Greetings. Welcome to the Huntsman Corporation's Fourth Quarter 2023 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note that this conference is being recorded. At this time, I'll now turn the conference over to Ivan Marcuse, Vice President of Investor Relations and Corporate Development. Mr. Marcuse, you may now begin.

Thank you, Rob, and good morning, everyone. Welcome to Huntsman's fourth quarter 2023 earnings call. Joining us on the call today are Peter Huntsman, Chairman and CEO and President; and Phil Lister, Executive Vice President and CFO. Yesterday, on February 21, 2024, after the U.S. equity markets closed, we released our earnings for the fourth quarter of 2023 via press release and posted to our website, huntsman.com. We also posted a set of slides and detailed commentary discussing the fourth quarter of 2023 on our website. Peter Huntsman will provide some opening comments shortly, and we will then move into the question-and-answer session for the remainder of the call. During this call, let me remind you that we may make statements about our projections and expectations for the future. All such statements are forward-looking statements that 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 and expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. We will also refer to non-GAAP financial measures, such as 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, huntsman.com. I'll now turn the call over to Peter Huntsman, our Chairman, CEO, and President.

Ivan, thank you very much. Thank you for joining us this morning. Last evening, we released our prepared remarks for the fourth quarter 2023 results. Before opening the call to questions, I'd like to take a few minutes and share with you our latest plans and views as we enter the second half of the first quarter. At the outset, I remind you that we have complete financial results for the month of January, but still have two more months until we know the full results of the first quarter. I'm also still a bit haunted by the ghost of a year ago when many of you and most companies were projecting 2023 to have a weak beginning but a very strong second half. The second half proved to be nothing short of a disaster. Let me begin by sharing with you our five main goals for this year. First, this will be a year wherein we will recover some lost sales from 2023. A year ago, we showed strong pricing discipline early in the year, and in many cases, we held the line and kept pricing from falling faster than it otherwise would have. In some cases, we lost business to competitors who were pushing volume over value. Going forward, we will be pushing much-needed price increases in most of our product ranges, but we will also be negotiating to get back some of that lost volume. Our second priority will be to improve our free cash flow generation. This will be at the top of our incentive pay targets for 2024. We will do this through a continued focus on working capital controlling both indirect and direct costs and moving more volume and higher prices. Our third priority is to maintain discipline in our cost structure. We will complete our previously announced cost reduction programs in each of our divisions and our corporate functions. We will also be focused on offsetting projected 3% to 4% inflation increases. Our fourth priority is to continue, as we have for the past several years, assessing our portfolio on an ongoing basis to ensure that we are the best owners for the businesses and assets that we have. We will continue to look for M&A opportunities to expand our more differentiated downstream businesses. Lastly, and most importantly, we will invest to continue improving our environmental and safety stewardship and our operating reliability. This focus on managed risk will also apply to our investment-grade balance sheet. Our Board of Directors remains committed to returning cash and value to our shareholders. To this end, we will be raising our dividend by 5% to $0.25 per share per quarter. While we do not plan to buy back any shares in the first quarter, we look forward to restarting our buyback program as soon as market conditions warrant. As I said at the beginning, it is still too early in the quarter to make bold predictions. However, the order patterns that I'm seeing in most areas of the world tell me that in most of our divisions, we have seen the end of a very long period of inventory drawdowns and prices and volumes look to be gradually improving. With the restarting of China's economy post-New Year celebrations, I feel more optimistic than I did at year-end and see more proverbial green shoots than I have over the past 12 to 18 months. We have a lot of recovery before us, but I believe we're taking the right steps in the right direction. Thank you very much. And with that, operator, why don't we open the line up for any questions.

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

Good morning. Peter, it looks like volumes in polyurethane have stabilized somewhat in the fourth quarter. How do you expect those volumes to change in the first quarter? You mentioned that order patterns are looking a bit better. When do you anticipate we might see a turning point for growth in 2024?

