Hello, and welcome to the Huntsman Corporation Second Quarter 2024 Earnings Call and Conference. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. It's now my pleasure to turn the call over to Ivan Marcuse, Vice President, Investor Relations and Corporate Development. Please go ahead, Ivan.

Thank you, Kevin, and good morning, everyone. Welcome to Huntsman's second quarter 2024 earnings call. Joining us on the call today are Peter Huntsman, Chairman, CEO, and President; and Phil Lister, Executive Vice President and CFO. Last night on August 5, 2024, after the U.S. equity markets closed, we released our earnings for the second quarter 2024 via press release and posted it to our website, huntsman.com. We also posted a set of slides and detailed commentary discussing the second quarter on our website. Peter Huntsman will provide some opening comments shortly and we will then move to 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 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 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 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 at huntsman.com. I'll now turn the call over to Peter Huntsman, our Chairman, CEO, and President.

Ivan, thank you very much and thank you all for joining us this morning. I find myself in a rather precarious place this morning as I usually prepare some opening comments the afternoon before these calls. Within the last 24 hours, swords have been rattling in the Middle East, triggering massive potential for raw material volatility. Over the past few hours of trading, trillions of dollars, yen, euros, and RMB have been wiped out, and consumer confidence has been reforecasted more times in the polling data for the upcoming presidential election. All of that being said after five quarters in the chemical industry of massive inventory adjustments, plummeting margins and a tidal wave of Asian-based oversupply, these most recent events seem quite calm. Our cost initiatives that have been ongoing for the past three years are paying off as we've stayed ahead of inflation. Our focus on cash generation delivered over $50 million of cash flow from our operations in the second quarter. As we outlined plans in the previous earnings call, our volumes year-over-year and quarter-over-quarter were up across the entire business by 9% and 8%, respectively. This volume improvement took place as we were able to increase margins and earn what we projected from our previous calls. While I continue to be concerned with Europe's highly successful policy of deindustrialization and excess chemical capacity flowing out of Asia, the single largest catalyst for margin improvement for Huntsman would be a resurgence of commercial and residential construction demand. This will not fully happen until interest rates drop below the current levels. I believe that events in the past few weeks have increased the likelihood and timing of a rate decrease. Presently, third-quarter order patterns seem flattish to the second quarter. We remain cautious regarding the second half of the year. At the present time, it is simply too early to have a clear picture of the fourth quarter. That being said, inventory in the supply chain remains low. Our construction, aerospace, infrastructure, power, and elastomers businesses continue to improve. We will stay focused on cost, and cash management is our priority. With that, let's open the line up for any questions.

Thank you. We will now be conducting a question-and-answer session. Our first question is coming from Michael Sison from Wells Fargo. Your line is now live.

Hi, good morning. Nice quarter there, Peter. In terms of MDI industry operating rates, I think last quarter you noted that we were at the cusp potentially of getting better pricing. I think you said operating rates are in the mid-80s. Any thoughts on where we're at now in July and how you think that's going to shape up as we head into the rest of the second half?

Yes, it's somewhat of a squishy number because there is not a lot of reliable data that's transmitted in real-time. I would say that we probably have seen a few percentage points drop in Europe, probably a few percentage points tightening in Asia and the Americas basically, I'd say, stayed flat since the second quarter. I'd say that in the second quarter we probably – we're in – first going into the second quarter, we're probably in the mid-80s, maybe on the weak mid-80s. And I think now we're probably still in that mid-80s, but perhaps a few points stronger. Overall, I think trending in the right direction, but moving along ever so slowly.

Got it. And you did mention if there is an improvement in construction demand longer term, it's the big – the most important earnings driver for Huntsman. Any thoughts where you think you've had a lot of cost savings where you think polyurethanes EBITDA can get back to in the event that hopefully demand resurges over time?

Well, I certainly see given that if we get back into kind of that normalized construction, that we're looking at the mid to upper mid-teens sort of margins with polyurethanes across the board. That will require, I think, three basic things to take place: I believe that China will have to see a little bit stronger growth than we've seen in the last year or two. We'll have to see Europe at least start to get some traction and in a low sort of percentage growth rate in an industrial basis, kind of remember that they need to be moving from a tourist economy back to some element of an industrial economy. And then the U.S., which I feel is in a recovery phase right now. We need to see that housing come back. Those three basic things need to take place. I think you see urethanes back into that mid-teens plus sort of margin basis.

