Adam Kressel - Director of Investor Relations Erin Kane - President and Chief Executive Officer Michael Preston - Senior Vice President and Chief Financial Officer.

Charles Neivert - Cowen and Company Chris Moore - CJS Securities Jed Nussdorf - Soapstone Capital.

Good day, and welcome to the AdvanSix second quarter 2018 earnings conference call. All participants will be in listen-only mode. [Operator Instructions]. After today's presentation, there will be an opportunity to ask questions. [Operator Instructions]. Please note this event is being recorded.

I would now like to turn the conference over to Adam Kressel, Director of Investor Relations. Please go ahead..

Thank you, Steven. Good morning. And welcome to AdvanSix's second quarter 2018 earnings conference call. With me here today are President and CEO, Erin Kane, and Senior Vice President and CFO, Michael Preston. This call and webcast, including any non-GAAP reconciliations, are available on our Web site at investors.advansix.com.

Note that elements of this presentation contain forward-looking statements that are based on our best view of the world and of our business as we see it today. Those elements can change and the actual results could differ materially from those projected, and we ask that you consider them in that light.

We refer you to the forward-looking statements included in our press release and earnings presentation. In addition, we identify the principal risks and uncertainties that affect our performance in our SEC filings, including our annual report on Form 10-K.

This morning, we'll review our financial results for the second quarter 2018 and share with you our outlook for our key product lines and end markets. Finally, we'll leave time for your questions at the end. So with that, I'll turn the call over to AdvanSix's President and CEO, Erin Kane..

Thanks, Adam, and good morning, everyone. Thank you for joining us once again and for your continued interest in AdvanSix. As you saw on our press release, AdvanSix delivered another strong quarter, capping off a dynamic first half of 2018.

Our results demonstrated the strength of our business model and our ability to perform in what has been a rising input and energy environment. We saw strong results across a number of metrics, including sales volume, income and operating cash flow. Mike will detail the full results, but I'd like to highlight the following.

Sales were $400 million, an increase of 11% with higher volume and raw material pass-through pricing, contributing to the improvement year-over-year. Earnings per share was $0.91 in the quarter, up 10%, and our cash generation continued to improve with cash flow operations increasing 12%.

In addition, we've initiated share purchases in June, reflecting our maturing capital allocation strategy and confidence in continued cash flow generation. Through July, we've purchased 195,000 shares for approximately $7.5 million. Our end markets remain dynamic. In this quarter, we did continue to see favorable supply and demand environment.

Global caprolactam and nylon pricing is favorably supported by generally balanced to tight supply demand dynamics in North America and Europe as well, with continued supply side constraints in China. We expect the current favorable nylon industry conditions to continue as we move into the second half of the year.

In ammonium phosphate, we executed on the strong domestic demand we saw in the quarter, following a late start to the planting season. The fertilizer market environment in general has improved and new season fill pricing is expected to be up about 10% year-over-year.

However, we do expect the typical seasonality to driving normal sequential pricing decline in the third quarter. As to our chemical intermediates, global phenyl end market demand and operating rates have remained strong, resulting in the production of additional coproduct of the acetone.

As a result, we've continued to see elevated North America acetone imports pressure pricing in the industry. We'll share a more detailed framework for the second half of 2018 later in the call. Our operational excellence and safe and stable production discipline are critical to our performance.

Safety performance and compliance is core to how we operate. Earlier this quarter, AdvanSix was recognized by the American Chemistry Council with the Responsible Care Facility Safety Award.

Several of our sites were given certificates of honor and excellence for their safety performance, based in part in having no lost work days to injuries or other incidents. As evidenced by the robust output we saw at Hopewell this quarter, our proactive mechanical integrity program and the reliability improvements we're making are paying off.

We completed our annual plant turnaround in the second quarter safely and efficiently and we've been actively planning and preparing for the upcoming planned turnaround at Hopewell this quarter.

We do expect the third quarter planned turnaround impact to pretax income, inclusive of repair and maintenance expense, fixed cost absorption, and the incremental purchases of feedstock we normally manufacture ourselves to be in the range of $25 million to $28 million.

