Greetings. Welcome to Orion Engineered Carbons' Full Year and Fourth Quarter 2022 Earnings Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. Please note, this conference is being recorded. I will now turn the conference over to Wendy Wilson, Head of Investor Relations. Wendy, you may begin.

Thank you, Rob. Good morning, everyone, and welcome to Orion Engineered Carbons conference call to discuss our fourth quarter and full year 2022 financial results. I'm Wendy Wilson, Head of Investor Relations. With me today are Corning Painter, Chief Executive Officer; and Jeff Glajch, Chief Financial Officer. We issued our press release after the market closed yesterday, and we also posted a slide presentation to the Investor Relations portion of our website. We will be referencing this presentation during the call. Before we begin, I'd like to remind you that some of the comments made on today's call are forward-looking statements. These statements are subject to the risks and uncertainties described in the company's filings with the SEC, and our actual results may differ from those described during the call. In addition, all forward-looking statements are made as of today, February 17. The company is not obligated to update any forward-looking statements based on new circumstances or revised expectations. All non-GAAP financial measures discussed during this call are reconciled to the most directly comparable GAAP measures in the table attached to our press release. Additionally, when we comment today on EBITDA, we will be referring to adjusted EBITDA. I'll now turn the call over to Corning Painter.

Thank you, Wendy. Good morning, everyone, and welcome to our earnings conference call. We had a great year in 2022. Many thanks go out to the tremendous Orion team for advancing our sustainability, growth, and financial agenda in the face of multiple challenges throughout the year, challenges that we treated as opportunities. We delivered fourth quarter adjusted EBITDA of approximately $65 million, a 25% increase with specialty outperforming our expectations due to the strength of our premium products despite some customer destocking. Moreover, the team delivered record full year adjusted EBITDA of $312 million, our first time breaking the $300 million level. Let me start out by highlighting four key accomplishments. First, as we mentioned on our third quarter call, we made substantial progress in the 2023 to 2024 rubber negotiation cycle for price, volume, and terms. I say 2023 to 2024 because taking Asia, where contracts are structured differently, out of the equation, over 50% of our tire volume will be on multiyear contracts. Our progress reflects the customer's value, our dependability and quality, and that the global supply-demand dynamics continue to work in our favor. For example, in North America, underlying demand is increasing due to onshoring of tire production. Coupled with the need for sustainable returns on invested capital, including sustainability capital, we see carbon black capacity remaining tight. I'll show you more on this a bit later. Based on pricing alone, we expect rubber gross profit per tonne to increase $80 to $100 in 2023. Second, we achieved a number of sustainability-related milestones. We kept our third round U.S. air emissions project on track, having recently announced its completion. The project execution environment improved in 2022, but still our people, contractors, and suppliers worked around many challenges. We were upgraded by CDP, one of the most serious and respected platforms for environmental reporting, to a 'B' rating, which is the second highest level. This past week, we received our scoring by EcoVadis, one of the world's most comprehensive rating tools. Our score improved 5 points to 77, earning us a gold medal and putting us in the 99th percentile, a huge improvement from our score of 52 in 2018. We also achieved ISCC certification for our bio-circular grades from three plants. Third, our team increased our dual fuel flexibility in Europe. As of today, we can reduce natural gas usage by about 35% to 40%. The natural gas crisis in Europe may have passed for now, but this provides us with great flexibility as we move forward. Fourth, I am proud to say that the team kept the new plant in China on track despite many challenges. In the fourth quarter, before the COVID zero policy was lifted, COVID finally came to Huaibei, and our site was locked down. But with forethought and quick action, we were able to host the construction crew at our plant, meaning they were living at our site. We made sure that the workers were well taken care of with good food, entertainment, and comfortable living accommodations to ensure that their health and safety were not compromised. Then, after COVID zero was lifted, we had to work through a huge wave of COVID infections. Thanks to their prompt action and dedication, we remain on schedule and budget and are currently commissioning the facility. With these and several other key items, like our announced expansion of acetylene-based capacity, higher earnings power, and increased cash flow, we are on track to a mid-cycle adjusted EBITDA capacity of $500 million and are confident in this. With that, I'll turn the call over to Jeff.

