Huntsman CORP Q3 FY2025 Earnings Call

Greetings and welcome to Huntsman's Third Quarter 2025 Earnings Conference Call. As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Ivan Marcuse, Vice President of Investor Relations and Corporate Development. Thank you. You may begin.

Thank you, everyone, for joining us this morning for Huntsman's Third Quarter 2025 Earnings Call. Present on the call today are Peter Huntsman, Chairman, CEO, and President, along with Phil Lister, Executive Vice President and CFO. Yesterday, we released our earnings for the third quarter of 2025 through a press release and shared it on our website, huntsman.com. We also have a set of slides and detailed commentary regarding the third quarter available on our website. Peter Huntsman will soon share some opening remarks, after which we will proceed to the question-and-answer segment for the rest of the call. Please remember that during this call, we may discuss our projections or expectations for the future. These statements are forward-looking and, while they represent our current expectations, they carry risks and uncertainties and do not guarantee future performance. We encourage you to review our SEC filings for more information on the risk factors that could cause actual results to differ significantly from our projections. We do not intend to publicly update or revise any forward-looking statements during this quarter. Additionally, we will mention non-GAAP financial measures such as adjusted EBITDA, adjusted net income or loss, and free cash flow. Reconciliations to the most comparable GAAP financial measures can be found in our earnings release posted on our website. I will now hand the call over to Peter Huntsman.

Thank you everyone for joining us this morning. Before we begin the Q&A, I want to take a moment to discuss current market conditions. First, I'd like to address the change in our dividend distribution. Our Board of Directors carefully evaluates this every quarter, considering various factors in deciding the appropriate amount to distribute and retain. Our industry is facing three unprecedented challenges. The first is the U.S. economy, which is grappling with the impact of several years of high inflation and increasing interest and mortgage rates, placing significant pressure on consumer durables and homebuilding, resulting in fewer and smaller homes being built and reduced consumer spending on large items. The second challenge is the declining consumer confidence and spending in China, even as the country has expanded its manufacturing capacity, which is not being fully utilized domestically and is overwhelming markets that struggle to absorb increased imports. The third challenge is Europe's deindustrialization, hindered by excessive regulations, high taxes, and uncompetitive energy and raw material costs, leading to a lack of innovation and investment. We anticipate that in the latter half of 2025, there will be more industrial closures than in the first half. We are optimistic that the economies of the U.S. and China will stabilize as trade tensions lessen, interest rates decline, and consumer confidence returns. However, if Europe does not swiftly change certain policies, more of its manufacturing will move abroad. As this transpires, markets in the U.S., Asia, or the Middle East will stabilize as remaining European companies adapt to new supply chains, possibly resulting in a more consolidated industry. To navigate these challenges, Huntsman will continue to adjust our cost structure in line with market realities. We are on course to complete our $100 million cost reduction program, which involves reducing or relocating over 600 positions and closing seven sites, primarily in Europe. This process will extend through 2026, and we expect to meet or exceed our savings goals. Additionally, managing cash flow in line with a prolonged downturn remains a priority. We've generated $200 million in operating cash this quarter, with over $100 million in free cash flow year-to-date. We acted decisively on working capital early this year, and it was the right decision. We're also evaluating energy-intensive raw materials to explore sourcing from regions with more competitive costs. Europe will still be crucial for us, especially in sectors like aerospace, automotive, adhesives, and electronics, which are expected to be both profitable and growing. We need to continuously optimize our supply chains for the most profitable raw materials. For instance, we've recently closed our maleic facility in Moers, Germany, but will continue serving maleic customers in Europe from the U.S., where production is more cost-effective. We will evaluate our urethanes, amines, and epoxy supply chains to avoid Europe's high costs. Collaborating with other manufacturers will be essential in maximizing our capacity and competitiveness globally, including exploring consolidation opportunities and other beneficial arrangements. While not all initiatives will materialize, we will pursue every opportunity available. It's also critical to safeguard our balance sheet in the long term. Our current dividend levels were established under conditions that are now quite different. Our goal remains to return value to shareholders, which we've adjusted according to current market conditions. Now is not the right time to increase debt for a higher dividend. After thorough consideration, we believe we've struck a balance that rewards shareholders while maintaining financial health and investing in our future. We will consider increasing dividends as soon as market conditions permit, and I am eager for that to happen soon. Looking ahead to the fourth quarter, it is too early to provide forecasts for 2026. Most supply chains are tight, and visibility is typically short term at this time of year. I anticipate seeing normal seasonal patterns in the fourth quarter, but with a higher-than-average destocking. Earlier this year, some companies mistakenly believed in a rebound in Europe, but this hasn’t transpired. We may encounter fourth-quarter conditions, particularly in Europe, where prices could drop as companies manage inventories and working capital. During this time, prioritizing cash over EBITDA will be paramount, especially in our Performance Products division. Our aim is to end the year with inventories that align with demand. As we finish the third consecutive year of challenging markets across Asia, North America, and Europe, I believe we are taking the necessary steps to position ourselves for a swift recovery as market conditions improve. We will continue to seek every possible means to adapt rather than remain stagnant. Now, let's open the line for questions.

