntsman?

As we approach the third quarter, we expect to experience some seasonality. Additionally, we anticipate a reversal of the turnaround we observed in Rotterdam. When considering this along with ongoing cost reductions and our pricing initiatives, I believe we will see a stronger third quarter compared to the second quarter. Our corporate expenses in the third quarter are likely to remain consistent with the fourth quarter, which is projected to be around $50 million per quarter, factoring in some LIFO charges. We are also witnessing a recovery in our business travel and associated expenses. We feel confident about the third quarter, and unless a major pandemic forces economic closures, I expect a strong fourth quarter as well. Overall, I believe the second half of the year will outperform the first half, based on current demand trends. While it's early in the third quarter, I am optimistic. I should note that we are looking at about a 10% reduction in capacity for the third quarter, which will also affect about 10% of the industry capacity for MDI in the fourth quarter due to maintenance work at several plants, some of which have been postponed to the latter half of the year. I do not foresee significant changes to this schedule, so we expect to see good demand in the second half of the year, although capacity may be constrained.

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

Hi. Thank you for taking my question. Congratulations on the strong quarter. And Phil, welcome. I have a quick question about MDI. You mentioned that the differentiated volumes were stronger in the quarter compared to the overall segment. As you examine those end markets and the balance between commodity and differentiated volumes, could you provide more insight? What do you anticipate for those volumes moving forward, and how does that impact your margins, particularly regarding the MDI spreads and the mix that could be advantageous?

Well, I'm going to have Tony Hankins, who's our Divisional President perhaps comment on some of the macro trends that we're seeing regionally. But as we look at it globally again, we're looking at an environment, where we're trying to take as much of our more commoditized tonnage and moving that into further downstream. Again, I just want to remind the market that there will be some times when people might be scratching their heads saying, 'Why aren't we benefiting as much during some of the cyclical upside that you see on some of the more commoditized grades in some of these times of outages and so forth?' But I think we're trying to look at an MDI business that delivers more reliable margins as a better consistent cash flow and isn't so dependent on spot pricing. So Tony, any comments that you have about some of the regional impacts we're seeing?

Yes. Thank you. We're seeing very strong demand right now in two of our three core downstream franchises: the Huntsman Building Solutions, which is spray foam, and our elastomers business particularly, the footwear business and the industrial assets business, where we're seeing very strong double-digit growth there right through the second half of the year. But we sold out. We've got an eight-week order backlog in HBS. The good news in that business is commercial construction is starting to pick up and we're seeing spray foam moving into that much stronger than the past, in addition to the residential construction area which has been very strong as you know with the new home build. So we're very, very pleased about that. Automotive has been off about 10% this quarter because of the chip shortage. I think that's going to ease up a bit towards the end of the year. That's clearly constraining automotive. But we move those products into other chemistries as Peter said on the call. Those are the chemistries that things like flexible foam into memory foam mattresses and pillows, where we've seen 35% quarter-on-quarter growth in those areas. So we're very, very optimistic and very upbeat about growth going forward in the second half in our downstream differentiated businesses and we're moving molecules from our component side of the business into those downstream markets. That's the whole strategy of valuing moving from components to specialty where the margins are higher, where the earnings are sustainable and where we're seeing real benefit particularly from the infrastructure build and the climate change investments, which are going to be made in not just the coming quarters but the coming years. So I'm very, very upbeat about these downstream businesses that we serve.

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

Thank you very much. Peter, I was curious you made a note that you're going to start maybe buying back some stock and also suggested that maybe multiples in the marketplace are a little elevated. You guys have been very exceptional at selling assets. Is there any scope maybe to monetize some more assets and take advantage of those bids? And what will be the hurdle or limiting gate factor on how much or what price you buy back stock would you think?