Thank you, Corning. I have quite a few slides with detailed charts and graphs. I will touch on each briefly, but encourage you to spend more time reviewing them. On Slide 4, consolidated full year results were strong with full year revenue, gross profit per tonne, and adjusted EBITDA all record highs. Revenue was up 31% to over $2 billion, and adjusted EPS grew to $1.96 from $1.73 in 2021. This slide provides some key full year metrics for our rubber and specialty businesses. I will talk in depth about each business shortly. On Slide 5, you can see the consolidated key factors for the full year 2022. The base price improvements and mix gains across both businesses far outweighed the lower volume which occurred in specialty only. In fact, rubber volume was up 3% in the year. We faced a strong FX headwind in 2022, as the average euro to dollar exchange rate went from 118 to 105. The full year EBITDA increase of $44 million occurred despite this $26 million FX headwind. On Slide 6, looking at Q4, despite a small decline in volume, our continued strong gross profit per tonne helped us achieve a 25% EBITDA increase and an adjusted EPS increase of over 40%. Slide 7 provides some additional insight on the drivers for Q4 adjusted EBITDA. We continue to see the benefit of base pricing and mix in both businesses and high cogeneration profitability. On Slide 8, looking at specialty in Q4, volumes decreased as we expected, reflecting weaker global market demand and customer destocking. However, revenue was flat due to improved price realization and mix offset by the aforementioned lower volume. Adjusted EBITDA decreased 18%. Note that gross profit per tonne continues to be strong, both in the quarter and the trailing 12 months. You may recall that at our Investor Day, Corning shared that the earnings power of our highest value, most differentiated specialty products had an EBITDA capacity above $80 million at 40% EBITDA margins. This part of our portfolio delivered as expected in 2022, and this along with price realization and the positive impact of new products helped to improve our per tonne margins by over 20% compared with Q4 last year. Slide 9 shows the key factors affecting adjusted EBITDA for the specialty business compared to last year. As noted earlier, volume reduction was significant, particularly in low-value products. The volume decrease was nearly offset by improved pricing and mix as well as higher cogeneration benefits. Slide 10 looks at the rubber business in Q4 with improvements to all metrics on a year-over-year basis. Volume increased in the Americas and APAC, specifically in China and Korea, as we believe customers valued our reliability and quality. We also continue to benefit from strong pricing. Gross profit per tonne was $350 in the quarter. We continue to see a nice upward trend in our trailing 12-month gross profit per tonne now at $336, up sharply over the past 2 years. This reflects the 2021 pricing cycle, which was driven by our requirement to begin to achieve an acceptable return on our air emissions control-related capital and operating costs. As Corning noted, we expect another significant step up in 2023, with price alone expected to move our gross profit per tonne well above $400. Slide 11 shows the key factors affecting adjusted EBITDA for the rubber business. Strong base pricing and mix were all favorable as was cogeneration income. Before I pass the call back to Corning, I'd like to provide an update on our stock buyback program that we announced in November. Today, we have repurchased over 800,000 shares, which was approximately 1.4% of the shares outstanding. We have spent approximately $16 million or nearly one-third of the approved $50 million authorization. As I noted on the call in November, we expect this buyback to be completed in a couple more quarters, likely sometime later this summer. I will turn the call over to Corning to discuss our 2023 guidance, capital expenditures, cash flow expectations, and comment on our multiyear growth path.