Today's first question is coming from Mike Harrison of Seaport Research Partners.

Just wanted to ask about the cash flow and the inventory reduction actions that you took during Q3. It sounds like your expectation is there's still some further inventory reduction that will happen in Q4 as you continue to focus on cash generation. My question is, though, what do these inventory reduction actions mean for your utilization rates, particularly in Q3, where you're running a little bit slower? And will that continue into Q4? I guess my question is, are you running slower now so that you can run harder potentially in the first and second quarter of next year?

We evaluate this on a product and division level. As we approach the first quarter, we usually start to increase our inventories in preparation for the second quarter, which marks the beginning of the construction and housing season. This timing is influenced by weather and demand, as people often look to move during the summer months, leading to increased purchasing activity. Typically, you would see overall inventories rise during the first quarter as we gear up for expected demand. However, if demand doesn't strengthen, as we saw in 2025 with a slow construction market in North America, we may find ourselves with excess inventory by the middle of the second quarter. For some of our products, like certain MDI materials, we can usually manage this inventory by selling into different markets, including exports, although it may not be quick or easy. For other products, such as Performance Products, which include amines for catalysts and maleic anhydride for unsaturated polyester resin, we might take longer to reduce inventories due to fewer customer outlets. This process often extends through the third and sometimes into the fourth quarter. This raises the question of whether to cut production rates to lower inventory levels for meeting production demands in early 2026. I see a potential modest recovery starting in 2026, but I don’t want to overly depend on our inventories for that. We should head into 2026 with below-average inventory levels, allowing us to adjust production based on actual demand. Considering the cautious stance many companies are taking after 2025 and the slow recovery, it's no surprise that many are focusing on working capital and inventory reduction, prioritizing cash generation over EBITDA. For our MDI business, while our inventory levels aren't perfect, they are at a manageable level. I expect Performance Products' inventory to be on track by year-end. Unless there's a significant shift in demand, I'm not optimistic about the EBITDA outlook for the fourth quarter, but I also see it as a necessary move to clear what I believe to be the last of the inventory. I appreciate your question, and I apologize for the lengthy response.

Our next question is coming from Patrick Cunningham of Citibank.

Peter, in your opening remarks and over the past couple of years, you talked about the continued collapse of European manufacturing and you've already been quite proactive here with positioning your own footprint. I guess my question is, is there a risk that enough capacity leaves that it no longer becomes attractive for suppliers to support some of these industrial clusters, if there's enough links in the chain broken and perhaps maybe down the road, you need to evaluate your Rotterdam asset as well? So maybe just directionally comment on how you're thinking about the asset footprint for Huntsman specifically and that sort of tail risk to the industry or what's left of it?

Yes. I don't want to predict too much about the future, but we closely monitor the situation. We are confident in our first-tier suppliers providing us with chlorine, CO2, and raw materials in Rotterdam, especially regarding our ability to import benzene. Based on what we see today, we believe we are in a strong position. I don’t have insider information, but we do communicate with our first-line customers. You raise a valid concern about what happens if issues arise with suppliers further up the chain, such as refining or pipeline infrastructure, and whether there will be enough product to support the pipeline system. This could be beyond our control and that of our suppliers. I do not expect this to happen in the near term, but two or three years down the line, it could be a possibility. However, I believe it would need to reach a severe level for government intervention to occur. For now, I feel confident that Rotterdam will remain a low-cost location within Europe and supports our second-largest MDI market. We are actively working to enhance the competitiveness of that site on a global scale and remain in continuous discussions with our suppliers. You make an important point about this.

