HUN - Huntsman Corporation

Operator: And I would appreciate answers to Greetings and welcome to the Huntsman Second Quarter 26 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 that this conference is being recorded. I will now turn the conference over to Ivan Mathew Marcuse, VP of IR and Corporate Development. Thank you. You may begin.
Ivan Mathew Marcuse: Thank you, Daryl, and good morning, everyone. Welcome to Huntsman second quarter 26 earnings call. Joining us on the call today are Peter R. Huntsman, Chairman, CEO, and President and Philip Lister, Executive Vice President and CFO. Yesterday, 07/30/2026, we released our earnings for the second quarter 26 via press release and posted it on our website. Huntsman.com. We also posted a set of slides and detailed commentary discussing the second quarter 26 on our website. Peter R. Huntsman will provide some opening comments shortly, and we will then move into the question and answer session for the remainder of the call. During the 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 or 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, 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, huntsman.com. Now turn the call over to Peter R. Huntsman, our Chairman and CEO.
Peter R. Huntsman: Ivan, thank you very much and thank you everybody for taking the time to join us this morning. it is been 3 months since the last time we were able to report on market conditions and what we were doing as a company to enhance shareholder value. Needless to say, it has been a rather busy few months on a number of fronts. I would like to comment on a few things, but I plan to be brief as your questions and comments are the reason for this call. I stated during our last quarter's call that while I was heartened to see the prices and margins were improving across most of our product lines, I emphasized the need for stable and long term demand trends to continue. While we improved our margins from the first quarter, I remain concerned as to the growth rates in consumer confidence that we are seeing. Since our last call, North American housing stats have softened and Chinese consumer confidence continues to languish. Europe continues its ill fated energy policy and all that free wind is now costing European consumers and industry near record amounts. As ongoing conflicts in the Middle East seemingly move weekly from a ceasefire to all out war, moving energy prices stock markets and consumer sentiment with each action we continue to keep a wary eye on inflation in consumer spending, especially on durable goods. It seems much of this turbulence will continue through the third quarter. While this is playing havoc on cost and order, it is also demonstrating the value of reliable supply lines contractual assurance of supply and the value of pricing and consistent quality. We will continue to push for greater margins as we believe that this industry still has a lot of room for improvement. On June 16, we announced a merger of equal with Olin Corporation. Since that time, we have had the opportunity to visit 1-on-1 with the majority of our largest shareholders. If I had to summarize my feelings towards this transaction, it would be in the answer that I shared when I was asked if I could do anything different than what had been done. My response was that I wish I had met Ken Lane a year earlier and that we were here today earning materially more than we otherwise would be earning. Regardless of market conditions, whether they improve or continue to languish, our company and shareholders will be better off with this proposed merger. If this transaction was a year behind us, we would be today well on our way to achieving an additional $300 million in synergies. We would be earning more through new found commercial opportunities that are not even part of our $300 million in synergies. We would have a stronger balance sheet that would be improving quarter by quarter. In short, should today's market conditions continue through next year we will be better off than we are today. Should markets improve, we will be the benefactors of not only the forthcoming synergies, but also higher combined volumes and greater integration. Either way, this positions us to improve regardless of market conditions. I have been impressed with the strong collaboration and interaction between the Huntsman and Olin teams that are advancing our closing at a rapid pace. Our teams will be ready on day 1 of closing to commence. With achieving our outlined synergies. Between now and closing, we will continue to focus on creating as much shareholder value as possible, Following the completion of this transaction, we will be able to achieve far more. Operator, with that, we will open the line up for any questions and comments.
Operator: Thank you. We will now be conducting a question and answer session. We ask that you please limit yourself to 1 question and 1 follow-up question. Our first questions come from the line of Frank Joseph Mitsch with Fermium Research. Please proceed with your questions.
Frank Mitsch: Hey, good morning. I was wondering if you could update us on the state of the MDI business from a demand and a supply standpoint, particularly on the supply side given what is been going on with the Iranian conflict? How do you see that how did you see that impact 2Q? What are your expectations for 3Q and beyond?