Well, Bob, very good question. And we're going to be looking at really on a case-by-case basis as we weigh the alternative uses of capital. Frankly, I'd rather see cash going into business expansion and M&A than share buyback. But again it's a pretty simple equation when we balance that return on capital employed and share buybacks versus M&A. So I think it needs to be a measured approach and something that we're going to be looking at carefully throughout the second half. And it's part of the balanced approach that we have as we've done in the past. Just to remind the market here that we bought in nearly $0.5 billion of our own shares over the last two to two-and-a-half years with the proceeds coming from Indorama and just cash coming from the operations of the business. I see that continuing. But yes as we look at possible asset sales, as I've said in past calls, we continue to look at our overall portfolio. And as we find opportunities where those looking at our business will put a higher value on certain assets than we may have internally, we'll certainly entertain that. And as I've said in the past, again, we certainly are not at a point where I'd say that there's nothing for sale within the company. So again that's not to say that we're out trying to sell off divisions or anything. But again it is to say that I think that any company has got to be able to look at where they can refresh and how they can refresh their portfolio.

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

Good morning. Peter, I just wanted to focus on the Q3 guidance you've given, specifically for the Polyurethanes business. I mean if I adjust for lost earnings from the Rotterdam turnaround, it seems that you guys are guiding to flat to slightly up EBITDA Q2 to Q3. And then if I sort of triangulate that with some of the comments that I heard, it seems that probably volumes are going to be up and this is all obviously adjusted for the Rotterdam turnaround. It seems volumes will be up in Q3 sequentially. You guys have pricing initiatives in place. So what am I missing here? From the sounds of it, it seems Q2 to Q3 Polyurethane segment EBITDA should be up nicely. So are you guys being relatively conservative with that guidance?

I wouldn't suggest that Mr. Hankins is sandbagging the numbers, but I want to highlight a couple of factors to consider. Firstly, regarding my concerns for the third quarter, one is the anticipated decrease in polyurethane figures. Our joint venture from the PO/MTBE partnership in China brought in notably strong equity earnings in the second quarter, but I expect to see those cooling off in the third quarter, particularly in propylene oxide and MTBE sales as those markets stabilize. Additionally, we should also anticipate the impact of rising raw material costs, especially benzene, which recently fell from highs of $4 to $5 down to around $3. However, given our process of purchasing and converting benzene into nitrobenzene and aniline crude MDI, we generally see a quarter-long impact from raw material changes, so the increases noted in the second quarter will affect us in the third quarter. On the downside, we’re looking at potential earnings pressure from the PO/MTBE segment and higher benzene costs. On the positive side, the turnaround is completed. We expect to see increased volumes and will be pursuing price hikes across the board, especially with our long-term contracts in the Americas, many of which are due now. As articulated by Tony, our goal in the Americas is to advance our polymer commodity businesses downstream. We’ll achieve this by splitting and redirecting those molecules into new markets, moving away from commodity pricing, while also feeding into the spray foam business, which is expected to grow at double-digit rates. As a result, the market for polymeric commodity-based MDI in North America is likely to continue shrinking, providing us the chance to reevaluate our remaining customer base and the value we provide, including pricing considerations. Although this is a lengthy response, looking ahead to the third quarter, I believe many initiatives we implement will carry over into the fourth quarter. While we may see seasonal fluctuations, I have a lot of optimism for both the second half of this year and into 2022.

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

Good morning. This is Cory on for Kevin. Looking at the Performance Products segment, we've heard that Huntsman is out with a price increase of $0.08 per pound for maleic anhydride in the third quarter – sorry, effective August 1. Can you talk about maybe some of the price drivers for maleic and maybe the sustainability of those drivers as you see it through the second half and into next year? And maybe could you break that down by region? I think we've seen a little bit of weakening in Europe versus the US and China? Thank you.

Yes. When we look at our maleic businesses, bear in mind, one of the two major drivers there is most products. Raw materials in the second quarter, we saw an average raw material cost for the business across the board just under $1 a gallon. And we see a current price of around $1.30 a gallon. So there has been a 30-something percent increase in raw material prices, which are going to necessitate higher selling prices for our maleic to offset that. We're also seeing very strong demand in the maleic, particularly in North America and in Asia. I think that we're seeing decent demand in Europe not as strong as they are in North America and in Asia. But I continue to be quite bullish on the maleic business. I think the fundamentals of it are strong. We're a global leader in the capacity and in the economics and in the technology to produce maleic. And I continue to believe it's going to be a business that delivers very strong results for us.