The next question is coming from John Roberts of Mizuho Securities.

Do you think the increased U.S. MDI imports from Europe is a structural change and that's here to stay?

I hope not. I can't see how it makes economic sense, but looking at our economics, I question whether this is a good way to deploy capital. John, you raise an important point. In the U.S. market of around 1,200 kilotons, there are about 75,000 kilotons coming in from Europe, plus roughly another 150,000 kilotons expected next year. It's typically not the moment the kilotons arrive that you feel the impact; it's often the year prior when people start pre-marketing, preselling, and pre-cutting to find a home for that inventory. Additionally, there is a significant amount of Asian material heading to Canada and Latin America, which is displacing U.S. exports that typically go to those markets. I think there will be opportunities where some may find themselves with excess inventory and unable to sell it in Europe. However, fundamentally, moving goods from a higher-cost region while incurring tariffs, taxes, transportation, logistics, and working capital issues doesn't seem like a wise long-term decision to me, but that choice isn't mine to make. What is up to Huntsman is that we do not engage in that practice.

The Chinese gasoline market is now declining. So is your MTBE joint venture production in China having to be exported? Or how do you see that as the Chinese gasoline demand continues to decline?

So that MTBE is both an export and a domestic market. That's a very competitive site. It's a world-scale site and it's one that we're going to take advantage of both domestic and export opportunities and wherever the best opportunity is, that's where we'll be.

The next question is coming from Aleksey Yefremov of KeyBanc Capital Markets.

Peter, can you just maybe overall describe the U.S. MDI market? You just made some comments but what about demand side, overall U.S. MDI inventories and how customers are sort of reacting to the tariffs and change in that imports picture? Are your conversations with customers changing at all?

No, not significantly. There may have been a lot of exaggeration regarding the tariffs, suggesting that we would anticipate major changes. However, the U.S. market is 1,200 tons. If you consider the additional tonnage expected in the next year, one producer is adding around 150,000 KTS, and a mainly European producer has brought in about 75,000 metric tons this past year. The volume exported to Latin America and Canada is now shifting back to the U.S. Last year's fourth quarter and this year's first quarter saw approximately 100 kilotons arriving from China, which is more than offset by new additions and imports from Europe. Therefore, I don’t believe there’s a significant overall change in production. While I won’t deny there is some impact, especially for those facing antidumping tariffs, we experienced roughly 6% growth in MDI year-over-year. Over the past year, we have gradually regained market share that we had previously lost, primarily due to our overzealous pricing strategies aimed at maintaining stable or rising prices in a market that desperately needs it. Overall, the market remains sluggish, with only some areas of growth for MDI in the U.S. However, until the housing market improves fundamentally, I don’t foresee a return to the demand levels we have seen historically.

And as a follow-up, you talk about automotive wins in Advanced Materials and also some progress on the power side, aerospace. Do you think AM could qualitatively be decently stronger next year?

On the electronics side, it accounts for about 40% of our earnings, and it's probably the most overlooked segment in our business. It has grown significantly from 20% in 2018 to 40% today, effectively doubling over the last 7 years. This growth has occurred during a time when many businesses have stagnated or declined. Looking forward, I believe electronics and power will continue to expand over the next decade. However, if the economy improves, we may not see the same level of growth in this area compared to automotive or aerospace. Aerospace, in particular, is not reliant on consumer spending but rather on Airbus and Boeing's capacity to produce and deliver aircraft. Recent news about the 777X highlights this issue, with planes that were built years ago still awaiting delivery. It's essential to differentiate between aircraft being built and those being delivered. An increase in build rates and delivery in the aerospace sector would be beneficial. In electronics, growth will depend on the modernization of infrastructure as we integrate more renewable energy sources. Conversely, the automotive sector will be more consumer-driven, but we are seeing automobile manufacturers increasingly prioritize lightweight materials for energy efficiency in both electric vehicles and internal combustion engines, along with new innovations in battery materials and other components. As we see improvements in aerospace build rates, ongoing investment in the power grid, and hopefully increased consumer demand in the automotive industry, all these factors will drive growth, albeit through different influences—for some, consumer demand will play a key role, while for others, it will be about infrastructure and manufacturing efficiency.