We're also maintaining a capital structure that enables financial flexibility and optionality. We see ample opportunities for incremental deployment of capital beyond our base CapEx.

Importantly, as we shared last call, we've developed a pipeline of projects with potential spend in the $150 million to $200 million range, focused on cost savings, asset flexibility and improving plant buffers, among other benefits.

While not all of these will come to fruition, disciplined execution of that pipeline will drive further value for the company.

As discussed, we are progressing two high-return organic growth and cost savings investments for a total of $50 million to $60 million that will further debottleneck specific areas of our operations, optimize quality and improve our mix and cost position overall.

We expect cash outflows against these projects to be $20 million to $30 million in 2018, with carry-over into next year and benefit starting in the second half of 2019. So, in total, for the full-year 2018, we do continue to expect CapEx to be in the range of $110 million to $115 million.

We're approaching the two-year mark of being standalone public company and I'm very proud of what we've accomplished and the evolution this organization has made and continues to make. I'm even more excited about what the future has to offer.

With our plants running at high utilization rates and strategies focused on operational and commercial excellence, higher value product mix and a maturing pipeline of reinvestment projects, we are well-positioned to continue driving shareholder value over the long term. So, with that, I'll turn it over to Mike to discuss the details of the quarter..

Okay. Thanks, Erin. And good morning, everyone. I'm now on slide four where I'll cover the second quarter financial results. Sales came in at $400 million, and that's up about 11% compared to last year. Volume was up 4%, with continued high plant utilization rates and increases across our ammonium sulfate, chemical intermediates and nylon product lines.

Pricing was favorable by 7% due to raw material pass-through pricing, following cost increases in benzene and propylene, which are oil derivatives and inputs to our key feedstock cumene, as we've previously shared. Market-based pricing was approximately flat compared to the prior-year.

We saw the pricing benefit of improved industry supply and demand dynamics in our nylon and ammonium sulfate product lines, offset by the unfavorable impact of elevated North America acetone imports on our chemical intermediates product line.

EBITDA of $53 million decreased $1.7 million versus the prior year, driven primarily by increased manufacturing costs, including purchases of feedstocks which we normally manufacture ourselves, partially offset by the favorable impact of higher sales volume.

As we will discuss further in a moment, Hopewell plant utilization rates in the quarter were very strong and we continue to benefit from our investments in proactive maintenance and reliability programs. The impact of our planned plant turnaround this quarter was in line with expectations of roughly $10 million.

EBITDA margin of 13.2% declined 190 points from last year, primarily due to the impact of higher raw material pass-through pricing and increased manufacturing cost just discussed, partially offset by higher sales volume. As a reminder, roughly 50% of our total revenue base is protected by formula and index-based pricing agreements.

So, our sale will fluctuate with the price of the raw materials, but our variable margin is largely protected. As you look at items below EBITDA, they came in generally as expected. Depreciation increased by approximately $1.7 million, while interest expense decreased by roughly $300,000 with lower debt levels versus last year.

In terms of bottom line performance, net income and EPS both increased by 10% versus the prior year, reflecting the benefit of tax reform. Our effective tax rate in the quarter was 25.2% versus 37.3% last year. And again, that's in line with our expectations. And lastly, we continue to see the results from our focus on cash generation.

Cash flow from operations reached $33 million, and that's up $4 million or 12% compared to last year. The increase year-over-year was primarily due to higher net income and the favorable impact of changes in working capital, partially offset by a reduced benefit from deferred taxes.

CapEx of $23 million increased by roughly $8 million in the quarter and we also contributed roughly $6.6 million in cash to our pension plan in the second quarter, bringing the year-to-date total to $8.6 million.

But from a tax planning perspective, we do plan to make additional pension contributions in 2018 for a total amount in sort of the $10 million to $15 million range. On a year-to-date basis, free cash flow was increased by nearly $11 million as we continue to manage working capital levels efficiently.

Now, let me turn the call over to Erin to discuss what we're seeing in each of our product lines. .

Great. Thanks, Mike. I'm now on slide five to discuss our nylon product line, which includes our caprolactam, resin and films products, and represented over 45% of our sales in the second quarter. As you can see from the chart on the right-hand side of the page, industry spreads reflect improved conditions globally year-over-year.