Thank you. Your next question is coming from Jeff Zekauskas from JPMorgan. Your line is now live.

Thanks very much. Your volumes were up 8% or 9%. Your inventories were down about 10%. Why is that?

I think that we've tried to manage cash as carefully as we can. We did have a plan, as we announced three and six months ago, to try to recover some of our volumes that we have lost. I don't think through error, but we certainly lost some volumes a year ago trying to hold on to pricing and demonstrate pricing discipline. We did give up some of the larger, particularly around insulation, composite wood, some of the more polymeric commodity side. So we also saw a lot of deinventorying that took place in elastomers, industrial applications and so forth. So we've gotten some of that volume back. We've seen some regrowth taking place in some of those applications and we have seen a lot of the deinventorying taking place. So I think it's just a capital discipline around supply and demand and production.

And Jeff, just on the numbers, our volume in inventory is down 4% overall. You're correct. If you calculate that on a DIO basis, we're down about 10%. And as Peter says, that's just a real focus on our inventory levels that we have right now.

Do you think your working capital will be a use of cash this year or a benefit to cash on balance?

Yes, I think, Jeff, that's going to come down to revenues in the final quarter. I think we'll control our inventories pretty well. I think in general, those will offset with payables as we get to the end of quarter four and I think it's going to come down to receivables and just the level of activity that we see in quarter four this year versus last year. And as we said in the prepared remarks, we probably got about $100 million of year-on-year free cash flow benefits outside of any movement that we see in working capital, and that's our focus.

I will just note in addition to that the lack of deinventorying that we're seeing this year versus last year is giving us a little bit better predictability in supply and demand orders and so forth.

Thank you. Our next question today is coming from Patrick Cunningham from Citi. Your line is now live.

Hi, good morning. So the polyurethanes guide is calling for flattish EBITDA quarter-on-quarter despite maybe $15 million to $20 million in discrete headwinds and relatively stable volumes. How should we think about variable margin improvement throughout the quarter? And if there are any particular regions you want to call out that might be stronger than others.

I think it's largely going to be flat. I mean, there will be some give and take. We experienced an outage in our Rotterdam facility in which we're just now starting to restart the facility and coming back online. We've got to rebuild some inventory there. We'll see a little bit of headwinds on the Chinese joint venture that we have around propylene oxide and we hope to see some volume growth and pricing momentum that continues into the third quarter. And I think some of that's going to be offsetting each other a little bit of seasonality that will mostly be taking place in Performance Products in the third quarter. So yes, I think a lot of give and take, as I said in my prepared remarks, it's probably going to be pretty flattish.

One item to consider, Patrick, on the bridge for polyurethanes from Q2 to Q3. We will aim to have an inventory build towards the back end of quarter three. We've got a turnaround in the fourth quarter that will necessitate some inventory build, which will give us a one-time benefit on EBITDA, which will reverse out. And that's probably between $5 million and $10 million, which will reverse out in the fourth quarter.

Understood. Very helpful. And then with price mix down 10% year-on-year for advanced materials, were there any areas of structural pricing pressure or was this mostly mixed impacts? And if you have any detail on how we should think about it for the balance of the year, that would be helpful.

I think that virtually all of that is mix. Demand trends continue to be very strong in advanced materials, very solid, and we're seeing the gradual recovery of aerospace; I do mean gradual – they are continuing to be playing with some supply issues in aerospace. But by and large, it's been a very consistent and reliable end of the business.

Thank you. Your next question is coming from Vincent Andrews from Morgan Stanley. Your line is now live.

Thank you and good morning. Peter, in your prepared remarks, you made a comment that lower interest rates you're not so sure would actually improve your operating environment in Europe. I was wondering if you could just color that in a little bit.

No. I – well, maybe I meant that came out a little bit backwards. I think the lower interest rates are going to particularly impact North American construction, housing, commercial construction and so forth. I do think that lower interest rates will impact Europe. I just don't believe that it will be nearly as material to the bottom line. We certainly welcome that in Europe, but I don't think it's going to be nearly as material as it will be in the United States.

And is that just a function for you of your exposure being larger to building and construction in the U.S. versus Europe? Or is there something else that's causing that space?

Yes. Yes. And I think as we look at and we track multifamily, single-family construction and so forth and we look at the housing inventory of how many homes are in the market, how many homes are available, let's go through the typical housing data. The U.S. when it rebounds, I believe it's not going to be a very gradual rebound. It could be a very sudden and strong rebound, again, depending on – two things on rate cuts and overall consumer optimism.