The next question is coming from Vincent Andrews of Morgan Stanley.

Peter, it sounds like in the EU, you're already hearing from customers that they're going to be doing some early shutdowns for the holidays and so forth. Is that correct that you're already pretty well aware of this? Or are you just really projecting it?

I think that we're projecting it at this point. I have not heard even anecdotally that we're hearing automobile segment customers or anybody else. We'll see normal seasonality in the fourth quarter. I think that where you might see more of it is perhaps on the chemical side, not on our customer side but those of us that have to build inventories before the construction season. Or do you think that if the economy is going to be turning in the second quarter, because a lot of people are saying it would be the case in Germany, we better start building inventory to match that demand that's coming down the pipe. Typically, you don't see that with OEMs in the automotive industry and so forth. They're not building big inventories and so forth for seasonality. So when I talk about companies perhaps building too much inventory and diminishing some of that in the fourth quarter in pricing and so forth, I would say that will apply more to the chemical industry than our downstream customers.

The next question is coming from Josh Spector of UBS.

I was wondering if you could talk about kind of how you size the dividend cut? What's the framing that you use to set that? And I guess if I throw out some rough numbers, not trying to get to 2026 guidance or anything. But if we say you get back to $400 million in EBITDA similar to '24, 50% conversion of free cash flow, minus $175 million in CapEx, you're at $25 million in free cash flow. You're still not covering the reduced dividend. So I don't know if the assumption is how much cash you feel comfortable burning until things improve or if you have a different view around what earnings will be 3, 6 months, 1 year from now?

Yes, Josh, I think the Board had a long discussion about the amount of the dividend cut, 65% from our perspective, gets us to about $60 million of cash requirements for next year for the dividend. That's down by about $115 million of cash, frees that up. The $60 million, I think we're comfortable with that level when you look at how we've been generating free cash flow. We're $105 million on a year-to-date basis. We're closer to $200 million on an LTM basis. And we've been aggressive on working capital, quite frankly, whether that's on accounts payable, whether that's on inventory and we'll continue to do that as we progress through 2026. There's always opportunities to drive better cash flow. So I think that $60 million is a very reasonable level that our company feels that it can cover as you move forward.

Okay. I guess as maybe a quick follow-up on the same lines then, though. If EBITDA improves, I guess, like I outlined with that, wouldn't there be an increase in working capital involved in that? Or do you think you can grow earnings and not have to invest in working capital if there's more wood to chop there?

I think there's always opportunities in working capital, whether that's on the receivables side, quite frankly and also some more on the accounts payable side. We've driven our supply chain financing program this year. We've agreed extended terms with suppliers. That's going to flow through into next year as well. But there's always opportunities on working capital and we'll continue to be aggressive as a company. And I think we've demonstrated that through the first 9 months of this year.

The next question is coming from Mike Sison of Wells Fargo.

So for MDI, the fourth quarter polyurethanes, the decline in EBITDA was a little bit more than I thought. But where do you think industry operating rates are going to sort of settle down in the fourth quarter? And then given the cost savings that you're generating for the segment, is there a lower operating rate you can get to, to kind of restore some of the earnings power for this segment?

There isn't much information on the current state of the industry. I would estimate that the demand versus production is likely in the low 80s across the U.S., Europe, and China. However, not all companies are operating at 80%. Some are running at full capacity while others are adjusting to align more with demand, and this varies from company to company. I don't want to generalize what our competitors are doing based on the low 80s operating rates, but I believe that reflects the industry's situation. We will see improvements in polyurethanes due to cost-saving initiatives. Nevertheless, the best outcome for polyurethanes would be an increase in prices and a rebound in demand. We cannot achieve normalized margins in this business through cost-cutting alone without a significant change in the market. This change could stem from increased demand or consolidation within the market. There are still small, uncompetitive facilities that might typically close under these conditions, although it's uncertain if that will occur. To return urethanes to a more normalized state, more than just cost reduction will be needed. However, cost control is currently what we can manage and it's where a significant portion of our focus lies.