Our next question comes from the line of Mike Leithead with Barclays. Please proceed with your question.

Great. Thanks. Good morning. A question just on the raw material front. I think outside of benzene, the company is a fairly decent sized buyer of chlorine and Epi. And if you look at those products, there's been not only a fair amount of supply disruptions lately but the largest US producer of both products has been pretty vocal that price is only going to go upward moving forward. So just curious, how you think about your security of supply there and your ability to get pricing to offset that.

Well, look, it is a time that, as we see the recovery of the global economy, the demand that's being pulled on the global economy that we are going to see raw material pressure probably across the board. I will just note, though that, as we are looking into the third quarter into the fourth quarter, we are starting to see prices diminish on the raw material front. Benzene seemingly has peaked in the second quarter going into the third quarter. And typically going into the winter months the gasoline slate, a lot of what refineries produce will also – you'll start seeing a diminishment in some of those values as well. On our epichlorohydrin and chlorine so far I'm not going to comment on particular buying strategies and so forth. But in the area, particularly of epichlorohydrin, there have been some disruptions in – from the supply, particularly from Asia. Those things will be worked through. Look we've been buyers or producers of epichlorohydrin for many years. And this is a global commodity. It's going to move with supply and demand. And that's just the way it is. I think in many commodities in this industry, you sometimes get in those positions where you think prices are always going to stay high and prices will never diminish and economic reality will hit you, particularly in commodities when you've got global competition. So, I think longer term in spite of people trying to lock in long-term prices quote forever, the institutes of the markets will continue to be the same. I don't see any fundamental change in that. When you look and also you look in China, our large MDI plant. We have HCL recycling there meaning that we recycle our chlorine. We're looking at the possibility in the economic models of doing that more widespread throughout the company. And I think as you start looking at technologies, more and more our technologies, not only will be for from an environmental point of view but how do we reduce and how do we recycle and how do we capitalize on technologies that allow us to have better reliability, less materials coming into our facilities and utilize technology to basically make more with less. And I think that that's a trend that we're going to continue to see across the board.

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

Thank you. Peter, just on polyurethane, you mentioned that 54% of EBITDA today is from that segment. Can you talk about how much of that is now downstream differentiated EBITDA versus commodity EBITDA, and how's it compared to a number of years ago?

As we analyze the relationship between commodity and downstream, I hesitate to provide a precise figure because not everything aligns neatly within those categories. However, I would estimate that around two-thirds to nearly three-quarters of our EBITDA is generated from our differentiated products. Tony, do you see that?

No, that's absolutely right, Peter. I think we're very differentiated in Europe. The figure in Europe is higher than that. I think in America, it's the Americas is 70% to 75%. The Patriot splitter investment is really going to help us move that even further downstream. And in China, it's up 50-50, and that's the area we've got to be more working to really start converting more of that component where we see the spike from the fly-ups into more downstream stable lenses. So, yeah, overall, Peter, about 70%, 75%.

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

Thank you. Back to the Performance Products segment, Peter. Vegetable oil is also used in unsaturated polyester sort of different chemical route to some of the products. Is the surge in vegetable oil contributing to the supportive pricing there on maleic?

No, we are closely monitoring vegetable oil as a product and exploring alternative technologies and applications in that field. However, I do not believe it is having any impact at this time.

And then you talked about some constraints in PU foam volume there. Is it your propylene oxide supply from Indorama, or was it blowing agents or some other additive that might be constraining the PU foams?