For North America, construction is about a 60% exposure, U.S. about 50%, but it's very different, as Peter says. In Europe, in general, it's aligned with commercial construction, whereas in North America, it's relatively balanced, but with a greater proportion of sales into residential.

Okay, thanks very much. Appreciate it.

Thank you.

Thank you. Next question today is coming from Frank Mitsch from Fermium Research. Your line is now live.

Hi, good morning. Peter, one of the priorities in 2024 was to get the volumes up and clearly, that's been a success. But price mix in the second quarter faced a very easy comp and obviously came in on the negative side of the ledger. 3Q faces another easy year-over-year comp. How should we think about the progression of price mix in 3Q and beyond? And what will it take to get it back to neutral if not positive?

Well, it's going to take a combination of capacity utilization, overall demand and mix of the products we're selling, the combination of those three. And as sort of a cataclysmic economic event, I remain bullish that we're going to continue to see a gradual improvement that's taking place in the business over the course of the next couple of quarters.

I think price mix was mostly built in, Frank. If you look at the sequential quarter one to quarter two in general, that was relatively neutral.

That's right. Yes. I did pick that up. And then North America polyurethane volumes up nicely in 1Q, up nicely again here in 2Q over 20% in both of those quarters, does that continue in 3Q that level of improvement in polyurethanes North America?

Most likely, yes. Again, kind of basing that on what you said earlier, we're starting it on a very low basis as to where we were a year ago. But no, I think that we will continue to defend our market share and we'll continue to win back business.

Thank you. Next question today is coming from David Begleiter from Deutsche Bank. Your line is now live.

Thank you. Good morning. Peter, if the recent drop in oil prices holds, could there be a benefit tailwind to your earnings in the back half of the year?

I'd like to think that would be the case. But we are seeing areas around refining where we've seen crude prices coming down and benzene prices going up in some cases, now today's benzene is down to around $3.50 as I look at it today, in the second quarter it was up around $4. So yes, I mean, as I look at some of these prices, I look at some of the published prices around chlorine and caustic, not that I give those published prices much credence, but you are seeing stability in certain areas that seemingly are somewhat detached from crude oil. But I think by and large, falling crude prices should give us some tailwind.

For benzene, David, it settled at $3.80 the contract for August. So it was still relatively high relative to the spot price. We tend to pay the contract price. So it really for us is all about how benzene then moves during the month of August and how it settles for September and beyond.

Very good. And just in advanced materials, Peter, when you think about the bridge to 25%, could this be a sizable uplift in earnings in the segment as some of the mix issues and raw material issues get grandfathered and as volumes pick back up?

I should certainly hope so. I think that, again, we're going to need some tailwind in all of the three areas, but as we look at the cost initiatives, pricing, some of the R&D initiatives that will be coming into the market. Yes, I believe that as we get into 2025, again, barring some major change, it ought to be a year of improvement for us.

Thank you. Your next question is coming from Mike Harrison from Seaport Research Partners. Your line is now live.

Hi, good morning. I was hoping that you could talk a little bit about the competitive dynamics that you called out in performance products. You said that those negatively impacted margins. What exactly is going on there? And do you expect that negative impact to persist into the second half?

Yes. Well, our performance products, mind you, is really in two major product groupings and then you get into subproduct groupings and geographies from there. That would be our maleic business and our amines business. Our amines business continues to hold up quite well. Maleic in North America, again, this would be the raw material going into unsaturated polyester resin and so forth is holding up quite well. Where we're getting hit the hardest in performance products is maleic specifically in Europe, where we're seeing a tight wave of Asian-based maleic that's going into Europe. Europe also has very low duties compared to the U.S. and maleic. Maleic, I mean, in the U.S. has about a 28%, 29% duty protection, whereas in Europe I believe it's around mid-single-digit sort of numbers. So, again, getting back to that industrial policy that we look for in Europe and so forth, that’s really the area of greatest competition that we're seeing for performance products.

All right. Thank you for that. And then on advanced materials, it really sounds like this is becoming a significant focused area for M&A. Curious what the acquisition pipeline in advanced materials looks like at this point and could we expect some acquisition activity yet to come this year?