Thanks, Jeff. Turning to Slide 12. Despite the uncertainties in the global economy, we are confident in our business and establishing guidance for 2023 of $350 million to $380 million, up 17% at the midpoint. We provide a split of our guidance for our two business segments. This is not something we would normally provide, but we believe it is particularly helpful for 2023. Note that we have bracketed our 2023 rubber EBITDA figure from what we shared last quarter. This reflects a softening in our projection of miles driven. If European power rates moved up or down by about 20%, the impact on our P&L of all the gives and takes would be about $10 million. Our adjusted EPS guidance range is $2.30 to $2.60 a share, up 25% at the midpoint. We plan to invest approximately $235 million in capital spending. Let's move to Slide 13, and I'll provide some additional color on that. With our third plant now online, we only expect to have about $25 million of U.S. air emission controls spending left for our final project. This will probably be the last time we speak about U.S. air emission control spending as it will no longer be particularly significant. As that spending tapers off, we expect to have the bandwidth and cash flow to take on some of our backlog of smaller, high-value projects. The slide shows the components of 2023 spending, and we've also given you some color commentary for modeling purposes. As shown on Slide 14, we expect significant discretionary cash flow of $200 million to $240 million and free cash flow bracketed around $100 million. As our cash flow increases, we will balance our capital allocation decisions between investing in high-value projects, lowering debt, and returning cash to shareholders. Looking at Slide 15, we believe that the intrinsic value of the company and our projected cash flows greatly exceeds our share price. With our value creation mindset, earned pricing, and steady progress on our projects, we are confident that we have the building blocks in place to make a step change in our cash flow and adjusted EBITDA to reach our 2025 goals. Now before I wrap things up, I want to point you to Slide 16. As I mentioned earlier in the call, we firmly believe that our rubber business gains set the baseline from which we can grow. The fact remains that demand continues to outstrip supply for rubber carbon black in many of our key markets. You can see clearly that in North America, the supply-demand balance has shifted over time, and we expect it to continue to be tight for years to come. Underlying demand in North America is increasing due to the onshoring of tire production, while high carbon black investment costs are required to secure significant new carbon black capacity. In Europe, the situation is complicated by the war and its impact on Russian supply to Europe. Significant amounts of Russian carbon black continue to flow into Europe and remain in some customers' supply chains, even as some of it now flows to China. For this reason, coupled with an increase in European tire capacity, we believe the European carbon black market will tighten further. In closing, I would ask you to consider a few thoughts. First, 2022 was a record year for us, and I believe 2023 is going to be even better. Second, since becoming a public company, we have grown through periods of low oil prices as well as high oil prices, and we have demonstrated through those periods how resilient the business is. We are a specialty chemical company, and we are determined to achieve a specialty valuation. Third, due to continued supply-demand imbalances for rubber carbon black, we believe our rubber contract pricing and terms are the new baseline. Fourth, our team has proven their dedication and agility during challenging times. We have momentum in sustainability, in our markets, in our new products, and with our customers. The Orion team is well positioned not only for 2023 but for years to come. Finally, considering all these factors, we are well on our way to significantly increase earnings and free cash flow in line with our 2025 mid-cycle earnings and cash flow capacity goals. The foundation that we have laid over the past few years is now evident in our financial results and outlook. Thank you. Operator, please open the line for questions now.

Thank you. Our first question comes from Josh Spector with UBS. Please go ahead with your questions.

Yes, hi. Thanks for taking my question. And firstly, I guess, congrats to you and the team on a pretty solid end to 2023 here, a lot of big accomplishments.

Thank you, Josh.

My first question is for Jeff regarding your guidance in the specialty sector, which seems to be close to annualizing the fourth quarter. It's evident that this quarter has faced significant challenges with volumes down over 20% compared to last year. Many companies advise against annualizing the fourth quarter as it doesn't reflect the right run rate. Considering you have new capacity coming online and potentially lower raw material costs, I'm curious about your strategy to achieve flat to slightly improved performance in specialty next year compared to our current position.

Well, first of all, I'd say our forecast is more like second half repeating going into this year. I think the markets in China are still pretty challenging, even though the COVID zero policy is still behind us. So that's kind of how we see it right now and when we talk to our customers.