Well, I think that again, you're going to continue to see a gradual improvement throughout the first quarter, both in pricing and in volume. When I look at it on a prior year basis, I would imagine we'll probably be seeing an improvement in the first quarter, again, just looking at order patterns today and so forth. Probably around mid-single digit sort of growth. And that's going to be pretty much across the board. We're looking for growth to take place as we've seen the cessation of deinventorying in North America around housing and construction. And in China, we continue to see a bit of a rebound in construction, but mostly in automotive and mostly as we look at infrastructure projects. And in Europe, I think we'll just see a continued gradual recovery across the board in Europe.

Got it. And then if volumes do recover, what do you think needs to happen to shore up sort of either pricing or profitability and maybe give us a thought on what the Polyurethane segment should be able to do longer term in terms of margins and earnings power?

Well, I think MDI, I’ve not seen anything structurally that has changed in MDI. This is a mid- to upper teen sort of business during its normalized basis. And when you see MDI capacity utilization, usually somewhere in the mid- to upper 80s, particularly the upper 80s, pushing 90%, you’re going to see pricing power. I think the industry today globally is somewhere in the low 80% capacity utilization with a little bit of an improvement over what we've seen in previous quarters. I remind you that last quarter, we were talking about global operating rates probably in the mid-70s, so we are seeing a bit of an uptick there. But we need to see sustainability. Again, last year, at this time, we were talking about a stronger second half of the year and so forth. What’s going to be important this year is that we just see a long, steady recovery in volume and allowing us to recover the pricing as well. I would say that across the board in virtually all of our products, not just MDI.

Thank you. Our next question is from the line of Josh Sector with UBS. Mr. Sector, please proceed with your question.

Hey, everyone. This is James Cannon standing in for Josh. I appreciate you taking my question. I noticed that volumes are down compared to a weaker year-over-year comparison. I was curious if there is any effect from the ongoing BLR rationalization, or if that process is mostly complete at this stage.

No, I don’t think that we’ve seen any impact from BLR rationalization. I mean, in our case, we’re seeing a little bit of fluctuation in order patterns on aerospace and so forth. But I wouldn’t say that any of those are really material trends. A lot of it’s just going to be timing on year-end inventory and as you look at something like aerospace or automotive, how many parts are in the OEM supply chain or car companies shifting from EVs to hybrids to ICE. And yeah, that will cause some disruption on a quarterly basis. But I don’t see anything in advanced materials that would give me any concern about order patterns or sales.

If you think about it, less than 10% of our Advanced Materials portfolio now is BLR. We've deselected an awful lot over the years focused on the higher margin businesses, and that generates less than 5% of the profit. It's not our focus from a portfolio perspective.

Okay. Thanks. And then just on the aerospace, there was an incident earlier in the quarter that led to the FAA limiting production at the major aircraft manufacturer. Is there any impact on the first quarter guide from that?

No, I would just like to remind you that we had nothing to do with that manufacturing problem. Our products were not involved at all. Overall, we don’t see any impact in the first quarter because of that.

Yeah. And if you think about it, our exposure is in general into wide-body aircraft. The relevant aircraft is less than 5%. So it’s again, for any recovery that we have, it’s all focused on the wide-body material that we sell into that end market.

Our next question is from the line of John Roberts with Mizuho. Please proceed with your question.

Thank you. You decided that you're going to restart your smaller Geismar unit. Maybe it didn't sound like that was maybe quite justified yet. Maybe that should come a little bit later, but maybe you can talk about where you think that volume is going to go.

We're looking at 130,000 tons of volume, which is approximately 250 million pounds. This represents a relatively small percentage increase overall. Restarting an asset like this takes time, likely throughout the entire quarter and into the second quarter. The second quarter typically sees strong demand for OSB, CWP, insulation, and our building materials. Just because we are operating in that line doesn't mean we will immediately release all 130,000 tons into the market. It will be gradually introduced based on market needs. We're currently analyzing today's order patterns and feedback from our customers, and we believe it's necessary to start up that asset.

John, we've been operating globally at between 75% to 80%, the markets in the low-80s. So that should give you some indication that we're simply moving up to the market levels.

Thank you. And then is the Boeing situation affecting our epoxy supply chain at all?