Yes, John, I think there is a wide range of raw materials that are constrained. Polyols have been particularly limited in North America this past quarter, as well as catalyst blowing agents and release agents. Overall, raw materials have been very tight. For instance, butane dial, which is essential for the CPU business, is expected to improve significantly in the second half. However, it has been especially restrictive for our Huntsman Building Solutions business, impacting our ability to fully take advantage of strong growth. We are actively working to address these challenges by exploring alternative products and adjusting our chemistry.

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

Hey, guys. Nice quarter. Peter, the MDI prices in China were pretty volatile in 2Q. And I know the U.S. and Europe was a little bit more stable, but you were able to hit your outlook for Polyurethanes. And given the volatility, why do you think that was the case? Have you done enough in that portfolio to be able to manage the volatility in component pricing? And then, any thoughts on any new industry capacity coming on in 2022? Just if you have any insight there. Thanks.

Yes. I'll be brief with my responses as we have many questions, and I want to keep us on track since other companies will be announcing their earnings soon. Regarding the volatility of Chinese polymer MDI, I wish we could predict pricing accurately. However, it's essential to note that pMDI only accounts for 5% of Huntsman’s entire portfolio and 10% of Polyurethanes. If we are doing well, it’s more about managing the other 90%. We aim to be transparent with the market and share information as it arises. As for capacity, it is gradually coming online. Outside of China, I do not see any new MDI sites being developed globally, which would take four to five years to construct. Currently, there are no new projects in the planning or permitting phases. While some expansions are happening at existing facilities, I do not anticipate significant new MDI capacity in the coming years. Next question, please.

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

Hi, Peter, it's Eric Petrie on for P.J. If I annualize first half performance products EBITDA, I get $300 million versus normalized the $200 million to $225 million that you put out there. So is that level sustainable, or do you see kind of normalization in the composites area?

On Performance Products, I notice some seasonality. The third quarter is likely going to be down by about $5 million to $7 million compared to the second quarter due to this seasonality and the turnaround we are experiencing. However, overall, I expect the second half to be slightly weaker than the first half, but not significantly, roughly in the range of $260 million to $270 million. I hope there will be some potential for upside beyond that.

Our next question comes from the line of Arun Viswanathan with RBC. Please proceed with your question.

Great. Thanks for taking my question. I just wanted to get your thoughts on reliability. Obviously, we've had some force majeures here and production discipline – disruptions at some of your competitor facilities. I guess, do you view that positively? And I guess, any comment on your own system? Obviously, there's maintenance going on but do you expect kind of continued disruptions in the industry going forward? Thanks.

I would never wish disruption on any of our competitors. However, when you consider the configuration of this industry, particularly the size of some of the production lines, which can reach up to 400,000 tons, it's clear that if a line goes down, the impact is significantly larger than it used to be. In the past, losing a line could mean a loss of 50,000 or 100,000 tons of material. Now, with MDI lines, even a minimal amount of contaminants can lead to a shutdown. When a large line, say 300,000 to 500,000 metric tons, goes offline for maintenance or cleaning, it can affect the global supply balance. Additionally, while many of our competitors' MDI plants are well constructed and maintained, they rely heavily on infrastructure that is, in many cases, outdated. In North America, for example, modern facilities are often supported by infrastructure that is 30 to 40 years old. This isn't just about the facilities; external factors like weather events can significantly disrupt operations. For instance, in the second quarter, we experienced an outage due to a corroded product pipeline in the Netherlands that impacted a supplier. This illustrates that disruptions can stem from issues far removed from our immediate operations. As we observe the industry becoming more interconnected, it's likely that maintenance will continue to be crucial, and disruptions may not improve.

Our next question comes from the line of Alex Yefremov with KeyBank. Please proceed with your question.

Thank you, and good morning, everyone. Peter, do you expect typical seasonality in the fourth quarter in polyurethanes and Advanced Materials, or given the trends you just discussed, could we see maybe flat Q4 versus Q3?