Okay. I guess maybe I dig in a bit more there. Is what should we be assuming for Huaibei? And what terms of when that comes online and the contribution there? Any changes from your prior comments?

So I think Huaibei and in specialty, in particular, there's going to be a qualification period associated with that. So I think we'd see more of that contribution in the second half. We are in startup right now, so you could say there would be qualification volumes going out into the second calendar quarter, and you start to see more of that loading in the second half.

Okay. Can you elaborate on the insights from Slide 16 regarding supply and demand? Have we observed a long-lasting undersupply? What is happening in North America? Are prices still not high enough to encourage additional investment to bridge the gap? Is there a reduction in demand? How do you envision the situation unfolding?

If you look at our curve, we do see some incremental investment happening. The situation is well understood, and there is a significant amount of capital being directed towards additional capacity. This creates a bit of a challenge for anyone considering further investments, especially with the presence of other attractive opportunities, like conductive carbons. I believe the U.S. market will continue to be tight. What we achieved this year is, as I mentioned during the call, a new foundation or base. I also see potential for further growth.

Okay, thank you.

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

Good morning. So I guess just a couple of follow on to that. So first, when we look at the specialty business, the gross profit per tonne improved by about $120 million to $130 million year-over-year, in a pretty soft environment in China and Europe. What do you think gross profit per tonne will do in a synchronized global recovery or acceleration period?

One element to keep in mind is that we experienced an increase of about $130 per tonne. This highlights the strength of our most differentiated products. As volume rebounds in areas like masterbatch, we will benefit from increased loading and better absorption of fixed costs, though there may also be some dilutive effects. In terms of modeling, estimating a gross profit per tonne in the $800 to $900 range seems reasonable. Jeff, would you like to add anything?

I think that makes sense. I think if you look at the weighted average of as we see volume coming back in, we could see the gross profit per tonne in 2023 actually lower than 2022 just because of the low-end volume, as you noted.

Right. And then secondly, given you already have contracts extending into '24, can you give a sense for how much net tailwind you already have baked in '24, just in the contracts you've already signed?

I see that it's somewhat commercially sensitive what we have in them. We do have upside going into '24.

Okay. And then lastly, $450 million of free cash flow on your mid-cycle estimates over the next 3 years, can you give a sense for sort of capital allocation, possibility of adding the bolt-on M&A or adjacencies, or kind of how you're thinking about what that flexibility implies for what you can do next?

We aim to keep a variety of options available to us. Our efforts to develop real options, such as acquiring that settling plant years ago and upgrading it to lithium-ion battery standards, have paid off. This sets the stage for actions like what we're currently pursuing. When considering our next steps, we will find a balance between returning cash to shareholders and investing in expansions and improvements in our core business. There are also potential growth opportunities, which may involve adjustments in our connectivity space. We see many paths available for growth and are pleased to have these options at this time. We intend to be responsible stewards of our capital, ensuring we spend it wisely since it belongs to our shareholders, while keeping these options open for the future.

Yes, Laurence, one additional thing we could also look at to some extent in 2023 is reducing our debt a little bit too.

Yes, excellent.

That also provides you with flexibility for the future.

Okay, great. Okay. Thank you.

Thank you.

Thank you. Our next question comes from the line of Jon Tanwanteng with CJS Securities. Please proceed with your questions.

Hi. Thank you for taking my questions, and congratulations on a strong quarter and positive outlook. My first question is what specifically changed in the SCB market since your last report. When you discussed the Q3 outlook, it seemed quite uncertain or even bleak. What developments have emerged that were unexpected? Looking ahead, do you anticipate this strength will continue, or are you considering different contracts? Or is it more about an improved macro outlook? Please help clarify the differences for us.