No, we're not seeing any issues today on that. What noise, I would remind you that we're supplying our customers then supply Boeing or in some cases, our customers supply an OEM that supplies Boeing. What impact that may have if Boeing were to slow down production and so forth. We may not feel it for a quarter or two. But no, I don’t see any reason today. We’re certainly not seeing anything that would impact that.

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

Good morning. Peter, just on MDI, what would it take to return to mid-cycle operating rates in MDI? And is there a path forward to a peak later in this decade?

As we examine the three regions, looking at the U.S. housing market, I believe a recovery in housing will fall in the range of 1.5 to 1.7 million units, which is still significantly below the 2 million level that many consider sustainable. Over the past year and a half, the major issue has been the deinventory we experienced. It wasn't a drastic housing drop to 900,000 units like we saw during the Great Recession, but rather a significant reduction in inventory. In North America, housing will be a key factor. In Europe and Asia, especially in the automotive sector, we anticipate ongoing demand. For us, both internal combustion engine and electric vehicles have been robust markets for our urethanes in China, which continues to improve, as we've noted in recent quarters. However, we're not seeing the 5% to 6% growth rates that characterized previous years. This is crucial to note. In Europe, particularly in Germany, we are witnessing some degree of deindustrialization. There is a need for Europe to establish incentive programs to determine whether they want to continue down their current path or implement policies that will foster manufacturing. In terms of building materials, insulation, lightweighting, and automotive, we are seeing positive activity, particularly with a gradual recovery in the automotive sector and insulation. However, we require more progress from Europe. Overall, while indicators are trending in the right direction—some faster than others—we need this momentum to continue sustainably.

No, very helpful. And just how should we think about the ramp in earnings from Q1 to Q2 for the total company?

Again, I think that that will be a factor of what we see in continued growth and pricing discipline largely across the board. But we would assume that as we continue to see an improvement in demand and improvement in pricing, that we'll see an improvement in earnings as well.

Yeah. We’re not going to guide to Q2 right now. Dave, we’ve got the Q1 guidance, but we would expect a seasonal improvement as you move into the higher construction time period.

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

Thank you. Good morning, everyone. Just to piggyback on the last question, in your polyurethane segment, you're expecting better margins in the first quarter. Should we think about that level of MDI margins in Q1 as sort of the baseline for '24 or could those margins dip again in Q2 because we now see benzene rising, for example, maybe you won't have enough pricing. But do you feel comfortable that, at the very least, that Q1 level of MDI margins would not slip lower?

I would like to express that while we have some control over pricing for the entire year and have developed reasonable forecasts, my current focus is on how Q1 is concluding and how Q2 will commence. Observing broader indicators, in Europe, we announced a price increase effective March 1 of €250 per ton. Similarly, in China, following the New Year, we have noted strong demand with reported pricing around $150 per ton. In the U.S., we aim for a price improvement of $400 per ton in Huntsman Building Solutions, along with additional price increases that aren't publicly announced. Overall, we've been adjusting our prices over the last days, particularly as benzene prices have been quite volatile. It’s crucial for us to keep our prices above the fluctuations in raw material costs. However, we are ending the first quarter in a significantly stronger pricing position than where we started. The optimism I mentioned earlier is starting to materialize, particularly based on recent developments in China. This gives us a positive outlook as we head into the second quarter, and I feel like we are gaining momentum.

On Europe specifically.

Yeah. Pardon?

In Europe, specifically, do you see any benefit from lower imports of material from Asia in either polyurethanes or Performance Products?

I think we'd always be happy to see fewer imports and more just as a rule of thumb. So yeah, I think that would be the case, yeah.

Yeah. I mean we've seen a little bit of a slowdown, Alex. If you look at where we are today in February versus Q4 in terms of imports from Asia just because of the Red Sea, you'll get as good as is as to how temporary that actually is.

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

Hi. This is Adam on for Arun. Looking into the second and third quarter, looking at polyurethanes and wondering other than some of the items you've just outlined, what might you think are some of the upside drivers beyond seasonality for that segment? Thank you.

I believe it's going to just be a continued growth in demand, stability in raw material prices, and discipline and finished product pricing. It's just getting back to the basic fundamentals. A little bit of restocking would also help. I think that inventories are very low. And throughout polyurethanes as well, we'll be completing our cost savings program throughout 2024. So we'll see some of the benefits that have fallen to the bottom line.