Yes, I do see seasonality. I mean, there will be the typical closures. Every year for some reason we have this phenomenon called Thanksgiving and Christmas, the New Year's that seemingly slow things down. And yeah, we will see that. I do think that to offset – my only point in saying that, I'm optimistic in the fourth quarter is I think that some of that seasonality will be offset by possible supply shortages and price increases. And if those things happen then you'll see some of that seasonality will be muted. But yeah, there will be a slowdown in demand, and that's just something that will happen.

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

Hey, good morning, Peter and Phil. You had a press release during the quarter that highlighted your increasing exposure to EV batteries. I was hoping you could just talk about what is your content per vehicle? I guess in terms of pounds for traditional ICE vehicle? And then what would you target for an EV? How much of a difference do you think there will be?

The majority of what we are currently supplying for ICE vehicles will also be used in EV vehicles moving forward. Lightweight materials are crucial, and comfort insulation is important to ensure a pleasant driving experience with low or no VOCs in the catalyst. As we consider what can be done for EVs that doesn’t apply to ICE vehicles, we will see materials used in batteries themselves. I anticipate a greater focus on lightweight solutions and heat insulation around batteries, likely using Huntsman materials. If you look ahead beyond the next few years, check out the video we just released about our MIRALON product on our website and social media. There are some exciting materials on the horizon from Huntsman and our industry that will improve lightweighting, adhesion, structural strength, and more, with developments expected in the next two to three years. These advancements will enhance battery functionality in EVs and also benefit existing ICE vehicles.

Our next question comes from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Just two quick ones. Do you expect your own maintenance costs to go up as a percentage of sales or assets over the next few years? And have you pulled forward any productivity from 2022, 2023, or should you be able to maintain the same productivity run rate?

I believe that our maintenance costs, which have been stable over the past decade, will remain consistent over the next few years. We will provide more details during our upcoming Investor Day. As we divest from heavy chemicals and focus on our system houses and spray foam facilities, maintenance expenses are generally more manageable compared to the larger facilities we previously owned. Our productivity and maintenance appear to be well balanced, and I anticipate that this will continue as it has for the last ten years. We intend to maintain a disciplined approach to our capital expenditures, aligning them with our projected EBITDA. Our maintenance needs in the HNS sector will not be compromised. The 40% threshold is crucial for us, and some expansion projects may be postponed to adhere to this discipline, which is vital for our organization. Operator, since we're nearing the end of our scheduled time, let's take one more question. I appreciate everyone for joining us today.

Thank you. Our final question comes from the line of Mike Harrison with Seaport Research. Please proceed with your question.

Hi. Good morning. Thanks for squeezing me in. Peter, can you maybe give a little more color on the strategic refresh that you referred to in the Performance Products segment. What changes have you made in addition to the $7 million of cost takeout that you completed? And what gives you confidence that you're going to see sustained improvement in that business? Thanks.

We are investing heavily and have a strong product pipeline in this area. If you look at our business from five years ago, there was a significant emphasis on our surfactants and crop protection segments. This shift was influenced by the business we divested two years ago to Indorama, which was closely tied to an upstream ethane to ethylene, ethylene oxide, and propylene oxide integration. We had been moving those molecules into a more commoditized market that prioritized volume over value per pound. Now that these are independent businesses, we are reassessing the molecules and technologies to focus on achieving greater value with less volume. I believe this trend will persist. Our maleic anhydride business is strong, not only in its integration into UPR but also as a fuel additive and lubricant protective agent, which will continue to be advantageous for us. In our amines, we are shifting focus toward new areas such as semiconductors, batteries, and polyurethane catalysts. These products are driving growth in the spray foam sector within polyurethane. We have a significant opportunity to enhance this business at a robust double-digit growth rate over the next few years. My main point is that we are prioritizing value on a per-pound basis and aiming for a more agile business structure compared to a few years ago when we were focused on mass commoditization in surfactants. While those markets are not unfavorable, our current strategy emphasizes pricing, technology, and execution, and we are beginning to see the positive outcomes of this approach. Thank you.

We have reached the end of the question-and-answer session, and with that the conclusion of today's call. You may disconnect your lines at this time. Thank you for your participation and have a wonderful day.