As we've discussed previously, there were a number of planned and unplanned plant outages in the first half of 2018, which has kept global supply snug and supported industry spreads. We continue to see generally downwards to tighter supply conditions across North America and Europe.

In China, feedstock constraints, a heavy turnaround schedule, and continued government-imposed environmental constraints are driving supply-side dynamics.

In addition, we are now monitoring a fresh round of inspections recently announced as part of a three-year anti-pollution plan that includes potential relocation of new and existing plants from populated areas to designated chemical industry parks. Numerous sectors beyond just our value chain has been impacted by this government focus.

So, while we do continue to track potential capacity additions in the region, this seems to be balanced against continued lower utilization and other impacts associated with these environmental controls. So, despite the market being structurally long, overall, global and nylon industry spreads have held up and shown stability throughout the year.

As we look toward the second half of 2018, the current favorable nylon industry conditions are expected to continue. Our downstream indicators are showing nylon end market demand is remaining healthy across the various applications we serve.

And we've also seen severely constrained Nylon 66 supplies associated with feedstock and other production shortages. So, as a result of the end market growth, increased pricing and supply constraints, this can create a modest substitution opportunity for Nylon 6 in areas such as engineering plastics.

But as we know, this can take several months to work its way through the value chain associated with end customer projects. We'll continue to track the market fundamentals and work pricing to mitigate raw material price movements through both our formula-based and fully-negotiated pricing models. Let's turn to slide six.

Moving to ammonium sulfate, which represented over 20% of our total sales in the quarter, we saw very strong domestic demand, following a somewhat slower start to the planting season due to the cold and wet weather.

As we've shown previously, the graph on the right-hand side plots urea and ammonium sulfate industry retail pricing in the corn belt on a nutrient basis. Again, it's always important to normalize pricing as urea contains 46% nitrogen and whereas ammonium sulfate contains 21%.

Our ammonium sulfate product is positioned with the added value proposition of sulfur nutrition to increase yields of key crops. Based on third-party data, we've seen relatively stable, but upward movement, in corn belt ammonium sulfate industry pricing as compared to recent nitrogen pricing.

Urea, again, is the largest nitrogen fertilizer by total consumption, and thus tend to have an underlying influence on all other nitrogen nutrient products, though they do have the wrong supply/demand dynamics. Corn belt granular ammonium sulfate prices in the industry increased roughly 4% in the quarter on a year-over-year basis.

Urea pricing again has been more dynamic and industry pricing for corn belt urea showed an increase of over 20% from the second quarter of 2017 when prices dropped significantly on the back of capacity additions, particularly in the US. A number of factors have contributed to firmer global nitrogen pricing.

We've seen ongoing reductions in China urea utilization, largely as a result of the environmental policy considerations we've been discussing. It has impacted urea exports and helps balance out supply additions in other regions. Higher energy costs globally have also pushed up cost for certain producers in various regions influencing the cost curve.

And we are monitoring tariffs on crops to export markets, which may have an impact on next season's planting decisions. As we work towards the remainder of 2018, we do expect to see the normal seasonal pricing declines sequentially in the third quarter as compared to the second, which I'll further dive into in a moment.

However, the fertilizer market we're operating in is stronger than where we were this time last year. We are monitoring key indicators ahead of the new season sales, including crop prices, supply/demand fundamentals and global trade flows, but expect the new season fill pricing to be approximately 10% above last year.

And as always, we'll stay focused on delivering the value proposition of sulfur nutrition for our customers globally. Let's turn to slide seven. We thought it would be helpful to spend a moment or two here discussing ammonium sulfate seasonality.

We've been discussing seasonality over time, but are now entering really what is our third fertilizer season since the spin. And we wanted to ensure that the sequential considerations were explained and understood as they are not always so intuitive, particularly as we appear to be going through the turn in the larger nitrogen cycle.

As we described it this time last year, ammonium sulfate prices are typically strongest during the second quarter fertilizer application here in North America, and then had a seasonal pricing decline into the third quarter as the new season begins, meaning that we are now in the new 2018/2019 North America fertilizer season, which runs from July through June.