Sure. I'd say really two things. Number one, specialty volume, particularly the premium volume held up well and better than we expected. Number two, the whole EU power cost versus natural gas costs, that balance was better than we expected. From our perspective, we look now into the coming year, I do not think we're going to receive a repeat of last year. I think the natural gas prices were kind of artificially pumped up by the almost mechanical buying some of these nations to build their storage facilities. So we see the energy markets being a bit more stable in Europe going forward for the coming year. But it was really those two things came in a bit more favorable than we had anticipated.

Okay, great. Thank you. And then just looking at the cash flow for next year, it looks like you're getting a fair chunk from working capital releases, which is really nice to see. I was just wondering how much of that is just the natural swings and movements in flow and energy prices versus some kind of permanent reduction in working capital needs, your new contracts or something else that's going on? What should we expect going forward?

Sure, Jon. I think the numbers for 2023 are primarily a permanent reduction in working capital around the terms, particularly our rubber contracts. We talked about that a little bit last quarter that along with pricing we were able to negotiate better terms. That's really where that reduction is coming in. If you look at the fourth quarter, we saw a reduction in working capital in the quarter, a pretty strong one, and that was related to oil prices coming down in the fourth quarter. But 2023 it's really focused on the permanent reduction from our customer contracts.

And I think one thing that's notable in that is we've moved up the pricing significantly, which would normally increase your working capital in this sense in terms of the AR, and it just shows the importance of improving these contract terms.

Got it. Thank you. And then finally, just maybe just to rehash the capital allocation question, I mean, $100 million in free cash flow even after investing in all the growth you want to do. You have a repurchase plan, which won't cover all of it. Are there any other high-return options that you're looking at, specifically in terms of either repurchases or organic projects that may be starting to look interesting to just help us understand what that may eventually be used for, even if you don't spend it this year, '24, '25 and beyond?

Well, Jon, I'd like to convey a sense of being a good steward of this cash. So we're not acting like it's burning a hole in our pocket. The easiest outcome for all this and a good outcome for us would be to reduce our debt ratio. And that's a fine way to take some of that. We will later in this year, as we come towards the conclusion of our first share purchase, decide if we want to do more on that; we might greenlight some other projects, we have other high-return projects, large and small. We'll kind of see at that time. I think deferring that to see what our business conditions are and what's most attractive at the time is a positive for us. But at the worst, we simply reduce our debt ratio, which for Orion would be a fine thing to do right now. So we really don't have like a pressing need, we have to move that one way or the other right now. Let's be careful.

Fair enough. Thank you for that. Actually, if I could squeeze in one more, I was just wondering how much room is there for pricing increases in '24, just given the scale of supply-demand imbalance you're expecting? Is it going to be to the same degree as this year? Is that possible? Or is it going to be more muted just given you already locked up, I think, like half of your clients in longer-term contracts already?

Yes. So we've locked up a significant amount for next year, more than half of our volume, not much more, but a little bit more than half for next year. So I don't expect the same sort of a step up particularly in North America. As I said, I think the situation in Europe is a bit more dicey; there's still a decent dependency on Russian carbon black. I think that's the market that could see much more pressure for next year.

Great. Thanks again.

Thank you, Jon.

Thanks, Jon.

Our next question comes from Jeff with JPMorgan. Please go ahead with your questions.

Thanks very much. Can you remind me when your Ravenna expansion came on the size in Europe? And have you sold all those pumps?

Yes, that came on in approved for commercial sales, I want to say the end of February, and by March that was sold out, end of March.

And do you know if those tonnes are allocated to specialty or to your rubber block?

So we have already committed a certain amount of that volume before the invasion of Ukraine. After that invasion, there was then suddenly great interest for rubber carbon black made in Europe. So a portion of it had already been committed, a lot of that into the specialty market. We were about to do a multiyear agreement in the specialty area when all this happened. Given that we then reallocated almost all the remaining capacity over to rubber. So it's a mix. It's more rubber than specialty, I'd say at this point. That's a little bit of a change in our plans, but I think it has been a win-win for us and our customers.

So, did your European volumes increase in the quarter? Shouldn't they see significant growth considering the new capacity you have?