Got it. And then as a quick follow-up, a lot of companies have suggested they're not banking or even see much improvement in the environment next year. So it looks like you have a plus 80 or so in cost savings for 2026. Is there anything else that drives EBITDA upside in '26 versus '25 in an environment where demand could remain soft?

Sure. In our Performance Products, we have been introducing new capacities into the market, particularly with ULTRAPURE cleaning solutions. We have increased our capacity to produce catalysts and higher-end amines, which are currently being worked on with customers for qualification. We anticipate opportunities for improvement in the range of $5 million to $10 million. We are also undergoing a significant turnaround in our home spray foam and insulation businesses, with benefits expected in 2026. Additionally, we have secured contracts this year in the automotive sector, as well as in Polyurethanes and Advanced Materials, which will lead to increased output. These developments are focused on new market applications rather than cost-related efforts. Looking ahead to 2026, I recall that in previous cycles from 1988 to 2021, there were always surprises in the market that no one anticipated months in advance. So, I wouldn’t dismiss 2026 as just another average year; there will be opportunities, and we may need to be more innovative in identifying and creating those opportunities.

Just one comment might be, incremental savings next year, we've articulated that at $40 million as we progress through the $100 million savings target.

The next question is coming from Jeff Zekauskas of JPMorgan.

In the old days, you used to talk about polymeric MDI and monomeric MDI and MDI that was a little bit more specialized and there being a margin differential between the two. What's happened to that margin differential between the two and why?

When we evaluate the market from five to ten years ago, it seemed more distinctly categorized. Products from system houses were tailored for specific customers. Today, however, we observe a broader spectrum instead of a simple either/or situation. Our polyurethanes business still offers valuable components, with exciting applications in automotive, home construction, and insulation. In the automotive sector, we see both our most commoditized products and higher-end materials. What we're observing now, more than in the past, is that it’s not just a binary choice; there’s a wide range of options available.

I think everyone interprets the data in different ways. However, I expected that China would import around 250,000 tons of MDI into the United States, but that number has essentially fallen to zero. You mentioned that there might be 75,000 tons coming in from Europe, with any additional capacity arriving later. Doesn't that suggest the market conditions should be a bit tighter at the start of 2026?

Yes. I would say that if demand were increasing, I would agree with you. The fact is, those bringing on 150,000 tons in 2026 are currently marketing that material and setting prices. We're observing efforts to move that extra volume. As I mentioned earlier, it’s not just about when the volume is produced, but about trying to sell that product 6 to 12 months in advance to ensure there is a market when the facility starts up. Regarding the 75,000 tons coming from Europe, I find it surprising because I wouldn’t have expected that. Additionally, we might be underestimating how much has been exported to Canada and Latin America, with some of that volume typically headed for the United States now going further north or south instead. There's a lot happening in that regard. Looking at the data from a few quarters ago, we were seeing about 100,000 kilotons entering the U.S. from China, but now in the third quarter, it was down to just 10 kilotons. So, while we are witnessing a significant drop-off from China, there is an increase from other areas.

The next question is coming from Kevin McCarthy of Vertical Research Partners.

Peter, if I look at your Performance Products volumes, they've been running down close to double digits in recent quarters. But I think that, that is distorted by your plant closure in Germany. And so I guess my question would be, can you comment on kind of the underlying market demand as you see it for maleic and for amines? And I guess, related to that, if we take into account the new products that you talked about in Performance Products, do you see an opportunity to stabilize or even grow volumes in that business next year?

Yes, I believe we do see potential. Maleic is a key product for us in the U.S., and you are correct that the volume decline we experienced is significantly influenced by Moers, which accounts for about 50% of that reduction. Additionally, the DGA market in agriculture has been somewhat weaker this year. We are also facing competitive market conditions in the amines segment across various industries, including construction, which has limited growth. Looking ahead to 2026, I believe we are the low-cost and largest maleic anhydride producer in North America, benefiting from protective tariffs ranging from 50% to 60%. This gives us a strong position with a solid cost and manufacturing base. We anticipate that maleic will remain a robust market for us in North America, and we plan to direct excess materials to our European market. Over the next year, we expect a gradual improvement. Our ethyleneamines are likely to remain stable to slightly positive, while the rest of our amines performance is expected to remain flat.