Well, we're looking at – that pipeline probably picking up a bit. I mean I think there's – across the board, there's a lot of assets right now that are owned by private equity that are kind of getting to the end of a multiyear sort of a hold where a lot of these companies, I think, are going to be bringing assets to the market. Having said that, advanced materials is unique in that if we were to go out and try to buy MDI capacity, for example, in polyurethanes, we wouldn't be able to do that for antitrust purposes. Performance products were already the largest in North American maleic anhydride and so forth. When we look at Advanced Materials, we see an opportunity both of vertical and horizontal integration that really makes it a target-rich environment. This is a business that I think is extremely core to our business. If we want to look at a business where we want the rest of the business to have the sort of earnings profile of a 20-ish high-teens sort of margin, EBITDA margin business, and I'd remind you that that business remains very strong in Europe, in spite of all the headwinds and everything that we're seeing in Europe. So I think of where we want to be as we continue to evolve as a company, I look at where there is a target-rich environment, and all of those would point to advanced materials. Now having said all that, I do want to emphasize that just because there are a lot of targets out there does not mean that we're going to be loosening up the barriers that we're setting up as far as the discipline around pricing value integration and what it means to go out and actually buy one of these and what the impact that has on the balance sheet. So we're going to remain very disciplined in that pricing as well.

Thank you. Next question today is coming from Salvator Tiano from Bank of America. Your line is now live.

Yes, thank you very much. First, I wanted to release a little bit of polyurethanes guidance because actually, I would think when you're taking into account the force majeure or the PO/MTBE turnaround, it looks like actually like-for-like, it would have – you're pointing to much higher earnings in Q3 than Q2. And I'm wondering what is driving that? Is it essentially the U.S. margin expansion because of the Freeport outage and then I guess the big price increase we saw in May and June? And also, how sustainable is this margin expansion as Freeport comes back online?

Yes, Sal. So you're correct in that we've got the Rotterdam force majeure or we've got the PO/MTBE turnaround. I think we said earlier as well we've got a one-time benefit from what is an intended inventory build towards the end of September, ahead of a turnaround in October. Any benefits that we’re getting tend to be in PU Americas when you compare quarter two to quarter three, driven by a little bit of volume. But as you indicate, we’ve also got some pricing traction in the United States with our price increase, which should improve unit variable margins as we go through the quarter. So it’s really North America plus those other pluses and minuses that we go earlier to bridge the quarter two to quarter three.

Okay. And can I ask also a little bit about the adhesives business in Advanced Materials that you highlighted? Can you provide a little bit more color there about applications in the epoxy-based adhesives and also what’s the difference, I guess, in the outlook versus your composites business? Because I would assume that also that is driven by aerospace OEM. But the outlook, as you said there, is much better for this year.

Yes. So I think what we highlighted was our infrastructure coatings business in Advanced Materials. I mean, there are five elements overall to Advanced Materials: our power business, aerospace, our automotive business investor, and our infrastructure coatings business. The infrastructure coatings business tends to be a little lower margin business. That drove us down from a price mix combination. In terms of adhesives – in terms of adhesives in particular, that’s where we’re putting interior applications into aerospace, and that has grown for us pretty much double digit during the course of this year. It’s offset some of the slower growth that we’ve seen more on the composites side going into the wide-body aircraft, and has given us a lot of heart. But I think we’ve said we should expect aerospace to return to pre-pandemic levels during the course of 2025.

Thank you. Our next question today is coming from Josh Spector from UBS. Your line is now live.

Yes, hi. Good morning. I wanted to ask around your early thoughts here around 4Q and not necessarily pinning to a specific number, but just thinking about seasonality. We talked about some of the moving parts in polyurethanes, and you’re seeing some pricing. Would you expect seasonality to be normal in the fourth quarter? Should that be our base case, or are there things that you would call out to say why it would be abnormal, maybe closer to stable versus what you typically expect? Thanks.

