Kurt D. Ogden - Vice President, Investor Relations Peter R. Huntsman - President, Chief Executive Officer & Director J. Kimo Esplin - Chief Financial Officer & Executive Vice President.

Robert Andrew Koort - Goldman Sachs & Co. Sabina Chatterjee - Wells Fargo Securities LLC Edlain Rodriguez - UBS Securities LLC P.J. Juvekar - Citigroup Global Markets, Inc. (Broker) James M. Sheehan - SunTrust Robinson Humphrey Kevin W. McCarthy - Bank of America Merrill Lynch Hassan I.

Ahmed - Alembic Global Advisors LLC Aleksey Yefremov - Nomura Securities International, Inc. Laurence Alexander - Jefferies LLC Herbert A. Hardt - Monness, Crespi, Hardt & Co., Inc. Jeffrey J. Zekauskas - JPMorgan Securities LLC.

Good day, ladies and gentlemen, and welcome to the Q4 2014 Huntsman Corporation earnings conference call. My name is Alison, and I will be your operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of the conference.

As a reminder, this call is being recorded for replay purposes. And now I would like I turn the call over to Mr. Kurt Ogden, Vice President, Investor Relations and Finance. Please proceed, sir..

Thank you, Alison, and good morning, everyone. Thank you for joining us on our earnings call this morning. Joining us on the call are Jon Huntsman, our Founder and Executive Chairman; Peter Huntsman, President and CEO; and Kimo Esplin, Executive Vice President and CFO.

This morning, before the market opened, we released our earnings for the fourth quarter and full year 2014 via press release and posted it on our website, huntsman.com. We also posted a set of slides on our website, which we intend to use on the call this morning in the discussion of our results.

During this call, 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 Securities and Exchange Commission 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.

In addition, we will also refer to non-GAAP financial measures such as EBITDA, adjusted EBITDA and adjusted net income or loss. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted on our website at huntsman.com.

We have chosen to include comparisons of our results to prior periods on a pro forma basis adjusted to include the acquisition of the Performance Additives and Titanium Dioxide businesses of Rockwood Holdings and the related sell of our TR52 product line used in printing inks to Henan Billions Chemicals.

We believe this helps understand trends, specifically within our Pigments and Additives division. In our earnings release this morning, we reported fourth quarter 2014 revenue of $2.951 billion. Adjusted EBITDA of $292 million and adjusted earnings per share of $0.33 per diluted share.

On a pro forma basis, our revenue was $2.937 billion and adjusted EBITDA was $300 million. I will now turn the call over to Peter Huntsman, our President and CEO..

Thank you, Kurt. Good morning, everyone. Thanks for taking the time to joining us. Let's turn to slide number three. Adjusted EBITDA for our Polyurethanes division in the fourth quarter of 2014 was $171 million. Compared to the prior year, EBITDA was essentially unchanged for both our MDI urethanes and PO/MTBE businesses.

Our Polyurethanes division has the most absolute foreign currency translation exposure to the euro on an EBITDA basis of all of our divisions. In the fourth quarter, our MDI business was negatively impacted by approximately $7 million as a result of the stronger U.S. dollar compared to the prior year.

MDI volume growth was lower than the full year average of 5%; lower fourth-quarter growth was primarily the result of destocking effects as some end market customers anticipated price relief combined with a weaker economic climate in Europe.

North America continues to be a bright spot as MDI volumes grew at strong rates across all of our major end markets. Asian growth was comparable to North America, although the construction related end markets were less robust. The global automotive market remained strong, which grew almost 20% compared to the prior year.

The primary raw material in the manufacture of MDI is benzene; we purchase approximately 200 million gallons of benzene annually. Benzene is a derivative of the oil refining process and as the cost of oil has decreased, so has the cost of benzene.

As we've indicated, in many of our end markets, we provide differentiated customer-specific products, and as such we expect near term margin expansion from the decline in benzene. In addition, PO/MTBE pricing is highly correlated to the cost of premium unleaded gasoline, which has decreased.

Lower PO/MTBE margins will partially offset the benefit of lower benzene costs. As a reminder, we started scheduled maintenance on our PO/MTBE facility in Port Neches, Texas on January 26, we estimate the facility will be offline for approximately 60 days with an EBITDA impact of approximately $60 million.