And just to reiterate, Kevin, if you take Performance Products, you minus the Moers closure, you're relatively flat year-on-year. That's the way to think about it.

The next question is coming from Hassan Ahmed of Alembic Global Advisors.

I have a question regarding U.S. MDI volumes specifically for your company. Clearly, 2025 has been and will continue to be a year of weak demand. Setting aside the broader macro demand, it's evident that this year has been unusual regarding trade flows into and out of the U.S. for MDI. You mentioned potentially losing some market share while focusing more on maintaining pricing. Back in Q2, you noted that there is usually an 8% to 10% volume increase in MDI, but this year you only experienced about a 3% increase. I wonder if this is partly due to inventory build-up. Given this, assuming the macro environment remains relatively unchanged in 2026 but trade patterns normalize, what kind of volume increase in U.S. MDI could you anticipate as a result?

That's a good question. A lot will depend on customer sentiment, pricing, and where we can maximize our production value. I want to remind you that in the third quarter, we experienced a 6% year-on-year increase, 4% in North America, and specifically in the U.S. markets. This wasn't limited to just one area; it was a strategic and targeted approach in segments where we could achieve the best value for our product. We plan to maintain a similar strategy in 2026, focusing on being smart with our volumes while aggressively maintaining them and quickly adjusting prices. However, I would be cautious about forecasting the specific performance of the division in 2026.

That makes sense. That makes sense, Peter. And if I could sort of just talk about near-term U.S. pricing as well. Of course, you mentioned incremental capacity coming online in the U.S. market, which will be later in the year. But from the sounds of it, it seems trade normalizing, somewhat normalizing in the early part of next year, antidumping duties, tariffs, and the like, I mean, there is at least potential for some pricing tailwinds in the U.S. in MDI. Is that correct?

Yes. Hassan, I think you're absolutely right. And we're in a little bit of the old joke that when the bear starts to chase us, I just have to outrun you, I don't have to outrun the bear. And so when I look at the polymeric MDI pricing today in the U.S., and again, I'm talking about polymer, this is the bottom end most commoditized. You're seeing about a $200 a ton difference between U.S. and China. And you're seeing another $200 difference between China and Europe. Now that's not on an absolute basis. That's going to be on average basis. But you are seeing some stability, more stability in the U.S. than you're seeing in China and Europe. And so I would just say that, again, I'm not saying I'm happy with where the margins are in the U.S. but pricing in the U.S. is holding up better than the other two regions. And when you look at our manufacturing costs, the U.S. and China, about $100 apart a ton from each other, China being lower. So yes, I think there's opportunity. What we need, again, more than anything else is just demand. And I don't think that we'll really start to see that picture until the end of February, early part of March and we start to see the direction, that proverbial construction demand and homebuilding and seasonality, Chinese New Year's will be over by then. And what do we see on a global basis that starts to take place at that time.

The next question is coming from Salvator Tiano of Bank of America.

We haven't heard much about the spray foam business recently, and I would like an update on its current status. Is it generating positive EBITDA at this time? Regarding both the spray foam business and insulation demand, have you noticed any changes since the summer, particularly related to the cancellation of a key credit in the IRA bill that might have impacted spray foam demand?

Yes, we haven't observed any impact from the credit. Our spray foam business is performing well and is up year-over-year, maintaining its status as the U.S. leader with a gain in market share. Although the overall markets are down, our business saw a 7% increase in the third quarter compared to last year. Gaining market share in this area isn't just about strategy; it requires strong service, quality, reliability, and consistency. We are witnessing gradual improvement in this business, and I commend the management team for their efforts.

Great. As a follow-up, I wanted to ask you about the need for restructuring and consolidation that you mentioned in your prepared remarks. You noted that you would collaborate with your partners and other industrial partners and manufacturers. Beyond Huntsman taking actions like closing the Moers site, do you see an opportunity or would you consider pursuing consolidation through mergers and acquisitions for some businesses?