Great. Thanks for that. And looking at ag and aiming destocking, when do you think some of the negative impacts from that might start to subside?

I'm sorry, the destocking around what?

Ag chemicals and gaming specifically?

Yeah. I think we’re - we feel that most of the destocking, at least what we’re seeing in our men's products, we’re not that exposed to agricultural products and chemicals. So I don’t want to comment on anything on the Ag side more just out of - we’re just not exposed that much there. So I really don’t track that. But with most of our amines, as we look again, as we look at the volume improvements that we’re seeing quarter-on-quarter I think that we’ve seen the vast majority of the destocking that’s taken place there has come to an end.

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

Thank you. Good morning. Peter, I wanted to discuss the five goals you mentioned at the beginning of our conversation. I was particularly interested in your fourth point about evaluating the portfolio to ensure you are the best owner of all your assets. We have witnessed significant divestitures over the past five years. Are there any businesses you are considering divesting that are larger than a bread box, or are you thinking more about making precise adjustments within the portfolio? Any updated insights on how you plan to shape the portfolio moving forward would be appreciated.

I believe we need to continue evaluating our entire portfolio. It would not be fair to our shareholders to insist that we remain exactly the same as we are today. As we consider the segments of our business affected by rising energy costs in Europe, we need to reflect on how we can position those businesses for the next five, ten, or even twenty years to maintain our competitive edge. The market landscape has shifted significantly in recent years due to pricing changes, geopolitical developments, and energy policies. We must continually assess whether we are best suited to own these assets, whether they are strategically located, if we have optimal supply agreements or partnerships, and determine our next steps. I think it would be a mistake to assume that everything is perfect and not consider the possibility of trading some of our assets. While I won't specify which assets we might consider, I know that exchanging some for less volatile, higher-margin options is easier said than done. However, we have demonstrated this approach over the past few years by divesting from our textile effects in TiO2 and other commoditized intermediate chemicals, and we’ve invested in our advanced materials and downstream urethane spray foam businesses. I envision continuing this kind of transformation moving forward.

That’s really helpful. And then second, Peter, if I may, I wanted to ask about your view on China. I think you made a comment that you're more optimistic today than you were at year-end. Year-end was not too terribly long ago. So I'm just kind of curious, is it to do with a little bit of MDI uplift that you referenced earlier? Or are you seeing other signs in China that are more encouraging to you, more green shoots? Maybe you could elaborate a little bit on the regional outlook there.

I'm not sure my perspective has changed significantly. I always feel a bit cautious around the time of Chinese New Year because what often happens is you either see strong growth emerging afterward or things just remain flat. We've observed this pattern over the last couple of years, with China facing challenges from COVID and a slow recovery recently. However, in the past week, I've noticed improvements as we approach the New Year. I don't want to make broad conclusions based on just a week of observations in terms of demand and pricing, but currently, the market conditions suggest a more positive recovery after the Chinese New Year than we've experienced in the last few years. It feels reminiscent of the China we were accustomed to before. While I’m not suggesting drastic changes, I do believe that the improvements we're observing in our specific business related to electric vehicles, along with the increasing demand in China, appear to be genuine and are showing steady progress.

For context, about 15% to 20% of our sales are into China and less than 10% into property, which has obviously been the big headline coming out of China and how far that’s fallen.

Our next question comes from the line of Vincent Andrews with Morgan Stanley. Please proceed with your question.

Hi, this is Turner Hinrichs on for Vincent. I'm wondering if you can walk us through price cost and other considerations underlying your guide and that margins will move higher in the first quarter within Performance Products specifically?

Yeah. I think that as we look at Performance Products, we continue to see a gradual recovery in the construction markets. That's going to be an improvement from anhydride and the unsaturated polyester resin chain as you kind of move downstream into North America. We'll see a volume improvement in our men's products as well. And that goes into everything from spray foam, and we're seeing prices are stable to improving in this business. So yeah, I think, again, Performance Products are going to see a gradual improvement. And I hope that momentum builds throughout the year.