This amount includes lost revenue and unabsorbed fixed cost for the period, in addition the maintenance cost will be approximately $90 million. However, these costs are capitalized and amortized over approximately 5 years as we've done in the past. The total estimated cost of the maintenance will be approximately $150 million.

Let's turn to slide number four. In the fourth quarter, our Performance Products division recorded adjusted EBITDA of $111 million compared to $116 million in the prior year.

It should be noted however that as a result of our successful efforts to reduce our investment in inventory, we incurred additional charges of $5 million compared to last year from inventory revaluation costs this year.

We sold our European commodity surfactant business including our Lavera, France facility in the second quarter of 2014 and closed our Patrica, Italy facility in October. We believe our refocus on differentiated surfactants will improve our annual EBITDA by approximately $20 million beginning in 2015.

Excluding the impact from the sale of our European surfactants business, our fourth quarter 2014 volumes decreased 4% within this division. Higher sales volumes for amines and maleic were more than offset by lower sales volume for surfactants and other ethylene oxide derivatives.

Many have inquired about the impact of lower priced oil on this division. It's worth noting that most of our oilfield applications are used in oil production, not in drilling. As a result, we don't expect much of an impact on demand. Lower priced oil will reduce our U.S.

Gulf Coast ethylene oxide manufacturing cost advantage relative to the rest of the world. However, we believe that this impact will more than be offset by expanding margins in ethylene oxide derivatives and other downstream product.

Earlier this month, we announced the start of construction on the expansion of our polyetheramines facility in Singapore, which we expect to be operational in the second half of 2016.

This expansion will help us meet the growing demands of our customers in the Asia Pacific region, where annual volume is set to grow at at least 10% in the coming decade. Our capital expenditure is expected to be approximately $80 million with expected annual EBITDA of $30 million when the facility is sold out. Let's turn to slide number five.

In the fourth quarter, adjusted EBITDA in our Advanced Materials division was $43 million, which represented a record fourth quarter for this business and an improvement of $10 million compared to the prior year of $33 million.

Key to this improvement has been our success in the aerospace market where our epoxy resins are used in composites, compared to the prior year, EBITDA in this market improved $6 million. This important market has the highest margin within the division and represents more than a third of its earnings.

We are encouraged by the long-term trends as new production rates – as production rates for new generation aircraft such as the Boeing 787 and the Airbus 350 continue to ramp up. We've also seen improved earnings in our epoxies used in automotive, oilfield drilling and epoxy coatings.

Favorable business conditions in these applications led to a year-over-year increase in EBITDA of $3 million in our transportation, industrial and coatings construction markets. Let's turn to slide number six. Our Textile Effects division reported adjusted EBITDA of $6 million in the fourth quarter.

As a result of our successful efforts to reduce our investment in inventory, we incurred additional charges of $12 million from inventory revaluation costs in the fourth quarter compared to the prior year.

Our average selling price increased 9% compared to the prior year as a result of our focus on higher margin products and increased raw material costs. We are encouraged by strong consumer confidence readings in the U.S. and expect to benefit from improved demand in 2015.

Throughout 2015, we expect tighter environmental regulations and better control of supply chains by major retail brands. As we're a market leader in innovation and research, we should see better than GDP growth in sales and expanded margins for these reasons. Now, let's turn to slide number seven.

Our Pigments and Additives division earned $9 million of adjusted EBITDA in the fourth quarter. On a pro forma basis, adjusted EBITDA decreased $43 million compared to the prior year. Our non-TiO2 portion of this division earned $14 million and was essentially unchanged compared to the prior year.

Our TiO2 business lost $4 million in the quarter, as business conditions deteriorated in Europe throughout the quarter. As it relates to profitability, our TiO2 business is facing two primary challenges right now. First, there is an imbalance between global supply and demand.

The supply demand imbalance is amplified in Europe, where the majority of our TiO2 business resides. Second, European prices for TiO2 are at unsustainable levels, driven predominantly the weakness of the euro. Price differences between major sales regions are currently more than historical averages, notably between Europe and North America.

In response to these challenges, we've taken the following actions. On February 12, we announced a plan to shut down the black end of our Calais, France facility effectively reducing European TiO2 supply by approximately 100,000 tons, representing 13% of our European TiO2 capacity.

The black end of the facility represents approximately 75% of the costs of the facility. We expect to be finished with this shutdown by the summer of 2015. Further, we've accelerated the timing for savings delivered on the original $130 million of synergies program, and we expect to deliver approximately $60 million of savings in 2015.