Yes, great question. My guess is probably as good as any, Josh. I would suspect this year that seasonality ought to be pretty normal compared to the last couple of years, with the exception of last year. And I base that solely on demand has been fairly steady, hasn’t been growing a great deal. It’s been fairly steady. There is not a lot of inventory just anecdotally that I’m seeing in the supply chain. That’s not to say that they are not pockets here and there, and so forth. But typically, at the end of the year, if you’re sitting on a lot of the inventory customers and in certain geographic areas of the company will take that opportunity to deplete inventories and improve their working capital at the end of the fourth quarter – and seasonally – that coupled with seasonality. So, from a seasonal point of view, probably a 100% chance of certainty that Christmas and New Years will come about, there will be a slowdown. As far as will there be a massive drawdown of inventory, and so forth, that doesn’t feel like there is a lot of inventory in the system right now. I think my biggest concern right now would be between now and the end of the year where you’ve got kind of a couple of these big macro issues, either geopolitical issues in the Middle East, U.S. elections, and so forth, consumer confidence, volatility in the stock market, consumer confidence somehow tanks in the fourth quarter, that could have a reverberating impact on overall demand. And I think that, in my mind, is probably the biggest uncertainty that’s out there right now. But aside from that, I don’t see at this point, I don’t see a lot of areas of uncertainty and supply that’s sloshing around.

Thanks, that’s helpful. And I just wanted to follow-up on the point around cash deployment. So, while your leverage is higher now with depressed earnings, does that really delay any deployment into buybacks or M&A? I mean, I guess if you have normal seasonality, you’re probably still in the fours through the rest of this year. So how do you think about that?

I think the cash discipline you’ve seen in the first half of this year will most likely continue over to the second half of this year. I don’t think that there will be a lot of change there in. Yes, we’re going to be very disciplined on capital spend. We’re going to be spending freely on areas around safety and reliability. That’s how license to operate. But discretionary spending and so forth, we’re going to continue to be very focused on limiting that. If we do M&A, it’s going to have to be something that fits very well that makes a lot of sense of integration and shareholder value creation. And we want to make sure that we were able to guard the dividend, the balance sheet.

Yes. And as Peter said, I mean, our dividend right now is at 4.5%. So it’s pretty competitive overall from that perspective. And you’re right, Josh. I mean our leverage, our net debt leverage is four times really drop EBITDA. I think we’d see ourselves at that $1.5 billion about that of net debt. And if you do sort of average cycle EBITDA, that will bring us down to below our two level, which is what we’re trying to ensure over a cycle.

Thank you. Our next question is coming from Aleksey Yefremov from KeyBanc Capital Markets. Your line is now live.

Thanks. Good morning everyone. Peter, I was hoping you could update us on your spray foam story. How is your business doing this year? And if that business overall is gaining share from other forms of insulation.

Well, I think when I look at the comparison of spray foam versus other products. I look at it first on a very macro basis, and I look at some of the earnings of our peers, and so forth. It feels like it’s a pretty sluggish area of demand right now. And we’re optimistic about some of the government initiatives and standards and so forth that are being set that will be coming in through 2025. As those standards, tax issues, building codes, and so forth, really hit the bottom line, I am quite optimistic about what I see in the pipeline. Presently, the higher crude prices, which is kind of where your polyurethane foam is based versus your natural mineral fibers, which are largely based on energy and natural gas prices, it’s a competitive market out there right now.

Thanks, Peter. And you reminded us of your commercial versus residential real estate exposure in the U.S. in prepared remarks. I was hoping to ask you if you see any signs of slowdown in commercial real estate? And also tell us what is the breakdown between maintenance and new within commercial?

Yes. As we look at commercial in North America, just looking at the revenues, it’s really about on the commercial side, which makes up about 40% of our overall business, 45% of our overall North American polyurethanes business. Of that, it will be split about one third retrofit, two thirds new. Again, that’s commercial. When I look at residential, that’s making up our polyurethanes business in North America on a revenue basis. That’s making up about 55%. And of that, that’s going to be about – of that number – it will be about three quarters that will be new and one quarter, that will be retrofit.

Thank you. Next question is coming from John Roberts from Mizuho Securities. Your line is now live.

Thank you, Peter. In Advanced Materials, what kind of vertical integration are you interested in? I assume it’s primarily downstream and not going back into the upstream?

No. We spent years getting out of the upstream. We’ll definitely not, well, I should never say never, but cold day in hell would be for us to go upstream. But I don’t know the temperature gauge. But no, it certainly is downstream. It certainly is lateral. I think look at our last couple of acquisitions, and I think we’ve been able to go lateral. We’ve been able to buy some chemistries and so forth that have enhanced our core business in Advanced Materials. And I’d like to see us go further downstream.

And then what has to happen for the long-term effective tax rate to come down to 22% to 24%. Is that just geographic normalization?