Peter R. Huntsman: Well, I think on 2Q, we had the ability to be able to put prices up Much of that was to recover the increased cost of raw materials that we were seeing at the time, but we were also able to get ahead as our results indicate that we have nearly doubled our EBITDA since second quarter of last year. Look. On a supply basis, we obviously have a large global MDI plant that is on the wrong side of the Strait of Hormuz, I would say. And that is probably representing somewhere around 4% of the industry average So from a supply point of view, Frank, I think that it is pretty well balanced. My disappointment, if I have 1, is that we are not seeing greater demand. And greater improvement in the macroeconomic situation. I do not want to be overly dire on this. I am just saying that yes, on the supply side, I think it is pretty well balanced. On the demand side, I would like to see a little bit more. Right now, depending on where you are around the world, you will probably see anywhere from 0% to 2% very low single digits. sort of growth that is taking place. So improved economy, improved housing demand particularly in North America would be very helpful. turn in consumer confidence. and Asia would be very good to see. And frankly, improved sentiment, consumer sentiment and lower energy inflation in Europe, I think would all be benefactors at this time.
Frank Mitsch: I hear you. Obviously, though, PMIs have actually been positive, that is on the plus side of the equation. But I could also, other than what would you do differently, what else have you been hearing from investors regarding the Olin merger? Or probably said a different way, what might be the investment community be missing given how the shares have been trading? Thank you.
Peter R. Huntsman: I am not sure that the investment community is missing a whole lot as much as this industry is, I will borrow the what is it? Missouri, that is the show me state. I think that once you can actually get a transaction closed, show me that you are going to get the synergies that you said you are going to get. On a timely basis. Show me the difference. Of what 2 companies together, 1 and 1 adds up to 3. Show me this, and I will reward you with the commensurate results. And I think that, I think that the market feedback that I personally am getting is that this makes sense. I like the integration. Let's remember that chlorine and that the entire line of raw materials that we are presently buying from chlorine to caustic to epi to LER to EDC. This is the only major supply chain that every single 1 of the divisions within Huntsman consumes today. And it affects every 1 of our businesses. We really have a material opportunity here to improve our economics, and to be more competitive on a global basis. And we see the results of this coming through, I think that the market will be very quick. And will be very generous in the reward. Thank you.
Operator: Our next questions come from the line of Joshua David Spector with UBS. Please proceed with your questions.
Josh Spector: Yes. Hi, good morning. I wanted to ask on Advanced Materials. I mean, you called out some pull forward and I do not think you actually sized it specifically in the quarter. I am curious if you could give a comment on that and it seems like you are assuming that unwinds in 3Q. Just trying to understand some of the phasing there a bit better.
Philip Lister ACMA: Sorry. When you say the pull forward into Q2?
Josh Spector: Yes.
Philip Lister ACMA: So, Joshua, it was a little bit of it was a little bit in the arrow the aerospace segment where we saw where I think they were getting their supply chains. They just wanted to be more secure there. So you saw a gauge of that couple of million dollars.
Josh Spector: Yeah. Oh, okay.
Peter R. Huntsman: Well, I think we are talking about low single-digit millions of dollars there. Sorry. I Okay. Thought I was we were actually, moving material volumes there. Something. No. That will be a de minimis impact. Okay.
Josh Spector: And just, I mean, similarly within that segment, you look at some of the upstream costs going down, I am just wondering around some of the timing impacts. Is that something that helps your margins? Into 3Q? Or is it all relatively quick?
Philip Lister ACMA: I think it is I mean, we respond pretty quickly. We have got low inventories on raw materials. Typically, we see the raw material movements we see in that industry come through pretty quick.
Peter R. Huntsman: I would say that our biggest impact in Q3 is going to be based on what we do in pricing and what we see in demand. More so than raw material movement. Thank you.
Operator: Our next questions come from the line of Hassan Ijaz Ahmed with Alembic Global. Please proceed with your questions.