With the synergies and restructuring programs combined, we're projecting more than $75 million of cost savings in 2015, and combined annual cost benefits exceeding $165 million by the second half of 2016.

In addition to our aggressive cost-based actions, we have taken action to recover margins by recently communicating to all of our European TiO2 customers a price increase effective April 1, 2015, of €150 per metric ton.

We believe that the TiO2 industry remains under pressure, impacting minerals and pigments producers alike, particularly in China, where there is a noticeable scale back in expansion plans, capacity moderation and a consolidation shakeout.

Exports to Western markets from China remains essentially flat over the past four years at approximately 150,000 tons per annum to Europe and the U.S. combined. Furthermore, as industry experts TZMI have recently noted, the shakeout of Chinese TiO2 producers should lead to a net reduction of Chinese capacity in 2015 and beyond.

In summary, we believe that the TiO2 industry will cycle upwards and that we are taking aggressive and effective actions to improve the profitability of this business. Before sharing some concluding thoughts, I would like to turn a few minutes over to Kimo Esplin, our Chief Financial Officer..

Thanks Peter. Let's turn to slide eight. In the fourth quarter of 2014, compared to the prior year, our adjusted EBITDA decreased to $292 million from $313 million.

The decrease was primarily the result of $43 million in lower TiO2 earnings, approximately $11 million foreign currency translation headwind and approximately $9 million in higher inventory revaluation costs. Sales volumes decreased in large part due to the de-selection of lower margin businesses.

Average selling prices improved across the majority of our divisions, which more than offset higher raw material costs. Our full year EBITDA increased $127 million from $1.213 billion in 2013 to $1.340 billion in 2014.

Our average selling prices improved, more than offsetting lower sales volumes, higher raw material costs and negative impact from foreign currency translation and higher inventory revaluation costs. Let's go to slide nine.

During the quarter, the impact from foreign currency created an approximate $11 million earnings headwind compared to the prior year. This was primarily the result of a stronger U.S. dollar against major European currencies. Each of our businesses has different foreign currency translation exposure.

In an effort to provide greater transparency, there is a table in the lower left quadrant of the slide, which lays out the divisional exposure to certain primary European currencies. This will continue to be a headwind as we move into 2015 as the euro has now fallen to $1.14 and the Swiss franc has appreciated to $1.07.

More specifically, if rates hold where they are for the rest of the quarter, we think that in the first quarter, we could see foreign currency headwinds of approximately $10 million on a sequential basis and approximately $20 million compared to the prior year.

Bottom-line, as a company, we are net long the euro and net short the British pound and Swiss franc, overall, net long positioned on European currencies. As a general rule of thumb, a 10% change in the U.S. dollar against these primary currencies will result in approximately $40 million annual EBITDA impact and $20 million annual impact on net income.

We continue to place greater emphasis on free cash flow. We have aggressively made efforts to reduce our working capital investment. We successfully reduced our investment in inventories by approximately $90 million in 2014, and as a result, we recognized higher inventory revaluation costs compared to the prior year.

In the fourth quarter, the change in inventory revaluation costs in EBITDA compared to the prior year was approximately $9 million, representing another meaningful headwind during the quarter. Slide 10, at the end of the quarter, we had approximately $1.6 billion of cash and unused borrowing capacity.

In November 2014, we issued $400 million of 5.125% senior notes due 2022. We used the proceeds to redeem all of our outstanding 8.625% senior subordinated notes due 2020, pay associated accrued interest and for general corporate purposes. We expect to save approximately $12 million in annual interest expense as a result of this refinancing.

We intend to opportunistically pursue additional refinancing of higher interest rate debt as practical. On October 1, 2014, we successfully completed the acquisition of the Performance Additives and Titanium Dioxide businesses of Rockwood for $1 billion in cash, subject to certain purchase price adjustments.

The acquisition was funded by a new $1.2 billion term loan due 2021. During the quarter, we spent $250 million on capital expenditures, of which $48 million was invested in the former Rockwood businesses. During 2014, we spent $601 million on capital expenditures.

We expect to spend approximately $525 million on base capital expenditures in 2015, net of partner contributions, including approximately $75 million for the Rockwood businesses.

In addition, in 2015, we will spend approximately $100 million combined on our new Chinese MDI facility, the completion of Augusta, Georgia pigments facility and replacement of the Rockwood IT systems.