Great. Thanks for the color. So you've mentioned that you anticipate stronger pricing in the first quarter in polyurethanes. Could you walk us through what you're seeing in each region as it relates to polyurethanes pricing and what you're expecting for underlying supply and demand?

Well, again, some of the broader things that we're seeing in China, I would just say that we're seeing around $150 a ton improvement. China, unlike Europe and the U.S., will set a price out. China moves really almost on a daily basis, on your base more commoditized polyurethanes, your downstream urethane blends, and more differentiated urethanes are usually going to follow that macro movement in pricing. But as we see pricing today in China, we see that up around $150 a ton improvement over what we've seen in the past couple of weeks. And as we go to Europe, again, we’re out with a $250 a ton improvement in Europe. And again, when I say that, that’s not to say that you take all of our volume and put $250 a ton of that. Some of that will be effective March 1. Some of it will be a little bit later than that. Some of it, depending on contracts and so forth and in place, may be more, maybe less than that $250 directionally, that's where we see pricing going in the European market. That's obviously very much needed, particularly in the European market. In the U.S. market, again, we're seeing a number of areas with the splitter that we have in place, we see kind of more of a fragmented base in Europe. We sell a lot internally down through the Huntsman Building Solutions. We have a bunch of our product that's on pricing formulations and so forth. We were able to pass through raw material volatility and increases. We have some that are just on stand-alone contracts with prices that we negotiated on a quarterly or monthly basis. But we are pushing for a broad price increase on the North American market as well in MDI.

And to your question on utilization, we still expect it to be in the low 80s in the first quarter. We’re not up to the seasonal highs of construction in the second quarter. As we said earlier, the polyurethane industry needs to get into that 85%-plus utilization before you see a real inflection point when it comes to supply demand.

Our next question comes from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.

Hi, good morning. You noted that you were maybe seeing some additional opportunities to improve the cost base. And I was just curious, are those additional actions that could be taking place above and beyond the $60 million worth of incremental savings that are part of the restructuring program that's been in place for several quarters? Or were you just saying that there's still some actions that you need to take in order to achieve those incremental savings?

Yeah, Mike, it's Phil. I think we've guided to approximately $60 million year-on-year. That includes some of the actions that we'll be taking during the course of this year. We are looking at manufacturing efficiency. And honestly, outside of just the cost base, we're looking at working capital as well. I think we're cognizant that in any recovery, working capital, there should typically be an outflow when it comes to cash. And I think there's some more work for us to be done, particularly around inventory days where we can offset some of that. We'll also continue to finish up our European restructuring project as well as a small amount to do there as well. And quite frankly, we're still going to make sure that we're offsetting about $50 million to $60 million of inflation every single year.

All right. And then the other question I had is on the MIRALON product line in this pilot plant that's coming online in the next few quarters. Can you talk about the level of interest that you're getting from potential customers? And I guess what needs to happen from a commercial or offtake standpoint before you decide to move forward with construction on that larger scale facility? And then the second piece of that is I apologize if you've already said this, but what could the cost of that 5,000 ton MIRALON facility look like?

The 30-ton facility, which will be the largest of its kind, is currently producing the carbon nanotube product. We believe it will be the largest facility in the world, and we have a very competitive cost structure. The lower the costs, the more applications we can pursue. We are actively working on various applications, including concrete, car tires, EV batteries, and structural products. At present, we can sell as much of the product as we produce, and it has been generating enough revenue to support high-end applications in fields like satellites and NASA projects. As we increase our capacity, we will be able to expand product availability, enhance value, and explore additional applications. The next phase of our expansion will begin next year, as we plan to start the 30-ton reactor around mid-year. We expect to gather enough data from this to kick off the larger expansion, projected for 2025. At that point, we would have a commercially sized reactor, and scaling beyond that would involve adding multiple reactors of that size. We anticipate that within the next year or two, we will be able to qualify the material and achieve mass production at an economic scale that could make this a successful addition to our business.

In terms of cost, Mike, think about all of that investment that Peter described, the 30 ton and the 5-kiloton in the tens of millions, maybe $30 million to $40 million. It’s all contained within the capital program that we’ve outlined and contained within the $200 million that we’ve guided for this year’s capital program.