Hassan Ahmed: Good morning, Peter. First question on polyurethanes, Obviously, a lot of stuff moving around. I mean, we have seen some TDI outages, I would imagine that may result in some incremental demand on the MDI side of it. Then we have obviously seen some outages in MDI itself. So just in terms of effective utilization rates, where do you see the industry and should it be relatively snug over the next quarter or 2? And part and parcel with that, I know you guys have, taken some pricing actions in Europe in particular, but obviously nat gas prices, they are continuing to rise. So I mean, will you guys be EBITDA positive? Over there after the price actions? And will the industry over there be EBITDA positive as well?
Peter R. Huntsman: Well, if I had Saum, Frank You Very Much. Good Question. If I had to ask-- if I had to look At The Market Today In The Snapshot, I Would Say That Yes, Europe with the pricing actions and with the cost structure that we have, Europe should be positive. As we look into the third quarter. Now again, over the last couple of weeks here, and I am talking the last 2 or 3 weeks, I have seen gas in Europe go from about $13, $14 per MMBT rise above $20 per MMBtu. Now should it continue to do that? Should electricity continue to rise at these rates? I do not believe that will be the case. But if they were to continue, that obviously is going to pose some headwinds. that is my biggest concern around Europe right now. On a macro basis are energy costs and overall, consumer demand. it is tough to get prices up when you see demand going down. And or languishing and people are obviously fighting over a shrinking pie. So as I think about Europe, I continue to be I continue to be optimistic that we will be EBITDA positive in the third quarter there. As you look at it on a macro basis, I would imagine without looking at industry data because there is not a whole lot that is published. We are probably operating in a capacity utilization rate somewhere in the mid-80s on a global basis. Some areas, I think in the U.S., it is tighter than that. I think in Europe, it might be a little looser than that. Asia is probably right on top of that. There have been a number of outages that are around. And again, if demand were rising at traditional levels of 4% to 6% per annum sort of growth rates, I think you would see much tighter markets than today. Understood.
Hassan Ahmed: And as a follow-up on the merger with Olin, again, going back to the question around your conversations with investors, I mean, you getting any pushback on the cost synergy numbers? And again, I just wanted to sort of seek some clarification around that. I mean, at least in my mind, part of the cost synergy is, obviously the integration of chlorine into your polyurethane asset base. But also part of the synergy, cost synergy would be the incremental caustic that would sort of be sort of produced as a result of all in taking up those operating rates to feed into your polyurethanes system. I mean, are you sort of seeing investors sort of quiz that, question that or, I mean, is there some confusion around that?
Peter R. Huntsman: No, I think Hassan, I think it is a very good and fair question. I think that our industry is notorious for cost savings that do not always fall to the bottom line. And you see these massive cost saving programs that are initiated over a 2- or 3-year period. At the end of the 2- or 3-year period, you are kind of asking yourself, well, which 1 was it? Either the industry collapsed or you got zero cost savings because I do not really see a whole lot of difference in the bottom line. 1 of the things that literally in our very first conversations that Ken and I had on a 1-on-1 basis. This was something that was very important. If we are going to-- if this deal is going to go forward, we are going to have to have real substantive synergies that make sense. We got our senior teams together. They have met multiple times on a face to face basis. On an ongoing basis over the last couple of months. And we have a bucket of about $300 million, say that $75 million of that is purchasing logistics. that is pretty straightforward. You get your purchasing people together. They are buying products. We are buying products. Many of those same many of those are the same products. who is buying at a better rate? Great. You have got a-- you have got a cost savings there. We look at the overlap between our epoxy businesses. We think that the combination of the 2 businesses coming together make for a stronger, a more competitive, a more capable company that is able to compete on a global basis but you have also got overlapping areas. Where you have an opportunity to become more efficient there. That was approximately another $75 million. That also included between those 2 areas, that also included added integration that comes by consuming more chlorine more epi, more LER, more EDC, And as you do that, you are obviously producing and generating internally more cost of credit for that. So