I'm not sure about pursuing M&A at this time. I don't think I would want to stretch the balance sheet for that. However, if you examine the cost curve of several of our products, you'll notice significant variation in different regions of the world. In some areas, we are the market leader, while in others, we are not. We need to consider adjusting our volumes and supply chains, which may involve collaborating with former competitors to address the energy challenges affecting certain regions. I want to emphasize that this is a broad initiative that has been ongoing. I won't go into specifics about divisions or products, but there are opportunities that we need to explore further.

The next question is coming from David Begleiter of Deutsche Bank.

Peter, you mentioned that Chinese MDI imports into Europe have been pretty steady. Can you discuss the potential for more robust tariffs and/or duties in Europe? I believe there is an EU investigation into MDI imports into the region. So that would be helpful.

Yes. I don't foresee the Europeans taking any real material action on that. If it's anything like what they've done over the last couple of years, it's not going to happen in my lifetime. But it'd be great to see them do something, but I'm not counting on that happening.

Sorry to hear that but so be it.

So am I.

MDI, any change in your view of long-term MDI growth rates as we exit this downturn?

Sure. As you know, I think that as we look at the biggest drivers around MDI, it continues to be a product that displaces other materials. When you look at the large volume side of it, it's going to continue to be construction and homebuilding and so forth. That's going to be the principal driver. But by and large, this is going to be a business that is going to grow equal to the rate of GDP plus usually about another 0.5% or about half of GDP in product replacement. So I'd say it's a business I would expect over the cycle to grow at about 1.5x the rate of GDP through economic growth and also product substitution and replacement.

The next question is coming from Arun Viswanathan of RBC Capital Markets.

If we look at the second half EBITDA in '25, it looks like the implied kind of midpoint is around $130 million. Maybe if you annualize that, you get to mid-200s. From there, is there a way you can kind of frame maybe the cost reductions, restocking or kind of downtime impact that you're seeing this year and maybe some other building blocks, if anything?

Yes, Arun. You're correct. Taking the midpoint of our guidance, which is between $25 million and $50 million, alongside the $94 million, leads us to about $40 million in incremental savings from our savings program for '26 compared to '25. We are confident in achieving or surpassing those target rates. This year, through the first nine months, we have seen a $30 million impact on the company from reducing our inventories. We expect additional impact from this in the fourth quarter, particularly in Performance Products. If we maintain our inventory volumes next year at the same level as this year, we could see an improvement in EBITDA. However, we have experienced some noncash one-offs, which we've detailed in Performance Products over the last two quarters amounting to around $15 million. Despite the macroeconomic conditions, we've mentioned the expected improvements in aerospace and power sectors as we progress into next year, with construction also influenced by the macro environment.

Great. And then just as a follow-up, is there anything else you need to do on the footprint? I mean, as you noted, we've gone through significant weakness here for a little while. So maybe is there any rationalization that you see that's required at this point? Or is it mainly just kind of waiting for demand to kind of get better?

We are currently in the process of finalizing the seven site closures that we've recently announced, which has affected about 600 employees who have either been let go or relocated to lower-cost positions in locations like Poland, Costa Rica, or Malaysia. We will continuously evaluate where we can source our materials. If we find that it's possible to do this more affordably, reliably, and profitably through another third party or by consolidating to a different site, we will explore those options. I want to emphasize that if we ever come into the office and feel that there's nothing more to accomplish with the company, then we will have failed. Therefore, we will keep looking into these matters.

The next question is coming from Matthew Blair of TPH.

Great. The commentary on aerospace for both Q3 and Q4 is a little bit better than what we were expecting. I think there was a comment that you have adhesive applications for aircraft interiors as a relative bright spot. So my question is, is your content per plane increasing? Or is this just a function of Huntsman capitalizing on overall rising build rates in the industry?

No. I believe that over time we will enhance our content per plane. We are examining the traditional structural materials used in aircraft, but our current emphasis is on interior adhesions and structures. These represent growth opportunities for us. However, it's important to remember that our aerospace contracts are long-term commitments, typically lasting over 10 years. These are our longest continuous contracts as a company. Therefore, if we project a build rate and another party has a different estimate, and if the actual results exceed our expectations, we will capture that business. If production ramps up and more deliveries and applications occur, we will benefit from that. It is a positive aspect of the business, and we are optimistic about continued improvement in the build rate, which will allow us to increase our content on a per plane basis.