Now that we've completed the preliminary allocation of the purchase accounting for Rockwood Performance Additives and Titanium Dioxide businesses, we expect our annual depreciation and amortization rate to be approximately $450 million. Our adjusted effective income tax rate for the fourth quarter and full year 2014 was 34% and 30%, respectively.

We expect our long-term adjusted effective tax rate to be approximately 30%.

We expect our 2015 adjusted effective tax rate to be slightly higher as a result of reduced earnings from our Pigments and Additives division, which has a meaningful concentration of businesses in countries, primarily Europe, where we have tax valuation allowances which prevent us from recording a tax benefit on pre-tax losses.

2014 cash generation followed historical seasonal patterns, working capital increased in the first half of the year and decreased in the second half. In the fourth quarter, we generated $210 million from lower working capital and $68 million for the full year.

As we work toward improving our free cash flow generation, I want to highlight a few items that should be considered in 2015. We believe we will be able to generate an improvement in our working capital investment by approximately $100 million.

We have a number of planned maintenance projects that will take place, most notable of course is our PO/MTBE facility in the first quarter which will consume approximately $90 million of cash. However, the total company cash flow for maintenance versus amortization expense in the P&L will only be approximately $40 million.

Pension funding in excess of expense will be approximately $100 million and restructuring payments will be approximately $200 million.

In spite of an elevated level of cash requirements in 2015 with approximately $300 million higher than normalized capital expenditures and restructuring activities, we expect to have positive free cash flow for the year and expect these initiatives to be largely complete by the end of the year.

Peter?.

Thank you, Kimo. 2014 ended a very strong year for our company. Our differentiated businesses had their best year by more than $200 million of adjusted EBITDA, in spite of meaningful FX and raw material volatility as well as destocking throughout fourth quarter, we finished the year with a strongest differentiated EBITDA in our history.

While it is early in this year, as we look at the gives and takes we are going through, we see our differentiated businesses consisting of MDI Polyurethanes, Performance Products – it includes our amines, maleic, surfactants, our epoxy and textile dyes and chemicals all doing better than their record 2014 performance.

No one here is happy with the condition of the TiO2 industry, but we are in a position where I believe conditions will bottom out in the first quarter of 2015 and improve throughout the year. Our confidence in improving TiO2 profitability are threefold.

First, we committed to deliver $130 million of Rockwood synergies in the next three years with $40 million of that in 2015.

We are now saying that based on work thus far completed, we plan to increase that to over $140 million in the next two years and $60 million of that will be realized in 2015, an accretion of $20 million compared to our original plan. Second, this week, we announced the closure of nearly 100,000 metric tons of TiO2 capacity in Calais, France.

While site closures are never something happy we're happy to do, we will tighten our capacity utilization by 13%, something that is badly needed in today's market condition. This closure will save us approximately $15 million this year and $35 million thereafter, and we will still have available capacity to serve 100% of our global requirements.

Third, we announced earlier this week a €150 per ton increase on all European TiO2 grades. This will impact over half of our volumes. Even after the implementation of this increase, European TiO2 prices will still be below North American prices and in need of further initiatives.

When we read the publicly available information regarding global or in pigments margins of the entire supply chain, we simply will not continue with business as usual. Between our Rockwood integration cost-cutting and our Calais black end closure, we expect savings in excess of $75 million in 2015 alone.

Effective April 1, we will be implementing further margin expansion moves with our price increase of €150 with over 350,000 metric tons of volumes that we presently service in Europe. We can't control the TiO2 industry, but what we can control is our own capacity and cost structure. We're moving aggressively to do as much as we can.

A year ago at this time, we told the market that in 2014, we would exceed 2013 EBITDA. We did this by over $100 million in spite of tremendous year-end volatility. As we look out over 2015, we expect a year of strong performance with our non-pigments business and continuous improvement in our Pigments and Additives business.

I believe we're well positioned for the future. We've recently completed our five-year planning review with senior leaders of our company and we are well on our way to delivering $2 billion of EBITDA and $700 million of free cash flow. With that, I'll turn the time back over to Kurt..

Thank you, Peter.

Alison, will you explain the procedure for Q&A, and then open the line for questions, please?.

Thank you very much, sir. Your first question comes from Bob Koort from Goldman Sachs. Please proceed, sir..

Thanks very much. Good morning, gentlemen..

Good morning, Bob..

Good morning..