that is kind of the 2 buckets of 75. And then you have got a $150 million of SG&A. Obviously, the combined companies do not need 2 CEOs. Obviously, we do not need 2 CFOs. We do not need 2 independent Boards of Directors and the associated cost filings, 2 audits, 2 this, and 2 that. So as you start going through all of that, we think that $150 million was a number that was imminently achievable. And that after a 2-year basis, the vast majority of these savings would be incurred. Now there is another $100 million-plus, and I say plus because that is just not only chlorine savings, it is also caustic value that is generated from that chlorine savings. And that is merely a contract that exists with a chlorine supplier today that is not Olin, obviously, Huntsman will continue to honor that contract. And Olin Huntsman will continue to honor that contract through its duration. When it is complete, we will be supplying that internally and we believe that will be the benefit that will come from that. So it is very straightforward. it is just a question of opening up a valve through an existing pipeline through a system that we have used in the past and be able to take advantage of that. So the $300 million of synergies plus another $100 million that is the replacement And none of that did I outline any commercial opportunities wherein by being more competitive, by having a more competitive cost basis, that we are able to go out and get new customers and that we are able to take our technologies of both companies coming together and capitalize on that. So again, I believe that in order to have the full benefit of these synergies, you are going to have to offset on an ongoing basis your inflation pressures on your cost system. And when you can demonstrate that you truly have a combined package of $400 million of synergies you are able to have the integration, you are able to have the new commercial opportunities, you are able to have your ongoing efficiency programs to offset inflation in addition to the synergies that I have just outlined. that is what will fundamentally make what I believe when I say 1 and 1 make 3. The EBITDA benefit from that, the multiple on that will create roughly standalone Olin today the value of a standalone Huntsman or Olin. And you are essentially creating an entity of through those cost savings that is equal to either 1 of us on a standalone basis. So Hassan, I am sorry. That was way long of an answer here. But it is 1 that I think that people are rightly focused on. it is 1 that people should rightly be focused on and should be questioning. And it is 1 that we feel very confident that from day 1, we have been able to have these as a bottom up number and calculation and not just some third party consultant coming in and saying, let's pick 5% or whatever. Of your, of your revenues, and that should be your target. Thank you.
Operator: Our next questions come from the line of Matthew DeYoe with Bank of America. Please proceed with your questions.
Matthew DeYoe: Good morning, everyone. Can you talk through the potential impacts of the antidumping duties on U. S. MDI? And whether you think that lends to a higher floor over time for that business and what that floor could ultimately look like?
Peter R. Huntsman: I think that, well, what the floor looks like, I do not want to-- I would not speculate on that. Not that I am trying to avoid an answer as much as I just simply do not know, but it ought to be it ought to be better than where we were a year ago. But let's also be honest, I believe that you are going to need demand to pick up. You are going to need housing to get back to a more normalized run rate. To see any real material benefit come from this. And let's remember, there is a lot of MDI that is exported from The United States. It goes into Canada. It goes into Mexico. It goes into Latin America and so forth. there is still imports from around the world that are going into those And for every ton that goes into those regions, and pushes US produced MDI back from those regions back into the United States market. I mean, say that export oriented MDI is not coming to the U.S., but it kind of is in a roundabout way. Right? And so, I think that a lot of people were expecting as soon as this was implemented and put into place, you are going to see a benefit the next quarter. Now this is something that will play out over a multi quarter basis. And you will see the greatest benefit of this come about when demand returns and housing returns to a more normalized basis?
Matthew DeYoe: I appreciate the answer, Peter. And I have been jumping around a little bit, so I apologize if I missed it. But polyol pricing was pretty strong in the quarter. You had an outage, obviously, at 1 of the large competitors, which tightened a fair amount of the market. What was the benefit there? What is that look like in 3Q and 4Q? How is that market managing all that? Because we also heard some customers on the coding side talking about the these shortages domestically as well.