Yes, it is. It’s exactly right, John. I mean we said 23% to 24%. I think as we move back towards mid-cycle EBITDA, you’ll see that coming down. We are actually 23% in the second quarter or 27% year-to-date. But it’s exactly that. And what we need to see is an improvement in profitability in Europe. So ultimately, you can use some of those NOLs.

Thank you. Next question today is coming from Kevin McCarthy from Vertical Research Partners. Your line is now live.

Yes, thank you. And good morning. I wanted to ask you, Peter, regarding Performance Products. Your volume grew 8% in the quarter. And I think in the prepared remarks, released last night, you referenced some seasonality, but also modest restocking, and I was curious about that. We haven’t heard a lot of chemical companies pointing to restocking. You called out coatings, and adhesives, and fuels and lubricants. So, I just wonder if you could expand on that and maybe comment on your confidence or visibility that it’s restocking related versus underlying demand pull or green shoots?

Yes, Kevin, great question. I think in the last earnings call a quarter ago, I said that you’ve got restocking, you’ve got demand, higher demand is going to participate – is going to precipitate higher restocking. And eventually, if you look at kind of the bell curve which shows on each end, you’re going to get in this gray area in the middle. And that’s, I think, an area where we always struggle. But typically, as demand improves, you are going to see people’s confidence improve and restocking will prove. So when I talked about modest restocking, we’re seeing modest demand improvement coming back, a lot of that, particularly around some of the ag business and construction business around Performance Products is going to be around your spring planting and there is going to be some seasonality in that. That’s why I pointed out in the third quarter, we’ll probably see some seasonality headwinds in Performance Products. But we’re also seeing a nice return in demand in the fuel and lube additives. I remind you that as we look back on 2023, that was an end of the business that unexpectedly got hit very hard. I should say unexpectedly because a lot of that was inventory-driven. And I think that we’ve seen inventories normalize, return to demand come back, and that was a nice area of recovery we saw in this past quarter.

That’s helpful. And then sticking with Performance Products, I wanted to come back to maleic anhydride. I think you referenced some of the challenges there in Europe related to import pressure into Europe from Asia. I guess my question is, do you think that that dynamic will improve in the back half of the year given industry dynamics, as well as the freight rates from Asia to Europe? One of the consultants at least, I think, pointed to a higher contract price for maleic in Europe in 3Q versus 2Q. So, not sure if you saw that as well or what your expectations are there, but it would be helpful to understand a bit better.

I have not seen any indications in the third quarter so far going into the fourth quarter that give me a whole lot of optimism around pricing for maleic in Europe. That’s not to say that we’re past that price improving. I’m just not seeing those sort of indications. I think it might be more of a 2025 event. Look, you’re going to see – when you see some of these trade routes change and shift between going up through the Suez Canal versus going around Africa, and so forth, that’s going to cause a month or two of pricing volatility, supply and demand. But eventually, the product is going to get there, right? And when you start taking a bunch of shipments and you put them around Africa versus up through the canal and you reopen the canal, you can actually get – you could see a scenario where you get too much coming in at the same time. So, I wouldn’t put a whole lot of long-term cure, if you will, around shipping costs, and logistics, and routing, and so forth. Fundamentally, as the Chinese economy improves and Chinese domestic demand improves, more of that maleic will stay in China and will not need a home in Europe. And that will probably be what will help European prices more than anything else.

Thank you. Our next question is coming from Hassan Ahmed from Alembic Global. Your line is now live.

Good morning, Phil and Peter. Peter, a question, just wanted to revisit volumes in the Polyurethane segment. Obviously, on a percentage basis, strong growth over there, particularly in North America. I’m just trying to get a better sense of despite – you mentioned that, obviously, we are coming off of a low base. How far away are we – be it by region, be it globally from reaching more normalized levels of volumes?

I think that is a good question. I think that you’ve got to see that normalization again, we need to see a recovery in the construction, residential construction markets. And I believe that as we see that gradual improvement take place, that’s certainly something that we would hope would have returned in 2025 as we kind of get through the rest of this year.

Understood. And just sort of carrying on with the construction side of things. Obviously, we saw the rate cut on the ECB side, and it seems the rate cut is imminent here in the U.S. I mean internally, as you take a look at historic trends and your own sort of numbers, and the like, I mean, what sort of lag is there between a rate cut and you guys seeing the benefit from that in your demand numbers, profitability numbers and the like?