Peter, I was wondering if you could talk a little bit in the MDI business, in the fourth quarter, did you see any benzene relief? And then, how would you expect that to flow through during 2015? And can you help us size – you get some moving parts with the PO/MTBE outage, which sounds like maybe it's a little bit bigger hit in the first quarter than before.

But, of your $730 million of EBITDA in that segment, can you give us some sense of what's MDI and other things and what's PO/MTBE? Thank you..

Thank you, Bob. Yeah, as we look at the pricing in the fourth quarter, we saw average pricing for benzene in the fourth quarter was just under $4 a gallon. That was down where our average price in the third quarter was around $5 a gallon. So we started to see the falloff in benzene prices take place in the fourth quarter.

We currently see benzene today depending on where you're buying it around the world somewhere between $2 a gallon and $2.20 a gallon and that price does move every day.

I would note that we have a supply chain of about 75 days to 85 days from the time that you buy benzene somewhere around the world and we transport it, we ship it, you store it, you put it into to nitrobenzene, you then put it into aniline, you're putting it through your MDI processes, you're taking that to system houses and so forth.

So – and then you're ultimately selling that to a customer. So, from the time that we're buying $2 benzene today hypothetically in the market, we're going to see the full impact of that probably sometime in the middle of the second quarter to the end of the second quarter – excuse me – even into the third – yeah, the second quarter of this year.

And so, when we think about that impact to the bottom line, when we think about the impact in the fourth quarter, I would think that the impact that we saw in benefit during the fourth quarter would probably be in the singular millions of dollars. And so, again depending on where that is in the supply chain.

I would expect that to obviously gradually start expanding in the second quarter and through the – the first quarter, and throughout the second quarter, and how much of that we actually keep? I think that's – I think it's going to be obviously a net benefit for us, Bob. But let's remember the last time that prices fell this suddenly in the market.

It was something of a disaster. It was something of a disaster because of the massive destocking that took place and the demand wasn't there on the backend to be able to have any pricing support.

I think that as we look at the industry today, the industry is operating, depending on where you are around the world, North America is probably, I would guess, in the 90%, 91% capacity utilization. Asia is probably in the high 80%. I think there's a – the capacity on a global basis is such that we ought to be able to hold on to pricing.

We ought to be able to expand margins. And then certainly as you get out towards the end of the year, your price for MDI products will calibrate. Some of the more commodity side of the MDI products will move down with the price of benzene.

Others of our MDI will move with the price of benzene because we have locked-in formula prices, we've communicated in the past. This is a smaller portion of our sales obviously.

And then we have a differentiated piece of our business where the raw materials make up a relatively smaller percentage of our overall cost and the cost of labor, delivery, service, research, other products that go into making that MDI systems product is going to be factored in as well.

So, I guess what I'm saying is when you look across the board, we think that as the price of benzene falls, we ought to be able to capture that margin. It will not be instantaneous, as benzene falls. And it will not be permanent.

And obviously, any more than it would be a permanent hit on the business if benzene prices were to go up, we'd be expected to get our finished prices up.

So, I would think with the margin expansion here over the next quarter or two, and that will gradually fall off at the end of the year, but I think that the growth in the industry, the expansion that we have taking place around the world, the recent acquisitions and so forth, that will continue to allow us to more permanently expand our EBITDA.

And, Bob, I apologize for that answer, I wish I had a more concise, a dollar for dollar, customer for customer, but I think that in the world of – this is volatile as it is, we've tried to listen to what some of the other companies are doing. There's just a lot of unknowns out there as far as our ability to hold up pricing and so forth.

I'm more optimistic today as I look at global demand than I would have been two or three months ago when prices were falling. So I think again, we take the gives and the takes of this. Falling oil prices, I believe, will be a net plus for this company. And from where I'm sitting today, I continue to believe that.

Now, I'm – I really apologize, I forgot the second half of the question..

Well, I was just asking the MDI business that you're rightfully proud of, and which should show some progress, gets obscured by the PO/MTBE component within polyurethane.

So can you give us some help in sizing those businesses, so we can make a judgment on how important MDI is, as you look forward, and that – the penalty from the turnaround in PO/MTBE would be for 2015?.

Yeah. So in 2015, the EBITDA hit from the turnaround is $60 million, that's the same number we've been out with for a while, so we haven't changed that. And we're in the middle of that turnaround and everything is going well there.