And to better illustrate the sequential considerations to the seasonality, the chart on the left-hand side of the page depicts the average price change for corn belt ammonium sulfate as published by Green Market by quarter over the period from 2010 through 2017.

As you can see, the trend reflects prices that typically strengthen into the spring planting season and then decline ahead of the new season sales. On average, we've seen industry prices in the corn belt decline 12% from the second to third quarter over that timeframe.

And while there are ranges of results across the quarters depending on the environment in any given year, we have seen sequential declines in the third quarter every year since 2010. The third quarter sequential declines over that period have ranged from low single-digit declines to decreases of over 25%.

So, we are able to mitigate the seasonality as we talked about from a volume sales perspective, given our ability to efficiently sell into both our North America and South America regions. So, our volumes actually remain relatively steady on a quarterly basis.

However, we do expect to have a higher amount of products sold to our export markets in the second half of the year, particularly into Latin America and Brazil.

This geographical sales mix also has a product mix consideration as we tend to have higher standard product sales in the quarter as it relates to the strong granular sales domestically at the height of the North America season. As a reminder, we discussed in the past that granular product sales earn a premium over standard of around $50 a ton.

So, in total, when you look at the impacts of the seasonality, and in consideration that ammonium sulfate sales are treated as a netback to the cost to produce caprolactam, we typically see a sequential consideration of $10 million to $15 million to higher COGS – our cost of goods sold – on average in the third quarter.

Importantly, as I mentioned earlier, the fertilizer market environment is in a better place to where it was just a year ago. And there are initial signposts we are monitoring for continued improvement as we head into 2019. So, with that, let's turn to slide eight for an update on chemical intermediates.

Our chemical intermediates business, which represented about one-third of our total sales in the quarter, provides revenue diversification from a variety of co-products we sell. As we've done in the past, we've shown prices on the right-hand side of the page for refinery grade propylene and acetone based on third-party data.

Prices for acetone, which represented mostly half of our chemical intermediates portfolio, will move with its own supply/demand dynamics, but can also be influenced by the underlying moves in propylene prices.

Input prices of propylene continued to increase in the second quarter, rising over 30% on a year-over-year basis due to tight supply conditions. During this time, as you can see, the acetone large biomarker has lagged the increases in the underlying [indiscernible].

Coupled with this phenomenon has been global phenyl demand which has continued to strengthen across polycarbonate, epoxy resin and nylon applications and further factored into acetone supply and demand dynamics. Operating rates globally remain high resulting in production of original acetone coproduct.

And given global trade flows, we've continued to see elevated levels of acetone imports into US, pressuring regional pricing. So, while we have talked about domestic capacity rationalization, which occurred earlier this year, we continue to closely monitor import levels, which we do see leveling off, but they do remain high on a historical basis.

We continue to expect end market demand overall to remain favorable, which means that right now we don't see utilization rates coming down in the near term. So, let me turn the call back over to Mike to discuss our operational performance and framework for second half of the year..

Okay. Thanks, Erin. I'm now on slide nine. And as we've previously shown the chart on the left-hand side of the page shows our plant production rates on an annualized basis.

Although our total utilization across the asset base in the second quarter, wasn't as robust as the near-record levels set last year, production did increase roughly 3% over our historical average. Importantly, the performance at our Hopewell site this quarter modestly improved on the upper 90% utilization that we saw in the second quarter of 2017.

So, that's further proof that our maintenance and mechanical integrity programs are providing benefits both for the near-term and also over the long-term. We are mitigating risk across our operations through our asset risk matrices and reliability control plans.

These programs are in place to monitor critical assets and drive improved uptime and output. Our culture of continuous improvement also plays an integral role in that success. Our detailed turnaround programs are also an important element of our operational performance.

We've implemented dedicated teams assigned to continue improving the effectiveness of our plant turnaround efforts from the start of the planting process through the restart of the asset. As Erin mentioned earlier, we are concluding our 2018 plant turnaround schedule in the third quarter.