Peter R. Huntsman: I would not say that it was that-- I heard a lot more horror stories than I think actually happened to the industry. Look, our impact and benefit would be in the low $2 million to $3 million sort of a range. So, yeah, I am not sure that it was as big of a deal as some maybe put it out in the media.
Philip Lister ACMA: And just as a reminder, Matthew, obviously, upstream outages are over. In quarter 3. So product is coming back into the market there.
Matthew DeYoe: Thank you.
Operator: Our next question has come from the line of David Begleiter with Deutsche Bank. Please proceed with your question.
David Begleiter: Good morning, Peter.
Peter R. Huntsman: Good morning, David. Peter: U.
David Begleiter: S. MDI supply disruptions in Q2 helped you guys as these disruptions come back online in Q3? Is there a way to quantify the impact to you guys quarter over quarter?
Peter R. Huntsman: Yeah. Yeah. I am-- we-- I wish I could say that we had 100% operating rates during the quarter as well. We had some minor issues, I believe, that were reported, but I think across the industry going from second quarter into third quarter, there is quite a bit of inventory going into second quarter. That was built up for a housing season that really did not take off as much as probably some anticipated. Bottom line, I do not see a whole lot of impact with those restarts going into the third quarter. It looks like it is pretty flat from a demand or from a supply demand basis. Got it.
David Begleiter: And in the filings you guys put out, you did provide some projections of EBITDA. Specifically 2027 of roughly $500 million Could you talk to that projection? And I know things have constantly changed here, but maybe how you think about that number sitting here today?
Philip Lister ACMA: Yes, David, it is Philip. Yes, as we put the other projections in and we looked out through the time period for the S4, we assumed a continued improvement in economies around the world Pickups in construction, nothing significant. Housing not moving back up to 1.8, 1.9, but fairly, fairly moderate improvements in housing activity as you move from 2020 into 27, continued improvements in our power and our aerospace businesses in advanced materials and in general sort of a moderate improvement as we move towards what we call sort of more mid-cycle average earnings as you move through 2028. Thank you.
Operator: Our next questions come from the line of Kevin William McCarthy with Vertical Research Partners. Please proceed with your questions.
Kevin McCarthy: Yes, thank you very much. Peter, I welcome any thoughts that you might have on the month of July and how that compared to the second quarter average And in particular, I think what I am trying to gauge is as you offer the guidance that you did on slide 13, do we need any sequential improvement between July and September to achieve the midpoint of that range? Or not. Thank you.
Peter R. Huntsman: Yes. Good question, Kevin. I think that as I look at the results of July and I look at the order patterns going to September, I think I describe it as simply as possible, it is stable. And I think we are kind of looking to third quarter to be that. And my I think that we try to say there is as much tailwind as there is headwind and I think that we have from where I sit today, again, all of that can come apart. With all the actions we are seeing around the world. But it feels pretty stable right now. Okay.
Kevin McCarthy: Thank you for that. And then if I may, your Advanced Materials volume seems like it is on a pretty good track, 8% growth in the second quarter. Can you comment on the aerospace piece of that segment and maybe the non aerospace piece and kind of how you see the trajectory in the back half?