If crude oil stays at kind of where it's at today, there may be as much as another $50 million reduction in PO/MTBE profitability, relative to the last couple of years.

So, when you take sort of Peter's comments around urethane, and PO/MTBE, we think the urethane benefit from falling raw materials will offset the reduction in profitability in PO/MTBE because of lower crude oil prices, net benefit, if you set aside the turnaround of one-time impact in the year..

Got it. Thank you..

Bob, I also just say that as we look at our percentage of margin from MDI this year in 2015, we will see a higher percentage of our overall EBITDA from the combined businesses coming from MDI, I think I'm just – I'm trying to look back the last couple of years, we'll see a higher percentage coming from MDI than we've seen in the overall business probably ever.

Perhaps you have to go back 10 years or so, the last MDI spike, so this business is becoming more and more dependent on the MDI, the differentiated, the downstream. And less so on the PO/MTBE.

I would just note that the PO/MTBE though, much of the success of the PO/MTBE comes about, because we have a home for the propylene oxides, an integrated piece of our business, it's a value-added component and it's more than just a big MTBE facility..

Thanks, Bob..

Thank you. The next question that comes from the line of Sabina Chatterjee from Wells Fargo. Please proceed..

Hi, good morning. Just hitting in for Frank Mitsch today. Just, it sounds like between the puts and takes that you just talked about in polyurethanes that you're calling for EBITDA growth in 2015.

Just wanted to see if that was a fair assessment or is the outlook still uncertain given all the variables between FX and whether your competitors actually hold prices in MDI or what have you?.

No. I think you're reading it right. I think what we've said is, is that, again, urethanes will offset any erosion in the PO/MTBE side, but then you have the turnaround, so we're really talking about an adjusted turnaround year. So again, if you adjust for the turnaround, it would be up..

Okay. And then on TiO2, obviously still struggling and now you've got the FX issue.

I just wanted to see how confident you are in making the near-term EBITDA targets of $225 million and $350 million for the legacy pigments business and the Rockwood businesses?.

Well....

What have you factored in as far as demand and pricing in that outlook?.

Listen, Sabina, we've talked about the legacy side of that and we're clearly not going to make that $200 million in 2015. But I think it's a good number for the Rockwood businesses. I think the Rockwood businesses are differentiated; there's non-TiO2 businesses in there. And we think that business is capable of doing roughly $200 million in 2015..

Sabina, also when we look at those numbers around that $2 billion number, I would say that where I'd have a little bit of heartburn getting to that $2 billion probably would be around, as Kimo mentioned, the legacy TiO2 business.

As I look at the $2 billion number though, look at the Advanced Materials portion, the Performance Products portion, we've already met or exceeded the targets that we put out. And I believe that those businesses over the course of the next year or two are going to continue to expand their EBITDA.

So, we might be a little light on the TiO2 legacy side of the business. Conversely, when you look at the Performance Products, the Advanced Materials, I'd even throw in Textile Effects, I would say that we should quite soundly beat the projections that we gave for the $2 billion.

So, again, I think that we still have a great deal of confidence in the $2 billion number. It may not be exactly the way that we put it forth in March of this past year. But, I think that when we look at the overall composite, we still feel very confident about that..

And I think that's – again, Peter is talking about the $2 billion number and I think that's right. I think we can even get to the $200 million legacy EBITDA in the timeframe we're talking about the $2 billion.

My comment was specifically around 2015, in our discussion, when we bought the business, that the legacy business would be $200 million of EBITDA. I don't think we're going to get there in 2015, but I do think it's very doable in that two- to three-year timeframe that we talked about..

Okay. Thank you..

And the next question comes from the line of Edlain Rodriguez from UBS. Please proceed..

Thank you. Good morning, guys. Just one quick question on pigments again. I mean, Peter, how confident are you that you're going to be able to get the price increase in Europe? I mean, because after all, this is not the first time that the industry has been trying to push prices.

So why the confidence that consumers will accept that price increase?.

Well, we're now 72 hours into the price increase. So, yeah, trying to say exactly how much of that we're going to get, probably a bit too early to call something out one way or the other. I am very confident though that we will get a large portion of this increase.

I base that simply on the fact that the economics or it's just simply impossible for this industry to continue at the losses that are being incurred in Europe.

If you look at the closures of our facility, you look at the layoffs that have been publicly announced, the losses that are being sustained by the mining industry and so forth, that are supplying us ores; the lack of imports that are coming into Europe because of the low European pricing.