We expect a $25 million to $28 million impact to pretax income in the quarter. In this particular turnaround, given the unplanned weather event from the first quarter and the shift in timing of activities throughout the year, we're seeing a higher portion of the total impact related to purchases of feedstocks that we normally produce ourselves.

Most notably, that would include ammonia purchases that allow us to continue running our plants at relatively high utilization rates even during the turnaround efforts. Our leading cost advantage position supports these high utilization rates and we're making smart investments to improve performance and debottleneck our operations.

So, overall, we expect to sustain our robust operational performance for the remainder of this year and beyond. Let's turn to slide 10. Now, before turning to Q&A, we'd like to spend a little more time recapping our expectations for the second half of this year relative to the first half.

As we've discussed, there are some puts and takes across the portfolio. In the nylon space in particular, we expect the current favorable industry conditions to continue. We're monitoring any developments related to the environmental policy driving China supply and price dynamics.

As we've seen in the past, market pricing can react quickly to shifts in supply. Some of our key raw material inputs are also moving around a bit.

But as a reminder, a good chunk of our caprolactam and nylon sales are on formal price agreements representing the pass-through of those key feedstocks and will remain focused on value pricing on more differentiated nylon products based on their performance characteristics in higher value applications.

In ammonium sulfate, Erin highlighted the expected $10 million to $15 million sequential impact in the third quarter, driven by normal seasonality in that market, although we do expect pricing to be up 10% year-over-year in the third quarter and volumes to be steady compared to the second quarter of 2018.

We also expect to see some level of pre-buy cash advances in the fourth quarter for the sales plan in 2019 as is common in that business. As for chemical intermediates, phenyl end market demand is expected to remain robust in the second half of the year.

We expect this to result in continued pricing headwinds associated with ample supply of acetone imports into North America. Operationally, we remain focused on the flawless execution of our third quarter plant [indiscernible] turnaround.

We expect high utilization rates for the remainder of 2018, supported by our proactive maintenance and reliability programs. The upgrades and investments in our manufacturing sites provide a sound foundation for sustainable output and higher returns as we enter into 2019 and beyond.

The second half of this year will also see us begin executing on our pipeline of high-return growth and cost savings CapEx project that will drive further earnings and cash flow.

In total, we're expecting CapEx in the range of $110 million to $115 million for the full year, which includes $20 million to $30 million towards higher-return CapEx that will debottleneck specific areas of our operations, optimize quality and improve our mix and cost position overall. Lastly, cash generation continues to be a key focus area for us.

We've seen a steady improvement as operating cash flow has increased nearly 15% through the second quarter on a trailing 12-month basis. As we move into the second half of 2018, we expect ongoing strong working capital performance and tax reform benefits to have a favorable impact on net income and cash flow.

So, overall, we'll continue monitoring developments in pricing in our markets, while driving strong operational performance for the remainder of the year. So, with that, Adam, let's move to Q&A..

All right. Thanks, Mike. And, Stephen, if you can open the line for Q&A..

Thank you. [Operator Instructions]. And our first question comes from Charles Neivert with Cowen. Please go ahead..

In looking at nylon, you talked about the Nylon 66 situation and how tight that's gotten. Can you talk a little bit about the typical gap between Nylon 6 and Nylon 66 pricing and where it is today.

Have they expanded significantly? And have you guys gotten at least the beginnings of some inquiries about customers who might be switching out or using more 6 instead of 66 in that regard, to get some picture about how things might progress over the next couple of quarters?.

Great question, Charles. So, maybe to help frame it a bit to start, when you look at the total polyamide marketplace, so 66 and 6, the first part, what we want everybody just kind of understand is, PA 66 is about 60% smaller, right, than the PA 6 market.

When you look across the application space, our estimates is we've kind of tried to triangulate with third-party experts here. We've adjusted about 15%, maybe upwards of 20% are in application areas where 6 could substitute for those 66 type of applications. So, that kind of frames where you can think about the focus is in.

And again, it's probably in the engineering plastics arena, plus some maybe industrial yarn. When you look at where pricing has gone, we now see pricing nearly – 45% to 60% higher in the US for 66 and 6, as high as maybe 70% in Europe as it pertained to some of the local considerations.