Peter R. Huntsman: I would say that the business right now has a rising tide across all of our applications, but there are 2 that are probably I would say, rising a little bit faster than the others. The first of those would be power. And when I talk about power, that is not electronics. that is power in the grid system. So you think about all of these I am I am I am going to say something favorable here about wind energy. So let's-- So you think about all these windmills that all need to be interconnected, that is actually great. So you kind of got the spider web of power lines that are connecting all of these things. And as you think about that, that power grid system needs to be improved with the renewable or alternative energy. power is also being built out going into AI. And the third area is power is also we are relying on a fast growing AI alternative energy system that is built largely around a 30 to 50 year old infrastructure. So you are modernizing, you are expanding, and you have also AI is impacting power. So I give a shout out to power. Aerospace for us, I want to just emphasize, we are still when we think about wide bodies, wide body on a per plane basis, wide body is our bread and butter in advanced materials. On the composite So you think about the material that is going to wings and fuselages and so forth. The build rate on wide bodies, I am talking specifically about 777, 787 and Airbus 350s, We are still not back to pre COVID 2028, 2020 sort of build rates. What we are seeing in aerospace, we are seeing that recovery continue, a, but B, we are seeing a number of new applications. So interior part and so forth, we are seeing aerospace adhesions and what have you. And that area for us is growing faster than is the composite. Now I expect the composite to continue to recover. So aerospace for us will continue to be a strong recovery story and also new application story. And bear in mind that for us usually second quarter is usually a stronger month in aerospace. it is not, I would not say typically seasonal. It seems like people store up at the beginning of the year and build out throughout the year. So that is usually the case. And the rest of the business, I would say in advanced Materials when we are looking at coatings, looking at construction, looking, looking at automotive, All of those feel like they are all pretty much tracking PMI. I would just say that we are seeing a little bit better growth than what I would say would be inflation or PMI growth in automotive as well. Some new applications, particularly in EVs. We have talked about these in the past. Where we qualified for applications a year ago, 6 months ago, and so forth. We are now starting to see the build rates of those hitting the market. So we talked up these things a couple of quarters ago. We are actually starting to see that on the automotive. So in Advanced Materials is another area where we are seeing stronger than kind of expected growth. Thank you.
Operator: Our next questions come from the line of Matthew Blair with Tudor, Pickering, Holt and Co. Please proceed with your questions.
Matthew Blair: Thanks, and good morning, Peter. Would you say that spray foam is pulling up relatively well despite the tough construction environment? I think the prepared remarks mentioned some new wins in select markets. Could you elaborate a little bit more on that?
Peter R. Huntsman: Yeah. I think that the spray foam we have got excellent leadership in spray foam. it is done a phenomenal job. And looking and making their supply chain more efficient, their cost better and most importantly, their marketing and their sales have been very effective in a lethargic construction environment. We are seeing low double digit growth, continued to consistently take place in spray foam energy efficiency. I think that I am I am a bit disappointed as to where we were 2 years ago in that business. But I look at where we are today and they are hitting on all cylinders. They are doing a great job. So it is been a great business for us.
Matthew Blair: Sounds good. And then, I guess this might be for Philip, but any estimates on what net leverage would look like by the end of the year? I think you showed a pretty good improvement in the second quarter down to 5.4x from 6.1x in Q1. Do you think something around the range of 3.5 to 4x net leverage by the end of 2026 is possible?
Philip Lister ACMA: Yes. So you are right, Matthew. We went from 6.1% down to 5.4% with a net debt level of approximately $1.7 billion Obviously, that was with kind of a seasonal cash outflow in the first half of the year. I would expect certainly a cash inflow in the second half of the year to help that net debt number. And yes, you should be moving more towards that sort of 4 times net debt leverage ratio as you progress through the second half of the year. Thank you.
Operator: Our next question comes from the line of Abigail Eberts with Wells Fargo. Please proceed with your questions.
Abigail Eberts: Hi, there. Thanks for taking my question. Again, trying to focus on the positives and polygrowth gains. Can you speak to the underlying trends driving the growth in the industrial side of the market that you are seeing?
Peter R. Huntsman: Yes, Abigail, thank you very much. it is As we think about the industrial growth for us, that is mostly our elastomers business, smaller volumes, but much better margins there. And we see that on a second quarter versus the prior year. And our elastomers business were up double digits in Asia, Europe, and in The Americas. So, again, that is gonna be a lot of your coatings, a lot of your coatings, adhesions and so forth. Think about when you put coatings on the back of a pickup truck and you are looking at industrial coatings, So these are these are fast growing markets. We have got great innovation in these areas and a strong customer base. Thank you. Thank you.
Operator: Our next question has come from the line of Arun Shankar Viswanathan with RBC Capital Markets. Please proceed with your questions.