I think that when you factor all of these things together, I can only speak of Huntsman's pricing discipline, but this isn't something that we're going to try to get, this is something simply that we have to get. And we're prepared to walk away from volumes in some cases and so forth.

And just fundamentally, the trend needs to start turning and moving the other direction. And as far as Huntsman is concerned, again we're ready to take, as we've outlined, some extreme measures to the see that this happens. Even after – even after this happens, we still – you look today, European pricing for TiO2 is at or slightly below Asian pricing.

I mean there's zero incentive for anybody to be importing and pushing product into Europe and even after this price increase, we still are going to be having to push up prices just to get on parity with the rest of the world. So, it's long overdue, it's badly needed and it just has to take place.

And this will be the first of I think multiple initiatives..

If I could just add, the dollar-denominated prices have fallen significantly because of the weakness in the euro, and you'll remember our ore raw material costs are dollar denominated. So this price increase largely just captures the reduction in dollar terms that we've seen from a weakening euro currency.

And I think based on that alone, setting aside utilization rates, it's justified and I think we will be successful just getting back to the differential we had in European and U.S. dollar pricing in the third quarter..

That makes sense. Another quick question on MDI. I mean, when you look at – there's still some skepticism about the sustainability of the benefits of lower benzene cost into some of the products.

And one thing we're trying to figure out, so when oil prices were going up and benzene prices were going up, did you experience a significant margin correction – or contraction in the differentiated businesses there? Because if you're going to see the benefit from lower cost, then you must have seen some headwind from costs going up..

Yeah, I mean, we've talked in prior quarterly calls about the lag in our pricing on our differentiated side and our ability to get our prices up as benzene moved up. So, that's completely fair.

And I think if you listened to what Peter described, we're going to keep margin as benzene falls, but our component business and in our businesses that have pass-through contracts, which is roughly 50% of our business, we're going to see that benefit go away after 90 days or 120 days or something like that.

We're hopeful that longer term we can keep the most differentiated system business, but in a big chunk of this business, we keep that for just a short while..

Okay. Thank you very much..

Thank you. The next question comes from the line of Peter James Juvekar from Citi. Please proceed..

Good morning..

Hi, P.J..

There's been a lot of discussion about this oil price. Can you discuss this sort of segment by segment? Because what happens is in Polyurethanes MDI benefits but MTBE sort of gives some of it back.

So, maybe can you just discuss at a segment level, which segments where you think you can hold the benefit of low oil?.

Well, yeah. Let me try to just put this in very broad senses. And, P.J., I would just note before I say anything that the ability to contain margin in falling prices is not necessarily of our company to control.

And the competition and competitors and so forth, there are people out there that are willing to give up margin for market share and so forth and so on, so – and what I'd say, I just want to be absolutely clear.

What I'm say is I'm looking at the world from Huntsman's perspective and we've got other people out there that are obviously from their perspective perhaps of not looking necessarily to gain margin, but to gain volume.

So you're going to see all sorts of industry dynamics of supply and demand within the same product grouping that will obviously confuse some of this.

But as I look at it on a broad basis here, as I look at our Polyurethanes, Performance Products and Advanced Materials, we believe that we will see margin erosion taking place in our North American raw material feedstocks around ethane to ethylene.

So, within our Performance Products on the upstream side, the margin that we've been making on ethylene, we will see that margin decrease.

I think that as we look at our Performance Products, we will see our downstream businesses particularly our amines businesses, where again we're selling more formulas, we're selling technology, we're selling more of a specialty type of a product, we should see a margin recovery there and expansion there in pricing, that should offset that.

So as we look at our forecast for 2015, again one end of that division is going to see lower margins, we believe that throughout 2015, the rest of that division will more than make up for that. I'd say the same thing about polyurethanes.

Again, as you – if I strip out the T&I, if I strip out the outage that we have right now, the maintenance that we have, I believe that the expansion – the expanding margins, the benefits of benzene prices and so forth that we're going to see in polyurethanes will more than offset the deterioration that we will see in margins in MTBE.

And again to what extent will we see that deterioration in MTBE, I frankly don't know, but we're just basing this on what we've seen in the past. MTBE obviously is a product that changes hour by hour in its pricing and volumes, but again, what we've seen thus far this year, I feel quite confident about that.