This has been a tough year for that marketplace with force majeures and constraints. So, certainly, I think folks are looking. We have had increase, I would say. We've had one customer – we typically in a compounding arena already convert one project.

But as you can imagine, as you think about, having to spec these in down to OEMs, there is some time that it would take. But I think it's a fair perhaps hypothesis that folks may be actively working through the substitution, particularly just given what the long-term constraints, at least over the next several quarters..

Yeah.

And then, barring – even if there is no substitution, given that the gap has opened up between the two, something that's normally much smaller, definitely always 66 at premium, is there any opportunity just to raise prices in certain – I know certain contracts might preclude it, but there are others that might allow for some price movement that might not have otherwise been available.

Do you think that's something that might be coming at you guys or is already being seen at all?.

Well, I think when you look at, again, just the price differential of the markets and the length that exists in Nylon 6 versus 66 in general, I think everyone is always looking at pricing. There is probably more to do with regional dynamics in the 6 side of the world. Certainly, there are raw material oriented pricing moves.

We're seeing moves associated with higher logistics, costs that are in fighting [ph] moves on prices well. We'll stay focused certainly on the value-added applications to ensure that we're staying ahead there. Nylon 6 imports have increased this year into the US.

So, I think when you look at threads here versus regional considerations, there's always a factor as well, as we've been discussing over time as to how the regions can actually perform..

Okay. And then, one last on a different subject. You're beginning to start to spend on the project pipeline. Based on – and $20 million to $30 million is this year and then I assume there is some flow over into next year on the projects that you're currently going to go to work on.

Can you bracket at all what those might be ultimately worth to the company going forward? $20 million to $30 million is going to bring – or whatever the total number will be is going to – is from projects that might be worth how much?.

Yeah. So, the way we think about these things as we evaluate moving forward and funding growth and cost savings projects, as we talked about in the past, we look at hurdle rates of sort of a 20% internal rate of return. And so, those are the kind of returns we expect to see going forward associated with those investments.

Those investments will carry through. We have $20 million to $30 million this year. We'll probably have another carryover of, call it, $20 million to $30 million in 2019.

As we conclude those projects in the first half of the year, you'll start seeing benefits in the second half of the year and then you'll start seeing full-year benefits as you get into 2020. .

Got it. So, these are basically – these are going to take typically months to complete, obviously, not quite –.

Along with our business and the type of investments and the capital-intensive nature of them, also tying them to turnarounds as well, and the engineering and a lot of these sort of upfront work we need to do, they typically take 18 months to 2 years to execute..

Got it. So, you're getting into the physical work. So, that's – you've already done the front-end of it, meaning all the paperwork. Okay..

That's correct. Yes..

Okay, thanks very much..

Okay..

No, thank you..

[Operator Instructions]. And our next question comes from Chris Moore with CJS Securities. Please go ahead..

Hey, good morning, guys..

Good morning..

Good morning. Start on the plant turnaround. So, just want to make sure I understand the numbers, so you had talked about kind of the total impact for the year being $30 million to $35 million. It's $10 million impact from Frankfurt in Q2. Q3 is $25 million to $28 million..

That's right..

So, that $30 million to $35 million, is that expanding a little bit or is it more –.

Yeah. That is correct. And if you recall, Chris, when we talked the weather impact in the first quarter and then sort of the impact to our operations there, we used that as an opportunity to pull forward some spend in the first quarter too and execute some of the plant turnaround in the first quarter. So, there's a couple of million impact there.

So, when you look at those numbers, you look at sort of the full-year range, sort of about that $37 million to $40 million estimate now on a full year basis, which is well above our original guidance in terms of that range.

And really, when it comes to it, it really comes down primarily to purchases of some of the feedstocks that we normally make, particularly ammonia, which are increasing not only to support the high throughput of our capital plan going forward, but also we've seen the pricing of ammonia increase as well.

So, with that impact, that has sort of increased the range..

Got it. Thanks. That helps. On acetone, maybe, Erin, you just talked a little bit. Kind of the belief is that the North American imports will begin to level off. Kind of talk about the assumption behind that, why do you think that will happen..