Arun Viswanathan: Thanks for taking my question. Apologies, I was on mute there. Yes, I just wanted to go back to the supply demand in MDI, and we are seeing still some continued-- would you characterize the market still in a slightly oversupplied situation? And is that mainly rectified through demand improvement? Think you referenced that earlier, but are there any supply actions that you think would be required at this point? Thanks.
Peter R. Huntsman: No, I think I believe that it is pretty well balanced. there is not a lot of new capacity that is come on. Industry look, the industry continues to grow, but it is just growing at a much slower pace. Than it has in years past. And what needs is North American housing, housing durable goods. It needs Asia domestic economy to come back. And European consumerism to return. Thanks.
Arun Viswanathan: And then I guess, when you look out into downstream spray foam and maybe some of the system houses, capacity that you have Would you also characterize that as balanced? And does that-- and if or tight, does that lead and that lead to potentially some greater pricing opportunities downstream? But is it the case that you are just not able to take advantage of that because of weak demand as well? Thanks.
Peter R. Huntsman: Yes. I think those areas continue to be well balanced. Look, it is always a as you go further downstream, there is always plenty of competition. And you are always in a race to make sure that as products are commoditized, that you have got a healthy supply chain of new products, new ideas, new innovation. And I think that we do a good job in that area. But it is it is a good balance, I think, between as things go commodity and as you have new opportunities and new innovation going in. Thank you.
Operator: Our next question comes from the line of Mike Harrison with Seaport Research Partners. Please proceed with your question.
Mike Harrison: Hi, good morning. Wanted to ask about polyurethanes pricing in The Americas Can you give us a sense of what portion of your contracts turnover every quarter? And are there any actions that you can take to maybe work around the contract structure, things like surcharges or is there some kind of an opener that would allow you to, to renegotiate the terms?
Peter R. Huntsman: Yes. Well, about 40% of our contracts are formula, meaning that they are going to be on a longer than a quarter to quarter basis. Now those open up on anywhere from every 6 months, every 12 months where you can renegotiate what you are charging somebody. But those are designed to be able to take in and absorb benzene and natural gas prices and so forth. So, as you think about that about a 6 to 12 months, most of these contracts will have a pit stop where we can pull over and renegotiate, if you will. Which I am not a big fan of either of those. I would rather have it where we can move prices instantaneous with market conditions. But we are where we are in polyurethanes. that is largely dictated by competition. But yes, we are aggressively moving on surcharges on everything and everywhere that we can. And at the same time, we also want to make sure that as you think about your customer relationships, that you are you are taking care of your customers, because you are taking advantage of them today. The tables turn pretty quickly in this industry. So yes, we do honor our contracts, we do honor pricing formulas that we entered into. Does not mean I am always happy with those, but it is what it is.
Mike Harrison: And then I was hoping you could also provide some more color on how the situation in The Middle East is impacting your PO/MTBE business in China? Looks like there was a nice benefit in the second quarter, and I am just curious if you would expect the third quarter benefit to be greater than what you saw in Q2? Thanks.
Peter R. Huntsman: I think you are probably going to be flat Q2 to Q3. A lot of the gasoline supply, oxygenated levels and values and so forth To some degree those are going to be government dictated, and so it is not as free flowing I would say as you would see in The Americas or even in Europe. But I would say from Q2 to Q3, it is going to be flat. Thank you.
Operator: Our next questions come from the line of John Ezekiel Roberts with Mizuho Securities. Please proceed with your questions.
John Roberts: Thank you. You think your deal with Olin will cause your current chlorine and EDC suppliers to deal with Huntsman differently until you can switch over?
Peter R. Huntsman: No, I certainly would not expect them to. We have got contracts that we are honoring and I know most of the leadership of those companies They are going to honor those contracts as much as we do. I do not see anything there that would that would change the outlook at all.
John Roberts: Do the contracts at least go out as far as until you can do the switchover?
Peter R. Huntsman: Yes. So I mean, I mean, I wish they were not going as long as they are. But as I said earlier, there is a contract that will be honored. The largest and longest contract that we have in The Americas is the 1 that I made reference to earlier that ends at the end of 2030.