Well, so we have that in our last year's results, three quarters of the year. We did not see a big step up in our European contracted volumes, I think perhaps we have a different view of what the appropriate market pricing in that market is than some other people for that's referring now looking forward to 2023.

Your specialty volumes grow sequentially in the first quarter, or they should be down a lot year-over-year, is that right?

Little bit.

Or like maybe give us a little bit of an outlook for the first quarter? Because your specialty volumes really came in the fourth quarter? Is there the same kind of weakness that you expect in the first quarter?

I think if we look in general at this coming year, I think like many players, we would say the first quarter might be a little bit weaker than some of the later quarters. COVID zero is over in China, but the consumer in China is buying a lot of services. The consumer in China has slowed down in terms of, let's say, manufactured goods and real estate, and there still remains a bit of a challenge. You have the Chinese New Year and all that. So I think that Q1 for this year will be a little weaker seasonally than perhaps normal and lag, certainly Q2 and Q3. Jeff, you want to add something?

Sure, Jeff. I believe your question might be about our specialty volume in the first quarter compared to last year. In last year's first quarter, specialty volume was quite high, then it decreased in the second quarter and continued to decline in the latter half of the year relative to both the first and second quarters. As we've mentioned previously, much of that decline was due to lower volume levels. Looking ahead to 2023, I think we are starting the year closer to what we saw in the second half of last year, as the low-end volume has not yet returned. That seems to be a reasonable perspective.

Yes.

What were your cogen credits for the quarter and the year, and where do you book them?

So we don't give details on our cogen, but they split between both of our businesses relatively equally. We talked about, one of the reasons our Q4 was perhaps a little better than our expectation, particularly in the specialty side, was that we expected the cogen numbers to come down a little further in Q4 than they actually did. There was a lot of angst in the European market. There was a lot of concern about that. It didn't come down as far in Q4 as we expected when we had our call in November. As we look at 2023, as Corning noted, we think the market, the extreme volatility of the market perhaps has mitigated and will be much calmer in 2023.

I think your competitors disclose that kind of information. Maybe as the last question, what's your base case for volume growth in two segments? Are you expecting, I don't know, 2% or 3% growth in both segments, in volume terms?

Let me just first speak to the disclosure. I think all in all, our level of disclosure is pretty good. We see some commercial sensitivity on that one. We gave some guidance in our prepared comments about what a 20% move in power rates might look like and how scary or really not scary that would be for us. Other volumes, looking at 2023 with November call noted, that we expected rubber volumes year-over-year to increase about 30kt, I think that's still a fair number to use at this point in time. With regard to specialty volumes, again, we had a very high relative to the second half of the year, much higher first half of the year, volume level last year. I think going into 2023 would probably be reasonable to start the year at the second half of 2022 volumes. Then as we go through the year, perhaps you'll see a little bit of improvement on the volume side of specialty. I think year-over-year, given the high, low-value volumes we saw the first half of the year, I wouldn't expect the year-over-year improvement in volumes. In fact, I was expecting a year-over-year decrease in volumes, again, to be more in line with what we saw in the second half of the year with perhaps an improvement in the second half of 2023. But not to recover what we lost in the first half of 2022.

Our next question is from Chris Kapsch with Loop Capital Markets. Please proceed with your questions.

Hey, good morning.

Good morning, Chris.

My first question is a follow-up regarding the comment about up to half of your tonnage and the rubber black side being multi-year now. I assume that's significantly greater than historical norms. Given the desire to reduce reliance on Russian supplies in Europe and the structural tightness in North America, is the inclination of customers to pursue multi-year deals stronger in one of those regions compared to the other? Or is it more balanced? I'm trying to understand their motivation for this, or if it is truly a mutual commitment.

Look, definitely, it's a mutual commitment, right, back and forth. First of all, Chris, you're absolutely right. It is an increase from historical levels, which was probably more in the 25 to one-third, 25% to 33% of our volumes were on multi-year contracts. Typically there will be a customer cutting across multiple geographies. So in that sense, it really does end up being balanced. None of that prevents us getting together next year and saying, well, I'd like more, right. That's all possible as well. So I think all those remain options.