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

Thank you very much. Good morning. Peter, I want to revisit your comment on Performance Products regarding your expectation for a gradual improvement. When I look at that sector, the decline over the past few quarters has been quite significant, not gradual at all. The volume drops between the third quarter of '22 and the third quarter of '23 were quite alarming. We returned to near breakeven in the fourth quarter. My question is, since a lot of that decline has to be due to destocking, if we're back to a state of underlying demand, why wouldn't we see the double-digit declines in volumes shift to double-digit increases? Can you clarify the difference between gradual recovery and something more substantial?

As we assess the current restocking efforts, I recall that just over a year ago, we faced significant challenges in fulfilling customer orders. During that period, customers accumulated substantial inventories of our products within their supply chains. This situation was widespread, as we encountered issues sourcing blowing agents for our building solutions and producing sufficient amines. Following the economic boom post-COVID, supply chains ended up with excess inventory due to concerns about production limitations and soaring logistics costs. Many of our customers, regardless of their specific products like oriented strand board or insulation materials, overstocked inventory. However, when market conditions shifted, the change was abrupt, and the process of reducing inventory took longer than expected. While I believe the downturn was felt across the chemical industry at a similar level, there may have been slight timing differences. I don't expect the market to recover at the same rate as it declined. Current sentiment indicates that most customers are not worried about securing products in the upcoming quarters, as they observe gradual price improvements and ample capacity available. Demand is stable rather than skyrocketing. Thus, I anticipate that the restocking process will be slow and spread out over the year. While I do wish it could happen quicker, a rapid restocking could lead to significant volatility, with prices and margins fluctuating sharply as they did during destocking. I expect the restocking to be more measured this time around.

Understood, understood. You did highlight, obviously, the high cost of benzene, but we've certainly gotten a nice respite on natural gas, not only here in the States but also in Europe. What's the impact on Huntsman? What can we expect to see with respect to that flowing through the P&L?

You will notice the impact of that in the second quarter and slightly at the end of the first quarter. It's not just about natural gas; it's the hydrogen produced from natural gas. This serves as a key raw material for our utilities and boilers. Some effects will be immediate, while others will influence pricing in the next quarter. It's encouraging to witness these low prices. I wish we could observe a similar decline in European markets, where costs are still about five times higher. Additionally, China's energy is primarily reliant on coal rather than natural gas, which tends to be more stable and inexpensive.

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

Thank you. Good morning. Peter, one of your five goals was to improve free cash flow generation. And in the prepared remarks, you listed out a few different levers here, things like reduced incentive comp but higher turnaround spend. I think your free cash flow conversion in 2023 was only in the low single digits. Do you have a target for 2024 that you could share on free cash flow conversion?

Yeah. I would just say that when we talk about the improvement in our free cash flow, I'll let Phil quite interesting to make a comment here. But when we talk about the incentive pay, I didn't say that we would be cutting incentive pay to help cash flow. I said that our incentive pay would be tied to the generation of cash flow. So I hope that came out clearly. This is the highest portion of our incentive pay for senior managers this year is going to be on achieving our cash flow targets and objectives.

Yeah. So free cash flow is clearly going to be better in 2024 than 2023. Therefore, consequently, the conversion ratio is certainly going to be better year-on-year. And I think we highlighted some items to consider. CapEx will be $30 million lower, restructuring cash will be $30 million lower between pension and incentive comp that we pay out in '24, the '23 performance combined will be about $35 million lower overall. We still do have outstanding the Praxair lawsuit that we won quite a while back against Linde. We're just going to be very disciplined when it comes to cash flow. Hitting the cycle average 40% free cash flow conversion ratio that we've targeted. That’s going to be difficult in '24 as we continue to recover overall. But quite frankly, again, we're going to be clearly better than we were in 2023.

Yeah. I would just say, when we look at it on a normalized basis, that 40% free cash flow conversion rate, I would still say that's where this company ought to be doing a normalized economic period. I don't see that number having changed.