I think it’s probably – depending on the time of year, the size of the rate cut, and so forth. But you’re probably talking about two quarters or so. It’s not going to be the next week or the next month, but as the rate cuts come down, you will see optimism among builders, you will see a gradual pickup of inventory and so forth as people feel more confident about investing in the future. And again, depending on the time of season and the size of the cut, you’re probably looking at at least two quarters to really see an impact on something like that.

Thank you. Next question is coming from Laurence Alexander from Jefferies. Your line is now live.

Hi. This is Dan Rizzo on for Laurence. Thanks for taking my question. You mentioned being disciplined with CapEx. I was just wondering if you have ample capacity to meet any resurge needs – a resurge in demand that could occur after a rate cut or if things go back to a kind of a stronger restock cycle in all three segments.

Yes. Good question, Dan. Simple answer is absolutely we’re poised, set and ready to go, need any demand scenario.

Okay. And you also mentioned you are being more dependent upon commercial construction and the rate cut doesn’t have as big an effect. What do you think needs to happen from a macro standpoint to kind of, again, reenergize that region?

To reenergize the commercial construction or Europe. Yes, I believe that Europe is the question is around Europe is going to be a question as much around consumer confidence and rate cuts as it is around anything else. And consumer confidence in Europe is largely going to be predicated on everything from geopolitical, but particularly around energy pricing, energy competitiveness. And when you see your utility bills that are going up 40%, 50%, 100% year-over-year, that’s a lot of disposable income that’s going to pay for a failed energy policy.

Thank you. Our next question is coming from Matthew Blair from TPH. Your line is now live.

Thank you and good morning. Peter, could you talk about the dynamics on the ground in China for Huntsman system? Is it fair to say the areas like housing and manufacturing are slowing? And how would you characterize autos in the region?

The auto side continues to be a strong demand for us. And we’ve got a lot of very good applications and relationships there with a number of OEMs in auto. I don’t really see an area of decline. Obviously, we’ve seen areas of decline over the last year, so particularly around residential and construction. I don’t think those are particularly getting worse. We’re just not seeing any recovery taking place in those areas. But by and large, we’re seeing things stay pretty steady. Infrastructure continues to be decent for us. Automotive continues to be strong and consumer confidence and exports, I think, are staying steady.

Sounds good. And then on Ad Mat, I think the slides mentioned the aerospace sales are rising due to interior adhesive applications. Do you have any examples of this? And is this something that only applies to the wide-body planes, or are you making inroads into other planes as well?

No. Safe to say that it’s in both wide-body and narrow-body. And we’re seeing a lot of this in overhead bins, in the galley areas, and so forth. When you think of an airline and those large commodious bathrooms they have there, all of the components, and sidings and everything that are glued in there, it’s kind of new and growing area of application for us. When we think about aerospace for us it’s been a lot of, traditionally, it’s been a lot around the composite materials going on, on the outer shell, on the wing, and so forth. And the interior adhesive applications, these typically take quite a while to qualify for these, and we’re seeing – we’ve been working on that for some time, and we’re seeing the patience is paying off.

Thank you. Our next question is coming from Arun Viswanathan from RBC. Your line is now live.

Operator, why don’t we have this, it’s a busy morning for a lot of people, I want to have this be the last question, and anybody else that has any other questions or anything. So more than welcome to the call, Ivan or Christine.

Great, thanks for taking my question. Yes, I just wanted to go back to your earlier comments, I understand that the interest rates could help in North America and maybe in 2025 but again, I think Hassan was asking maybe where you are kind of in your normal demand levels? Would you say that you’re seeing demand at maybe, say, 50% of normal or 60% of normal? How much recovery would you expect, I guess, over the next couple of years? And what’s your visibility on – are there any markers that you’ve seen recently that would tell you that we’re either improving incrementally or getting worse? Thanks.

Well certainly, as we look at demands and we break that down on a segment for everything from appliances that composite wood, the flexible foam insulation, elastomers, automotive spray foam, I would break down on base-by-base – case-by-case basis. As we look at our internal capacity around the areas of construction, I would say that globally, it’s going to vary a bit, you’re probably somewhere in the low to mid-80% capacity utilization in those areas of what I would consider to be normalized run rate. So again, some room for expansion, but certainly a lot better than where we were a year ago this time.

Thank you. We reached the end of our question-and-answer session. And ladies and gentlemen, that does conclude today’s teleconference and webcast. You may disconnect your line at this time, and have a wonderful day. We thank you for your participation today.