And I understand the commercial sensitivity, but just to make sure I understood what you said about, when you said you have upside in '24, that's pricing upside as opposed to volume upside with those customers in the lanes. And are you saying the magnitude of the pricing upside you're just not going to talk about? It sounds like it's a little bit more pronounced in Europe than North America there.

Yes, so we've a couple of things. First of all, good clarification, Chris. And let's go even one further. Price, of course, has all these multipliers for oil and input costs. So let's talk margin. I mean, margin enhancement. However, the improvements for next year in those contracts are not in the same magnitude of what we achieved this year, just to be clear on that. We took a step change this year, front end loaded that, there is some element of improvement for next year, but I wouldn't want people to be assuming like it's another step change, like what we just achieved for this year. I wouldn't say there's a big difference in those or how those work from one geography to another. My personal belief is we're quite confident that this is the Russian carbon black still going into Europe, and that remains a vulnerability for the European market. We might see many wealthy sometime between now and contract season, the desire for non-Russian carbon black to come back into the market, and that would push up pricing for next year, not where we have a contract necessarily, but for those who aren't served under contract right now. I think we'd also see increased need for volume in Europe.

Okay, appreciate that. And then looking at that chart with the structural tightness kind of skewed North America, I guess. You've kind of winding down your EPA investments. I'm just curious to what extent you can focus on sort of, for lack of a better term, operational excellence to improve your process technology that eke out extra or incremental tonnage to address the underlying growth associated with the end market and the onshoring, and so forth. Is that an opportunity for you and how would that manifest in terms of unit margins over time?

Yes, Chris, you understand this well. I think that kind of an investment is what could make sense in North America or further in Europe, rather than a new reactor line or a green field. I think the capital costs for those sort of projects could be very, in my opinion, not be very attractive. I think things like the debottlenecking would be. That's why when you look at our slide, where we lay out our capital spending for next year, we put in about $40 million of debottleneck, small expansions, improvements in plants, up to increasing yield uptime, those sorts of things. We could have instead taken that as more free cash flow. We thought that was a good use of our cash, low-risk projects for us. We know the demand's there; we're confident in that. So I think that kind of project you could see. I don't think, however, ourselves and perhaps competitors doing that, I think even with that in North America, it's going to remain very, very tight.

Understood. I have a follow-up regarding the specialty sector. It seems that masterbatch has been significantly impacted by the destocking trend in the polymers industry, which also has lower margins. I'm curious about potential enhancements to the product mix in this current environment. Additionally, there has been a lack of strength in the automotive sector, which typically represents some of your highest margin applications. Given that automotive production is expected to rise in 2023 and potentially continue increasing for a couple of years as the chip shortage resolves, how does this influence the gross profit per tonne you mentioned for specialties when everything is accounted for?

Yes, so that obviously is, Chris, a positive for us, as is some of the bottlenecking we've done in that area. So that's in our factors when we came forward with our guidance. But yes, that's a net positive, and I think will be for several years to come. The whole issue of masterbatch, we know that one of our commanders also makes masterbatch; they brought back on their European line. For our customers who compete with them, that also probably had an impact into some of the destocking we've seen as they've come back in and oftentimes people reenter markets with price. All right. Thank you, Chris.

Thank you, everyone, for joining us today. I'd like to leave you with this thought. Rubber Carbon Black is not the commodity we seem to think it is. Yes, most of it is sold to international ASTM standards, but is a differentiated chemical. It's largely a regional business rewarding local capacity, and it requires air emission permits, raw materials, in addition to a plant capable of making exacting grades. I would suggest that you look at this business based on the dynamics we've laid out on this call. Thank you very much for your time and have a good day. This will conclude today's conference. You may disconnect your lines at this time. Thank you for your participation.