Sounds good. And then regarding the U.S. construction market, at least from paper, housing starts were pretty good in the fourth quarter of 2023, up 6% after some big declines earlier in the year. Did you see that come through in your Q4 results? And Paul, urethane, so just pretty soft due to weakness in other regions? Or should we be thinking about a lag, if housing starts improve in one quarter, maybe it takes like one or two quarters for that to flow through to Huntsman?

Yeah. Let's remember that the time from permitting to purchasing, to building inventory, the impact of that entire supply chain is not an instantaneous issue. Companies today are looking at where they're going to be in the second quarter and in some cases, third quarter, they're looking at what the demand is going to be and projected to be. We'll see things like mortgage rates will have an impact on how much inventory and pre-buying OSB and insulation customers will be doing. So there are a lot of variables. But again, as we look at it, if we step back and look at it from a macro point of view, from what we're hearing from our customers, the early indications that we're seeing are indications internally as Tony said, it's time to restart our line in Geismar and gradually start bringing that into the market. And we believe that’s going to be needed to satisfy demand. So that should tell you as much of our view going forward.

Next question is from the line of Hassan Ahmed with Alembic Global. Please proceed with your question.

Good morning, Peter. In the sort of prepared remarks that you guys posted overnight for the polyurethane segment, you guys talked about I believe it was like a 6% volume gain in Europe, and you talked about some market share gains out there as well. Can you talk about the dynamic that's transpiring over there with regards to this?

I want to remind you that we had our facility down earlier this year, so when we compare our current situation to a year ago or even a quarter ago, the comparisons are not very challenging. I’m optimistic about Europe’s GDP growing by 6% per quarter and expect this trend to continue. However, there are significant underlying issues in Europe concerning energy and industrial policy that we need to consider. Regarding our customer base in Europe, we do not anticipate any decline; in fact, there seems to be a tendency for restocking. Our facility there is operating well, and we are observing stability and gradual improvement. We are also hopeful that we will be able to successfully implement price increases effective March 1.

Understood. Understood. And just sticking to the Polyurethane segment. I mean, obviously, EBITDA margins in Q4 were around 1.5%, call it near breakeven. And you guys are relatively low cost, downstream integrated and the like. Could you talk a bit about the global cost curves? I mean, I’d like to think that a large chunk of the industry is loss-making right now. I mean how sustainable is that really, should we be seeing sort of curtailments now and pricing increases in theory that would ensue thereon after?

The lowest-cost producers globally are currently in China, primarily due to low energy costs resulting from high coal consumption in their economy. This environment allows for the largest and newest facilities, leading to the lowest production costs. Following China in the cost hierarchy is the U.S. While I don't claim we are the absolute lowest-cost producer in North America, I would be surprised if anyone could beat our costs. I am not fully aware of our competitors' economics, but considering our reliability and facility size, we would rank among the lowest-cost producers in the region. In terms of profitability in North America, while there are improvements, the margins we are seeing are not sustainable long-term. Better market conditions, pricing, and demand are necessary. In Europe, the region is extremely vulnerable to energy spikes due to issues like harsh winters or problems with pipelines and import terminals. We experienced significant energy price increases before and during the conflict stemming from Putin's actions. Europe needs to redefine its energy policy, as relying on outdated systems is not feasible for an industrial economy of its size. Over the last two years, I have publicly acknowledged that we have not generated strong cash flow from our European operations, which is unacceptable and unsustainable. Even if we’re not the lowest-cost producer in Europe, I believe we are very close. No MDI company operating under current European market conditions can claim they are achieving strong returns on capital. While I am optimistic about market direction with increasing demand and prices, there is still a significant amount of work ahead. I feel we are progressing well, but Europe remains a greater concern for me than the U.S. and Asia.

Our next question comes from the line of Salvador Tiano with Bank of America. Please proceed with your question.

Thank you very much. I just want to come back to the U.S. MDI market first. So firstly, it seems like you have some pretty steep price increases you mentioned correctly. If I heard correctly, around $400 a ton in the U.S., but some trade publications even last night are still differentiating between U.S. and European and Asia conditions saying the demand and supply are much, much looser here. So what are you seeing that's making you quite more optimistic than, I guess, trade consultants here? And also on the Geismar startup in Q2, can you discuss a little bit what would be the cost associated with that? And what is the minimum operating rate that you need to run in order to be profitable on an EBIT or an EBITDA level?