So, certainly, that comment is going to be based on what we've seen over the last several months, right? So, maybe as we've talked about this at last call, right, we had seen imports coming in through trading activity, quite candidly, that were sort of a multiple over what the North American market needs, right? So, the North America market has moved into a net import position.

So, we do need to have inflows, but there was some aggressive, I would say, moves on trying to get more material in, into what was seen as a favorable regional environment. That has leveled off over the last, I would say, three or so months, right, with normal inflows coming in as expected to what we structurally need.

Coupled with this, we've got a propylene consideration as well that is influencing the variable margin that's coming from the product line as well. With propylene being tight here in the US, that's moved up cost. And we've also seen Asia propylene move down in what is more of a lengthy environment there.

So, that's created some interim considerations as well relative to that. I think in any case, where there are imbalances, it takes time to flush through sort of global trade flows. And, again, I think we're seeing the signs that – at least over the last several months that we're getting to there.

And now, we have this consideration of – that length also pressuring that of the – compounding what is the propylene consideration as well..

Got it.

Just remind me in terms of – on the formula-based side, my understanding was roughly half of your sales kind of formula indexed pricing, about two thirds on the nylon and about half of the chemical intermediates, is that right?.

It's a half to two-thirds depending on the mix. Certainly on the phenyl side, you have a benzene influence.

And then, on the acetone side, you have – it's a propylene, but it's also indicated through indices, right? So, when we put up the large buyer indices, pricing may go through that, which has an implication to how propylene goes, but not necessarily a one-to-one..

Got it. All right. I appreciate it..

Thank you..

[Operator Instructions]. And our next question comes from Jed Nussdorf with Soapstone Capital. Please go ahead..

Hi, Erin. Quick question for you on the acetone business, just to follow-up there. I know with Shell idling the Deer Park facility, I guess, earlier this year, there was some thought that the market would tighten as a result.

What have you seen particularly in the Gulf Coast as it relates to pricing there? And have the imports changed the mix from what you would've expected, given the idling of that facility?.

So, as you maybe kind of elaborate a bit more, right, so from a net import position, if you go back through last year, prior to the shutdown, again, you look at import statistics, I would say, you were kind of in and around the range of maybe to 12 to 18 [ph] coming in to match that monthly import demand.

When Deer Park shutdown the one line, inherently, that meant we needed more to come in because the US market has continued to be robust from a demand perspective. So, that would have had to increase maybe closer to, I don't know, 17-ish, maybe 20, depending on how things are moving out. So, we needed more.

But when you look at what happened really late December into January, even to March, traders brought in, I would say, a multiple of that need. It would then create a situation where that had to flow through the market. Some have been re-exported, but certainly it came here in a position that has pressured price here in the first half.

And so, again, I think to the notion that – structurally, this should rebalance. There's new phenyl plants that are coming onstream, that have come onstream that are lining that out. Phenyl demand, as we've said, has been extremely robust on the epoxy and polycarbonate and even global nylon side.

So, it's just a matter of rebalancing where the acetone goes into to set those dynamics. But we have seen the pressure as indicated in the chart.

Certainly, the large buyer settlements have not kept up, both on the propylene as a result of this length and – and, again, I think it's just a bit more time, right? It's hard to have the crystal ball to say when do we reach a point of more structural stability..

[Operator Instructions]. I'm showing no further questions. This concludes our question-and-answer session. I'd like to turn the conference back over to Erin Kane for any closing remarks..

Well, great. Thanks again for everyone's time and interest this morning and for the good dialogue here in the Q&A. Again, our results this quarter, we believe, again, demonstrates the strength of our business model.

We have a focused strategy that we're executing against, built on our rigorous commitment to operational excellence, continuous enhancement of our long-term growth capabilities and making smart investments in the business to drive higher returns.

While there are some puts and takes across our end markets, we are focusing on executing what is in our control and driving best possible outcomes. Our vertical integration and global cost advantage position continue to give us the confidence and flexibility to drive value creation over the long-term.

And we look forward to speaking to you again next quarter. Thank you..

The conference is now concluded. Thank you for attending today's presentation. You may now disconnect..