Philip Lister ACMA: But as we said, John, we have got many other products which are moving from Olin's portfolio into Huntsman's EDC, Epi, LER, and also caustic. And we will take advantage of those as and when we are able to, and we have already assumed that we will get some synergies pretty early on once the deal is actually consummated. Thank you.
Operator: Our final questions will come from the line of Laurence Alexander with Jefferies. So I wanted to touch on 2 things quickly if possible.
Laurence Alexander: 1 is, does the merger open up scope for pruning or divestitures within your portfolio to accelerate the deleveraging? Like, can you just give us a sense of, like, what fits versus what is nice to have or maybe does not fit so well? on the kind of merged portfolio basis from your perspective? And then secondly, just on innovation. Can you update on 2 fronts. 1, kind of whether you-- discussion around the composite materials going into aerospace and so on and the demand there, what your current perspective is on MiraLAAN and whatever happened to sort of scaling that up over time? And then secondly, kind of the strategy around the polyurethane derivatives business or downstream business, the innovation efforts you were doing there. Can you give a sense of for how much that is adding to the growth? I realize it is swamped by the end market swings. But in terms of a compound effect, kind of how much traction have those efforts had over the last couple of years and what does that set up for the next few years?
Peter R. Huntsman: Yeah. Laurence, thanks. Great. I think that when you look at portfolio management, that is going to be a decision that would be made by the new CEO of Olin Huntsman, Ken Lane. Obviously, the input of his management team and also that of the Board of Directors and looking over that entire portfolio. I think any prudent company has to be able to look at their asset base and what impact do those assets have and where's the value of those assets? The larger your portfolio is, I think is the general rule of thumb, not just in the chemical industry, but across the board. The larger your portfolio is, the more flexibility you have. If you are a relatively small company and you have got 2 divisions, you do not have a lot of optionality of getting rid of 1 of those divisions because you may end up being so small, you cannot afford to get that small. And cut the company in half. If you have got a larger portfolio, more entities and different forms of integration and so forth, I think you have got more flexibility there. So again, I probably a frustrating answer to you in the sense that I am I am not going to get in, obviously, in the various products or divisions or entities and so forth. But I think that this does give both companies once they are together, greater flexibility to assess their assets and do more aggressively achieve their objectives of deleveraging and having a strong balance sheet. As I think about MiraLAAN and the overall products that we see there, I think that we have if I were just to put it in the simplest of terms, the product that we are producing today is being very well accepted by customers. And our challenge that is before us today is how do we scale that production up as quickly as possible. And as successfully as possible. I would rather have that challenge than the challenge that we are able to make a lot of product that nobody wants. So we are able to make something that customers have been able to utilize. They have seen the benefit of it. Now our challenge is to make sure that we have got the ability to increase our capacity thus lowering the cost per ton of production. And I believe that we are well on that path. Again, as I said earlier, same with synergies. Show me the output and, show me the results, I think you get credit for it. And I think we are much closer to achieving that than we were a quarter or 2 ago. As we look at our downstream derivatives in polyurethanes, I believe that we looking at our insulation business, looking at our adhesives, elastomers, our ACE businesses that we talked about earlier. We are going to continue to build on those I think we have got a very good product pipeline. The investment we made a few years ago in the Patrick product in Louisiana to further derivatize downstream our capacity gives us the ability in China, gives us the ability in Europe gives us the ability in North America. To take more pounds than we have ever had before and derivatize those into greater value added components. And that is going to be an important part of our strategy going forward.
Philip Lister ACMA: Laurence, I just look at the growth numbers that we put out this quarter: 8% in Advanced Materials and 4% in polyurethanes, and those are clearly in excess. What we are seeing in the underlying markets and a big part of that. Is the innovation gains that we are seeing throughout those 2 divisions. Thank you.
Operator: We have reached the end of our question and answer session. With that, I would like to bring the call to a close. We appreciate your participation. You may disconnect your lines at this time. And have a wonderful day.