Sounds good. And then the fourth quarter polyurethanes guidance, does that reflect some benefits from cheaper benzene feedstock costs in the quarter? Or is there a lag that we should be thinking about?

There's a little bit of benefit, Matthew. I think the average for Q3 on benzene in the U.S. was $276 in the third quarter. It's trading today at about $250. So it's a little bit of benefit. In general, there's a lag as we move it through cost of production onto cost of sales but you've got a little bit of a benefit there.

The next question is coming from Laurence Alexander of Jefferies.

A couple of structural questions. How are you thinking about the potential impact for North America polyurethane demand from reshoring of appliance production? Have you seen enough announcements for that to be material? And if so, when? And then secondly, when you think about the new 5-year plan in China or at least the first drafts and the focus on shifting the chemical industry downstream, do you see that as a net positive or negative for Huntsman? And then I guess the third one, if I can just ask a third structural question is, given the outlook of probably several more years of volatility and kind of lack of clarity for the Western chemical industry, do you see a return at least on the corporate side of the fashion for conglomerates that we saw in the '60s and '70s, kind of similar turbulent period?

Yes, that's a great question. Regarding appliances, we are not observing any significant changes, and I don't expect anything substantial to emerge in 2026. Historically, these have been low-volume and low-margin sectors. We have the expertise, knowledge, and relationships needed. If there's profit to be gained, we will pursue it, but I don't anticipate much business in that area. Concerning China's downstream business, there could be opportunities for us in certain segments. We are currently collaborating with some Chinese producers to explore sourcing materials within China instead of relying on imports, which aligns with their improving quality standards. However, manufacturing a product at a competitive price does not guarantee it will meet qualification standards. For example, just because someone starts producing epoxy today, it does not mean they will secure contracts with Boeing or Airbus next year or even in the next five years. Qualification remains a significant challenge. Additionally, when China refers to downstream activities, it sometimes indicates processes like converting ethylene to polyethylene, which are downstream derivatives. I wouldn't overinterpret this as a swift move towards specialty chemicals. Specialty chemicals require rigorous qualification and demand from customers, just as much as from manufacturers. Just because a product is produced does not ensure there is a market for it. On the topic of conglomerates, we have discussed this extensively within our team as we consider the potential for companies to merge, with a focus on optimizing their cost structures and supply chains. While there is a possibility of a resurgence in this area, we have not yet reached any definitive conclusions.

The next question is coming from Frank Mitsch of Fermium Research.

Peter, I sincerely appreciate that. I have a 4-part question.

Great. I'll have an 8-part answer.

So listen, I'm looking at the maleic anhydride market in Europe. You shut down Moers, I believe, at the end of the second quarter. So it's been shut down for a while. Prices there are continuing to drift lower. Now one would have thought that you shut down a major facility, prices would stabilize and the market would bounce. What is going on there?

There is a significant amount of Chinese material entering the market. About ten years ago, China announced plans to produce a biodegradable plastic that contains maleic as a raw material, specifically a product called PBAT. They planned to produce billions of pounds of this, so shopping bags would disintegrate by the time consumers got home, leading to cleaner air and a better environment. However, that production did not happen as expected. Currently, there is a large surplus of maleic in China, much of which is being exported to Europe. Additionally, some of this material may originate from countries that are under sanctions and is making its way to Europe, possibly through Turkey. Europe has lax import controls and a high cost structure, making it a destination for excess material. In contrast, the U.S. market, which is our primary focus, remains strong for us. We have around 50% to 60% tariff protection there, and as a low-cost producer with access to good raw materials and technology, we are in a favorable position. We will explore opportunities in Europe when margins improve, but currently, the market there is not favorable.

Thank you for the clarifications. Lastly, regarding your Slide 12, you mentioned continuing to assess noncore assets. I assume there is nothing urgent on that front, but I would like to give you a chance to share more details about what might occur there.

No, I don't think there's anything really material happening. We continue to evaluate and assess various aspects. Until we reach a purchase and sale agreement on something, I wouldn't want to comment further. At this moment, we're mostly just examining things around the edges, I would say.

Ladies and gentlemen, that brings us to the end of today's question-and-answer session. We would like to thank you for your participation and interest in Huntsman. You may disconnect your lines or log off the webcast at this time and enjoy the rest of your day.