When we mention the $400 a ton, I want to emphasize that this is our target for the Huntsman Building Solutions business. We produce our own MDI, transfer it to HBS, price it according to the market, and sell it to customers. We've been transparent in our communications. I only want to address the price increases that have been publicly announced. The difference between us and what the trade is reporting relates to how one sells paper versus how we sell products. We focus on selling products, and I can only share insights based on our experiences and customer feedback regarding pricing. Trade publications offer a good overview of the broader market, but I wouldn't characterize the MDI situation in the U.S. as being oversupplied or erratic in pricing. If that were true, we wouldn't be pursuing the price increases we are currently seeking. I apologize for not addressing the latter part of your question.

I think it's just confirming, sorry, go ahead.

So just to clarify, will there be any costs in Q2 related to the startup at Geismar, and what is the minimum operating rate needed to be profitable on an EBITDA basis?

We will gradually increase our operations, ensuring we maintain efficiency above 50% levels. Operations below that threshold can become problematic. We will introduce these changes slowly to ensure that we are profitable with what we release into the market.

Our next question is from the line of Patrick Cunningham with Citi.

This is Eric Zhang on for Patrick. You've done a lot with polyurethanes on the cost optimization front. What do you think EBITDA margins can get to this year with maybe a modest volume recovery and store work prices? Thank you.

I'd be reticent to throw out a margin number because I know whatever I say, I'm either going to be too high or too low. But I do think that we'll be moving throughout the year, hopefully, again, unless we see a massive amount of restocking that happens very suddenly, which I'm not anticipating. But I think that we're going to see a gradual improvement throughout the year. I hope that we finished the year much closer to our normalized levels of EBITDA than when we started the year. I know that's a superfluous answer, but at this point, again, we've got the results of January, and it’s just simply too early in the year to make a year prediction.

And as we said, cycle average margins, if you go back over the last 10 years, this is a mid-teens plus margin business.

Thank you. Operator, I think we'll take one more question. We're nearing the top of the hour and assuming anybody else is with us.

Yes, we have a question from the line of Laurence Alexander with Jefferies. Please proceed with your question.

Good morning.

Good morning, Laurence.

Just want to revisit the portfolio optimization comments, what the scale of your business a limiting factor in what you do? Or is the focus really just on return on capital volatility kind of what is what value is reflected in your share price versus the fundamental value. Can you just help clarify how much scale constraints what you do?

Yeah. So I mean you're talking about the facts, Laurence, that we've sold down our TiO2 business, our spindle top business, so the intermediates business, textile business, and we've got a $6 billion company today. Again, I think we would rather that we were adding on bolt-on acquisitions to grow the business and grow the business both organically and inorganically over time. Those inorganic investments would come around particularly around advanced materials. As Peter said earlier, you may look at some small parts around the edge as well in terms of whether we're the best owner or not. But to the point, we come in and we look every day. Are we the best owner? Can we generate an effective return from the portfolio in the long run? You are correct, we're absolutely looking at the return on invested capital versus our cost of capital.

Yeah. I would just say, Laurence, and I hope I don't get ahead of myself in saying this that we do run the risk If we were to look at selling a big chunk of the business today without the acquisition of something else, we run the risk of getting too small here. And I think that's not something that we want to entertain either. But that shouldn't preclude us from doing something big if we can replace it with something big and continue to shift and change the portfolio. As I think again, I publicly have said, if you go back and look at the history of Huntsman, every five years, at least there's been a major addition, a major divestiture, something that has fundamentally changed that I believe has made us a stronger company, whether it's a sale going back 15 years ago of our base chemicals businesses 10 years ago of our TiO2 and some of our the basic pieces and so forth, and more recently in the last five years of our intermediates and textile effects. I think that at the same time, being able to buy the right assets to replace those or if we can't find the right assets, we're going to return cash as we did this last year with the sale of the textile effects business. We're going to return cash to shareholders.

Thank you.

Thank you. At this time, we've reached the end of the question-and-answer session. This will also conclude today's teleconference. You may now disconnect your lines at this time. Have a wonderful day.