As I look at our Advanced Materials, these in our Textile Effects businesses, these are going to be less oil sensitive businesses and I think by and large they will benefit by having lower raw materials gives and takes. So again, I think that you will have an opportunity to expand margins in those businesses, slightly, throughout 2015.

So, net-net as we look at the non-pigments businesses when I said earlier in the call that we expect a better 2015 than 2014, we base that on a couple of takes that will take place in – because of falling oil prices in MTBE and our ethylene margins, offset by the gives that we believe we're going to be able to get in maintaining pricing and being able to pass lower costs through our system that will enable us to have a higher EBITDA for the year..

Thank you for that.

And then just quickly, you made an interesting comment about Chinese TiO2 exports, I mean what do you think – is there a risk that if Chinese growth and construction slows down, those guys – Chinese producers can export even more TiO2 in the future?.

Well, I think if you look at Chinese TiO2, and again that comment, I believe and what I said earlier was a quote from a consultant. So, that wasn't necessarily my research and analysis that led to that.

But I think that as we look at the Chinese product that's coming into Europe where our biggest base is for TiO2, we just don't see this – I don't see the Chinese factor as being the reason why TiO2 prices are where they are today. Perhaps a contributing part of it, but it certainly isn't the primary factor.

As I look at the Chinese producers, most of them have environmental issues; most of them have a cost structure that I think one of the big misnomers in North America is that the Chinese somehow are able to make TiO2 for next to nothing. I think that there are some very competitive Chinese producers.

I think there are a lot of very small uncompetitive producers that in today's environment are shutting down. And we have dealt and worked with some of the Chinese manufacturers who are – we are seeing larger facilities, more competitive facilities and better technology.

But we're also seeing with the smaller producers that have high energy costs, high logistics and poor quality, I think that you're seeing a consolidation and in some cases the outright closure of some of that capacity.

So, as we look throughout 2015, I'm not sure that you're going to see a great deal of net new capacity coming on in 2015 and even 2016 with what's being put into the ground there..

Again, Peter said, Asian prices are similar to European prices and we talked about $300, $350 a ton shipping and duty costs from Asia to Europe. It is very unattractive for a Chinese producer to ship to Europe right now. And we're not seeing imports increase, in fact, they've been stable for four years, five years..

Thank you..

Thank you. The next question comes from the line of James Sheehan from SunTrust Robinson Humphrey. Please proceed, sir..

Thank you. Peter, just on your outlook for the first quarter, you've got this big outage that's, you said is going to take $60 million of impact.

Do you think that you could manage to have sequentially higher EBITDA in the first quarter given the benefit from lower benzene costs?.

That will offset that closure?.

Just overall for the company, your first quarter EBITDA, will be up, down or flat with the fourth quarter?.

At this point, until I get the plant back up and running in Port Neches and until we actually can see the impact, I think that when we look at the first quarter impact on benzene, it will be hitting us rather late in the year as will the Chinese New Year, demand for China and I think that maybe in one of our Investor Conferences or something perhaps later in the quarter, we might give a little bit more guidance, but right now with the pieces moving as quickly as they are, I'd just be getting myself in trouble..

Okay. And then on your TiO2 capacity reduction, you mentioned 13% of your capacity in Europe is going to be impacted by this action. Could you break out what portion of that is your own capacity? And what is represented by the TR52 tolling agreement that will be persist after that action..

Well, the 13% capacity, that is of our European capacity. So our European capacity, that's our total global capacity of TiO2, about three-quarters of that is in Europe.

So if we look at that 13%, that's just not for Europe, that's a global number for us as well, so we have total capacity in Europe of about 700,000 metric tons, 750,000 metric tons and we're shutting down 100,000 tons of capacity and that's what that 13% to 14% capacity utilization comes up to.

The TR52, again, given that's a specific product going to a specific customer grouping so forth, we've not publicly talked about that actual volume.

We have a contractual agreement to produce that to a Chinese company, the Henan Billions that we have sold that business to as part of a European Commission mandate and we will continue to fulfill the terms of that agreement and supply them.

So that's – the rest of our European business, we intend to keep that, and we intend to continue to be at an aggressive marketer of TiO2 in Europe..

And what's your TiO2 inventory levels at right now?.

I'd say that right now, it would probably be around 70 days or so, I assume that would be about where the industry is as well..

It's about where we were last year..

Yeah..

Thank you..

Thank you. The next question comes from the line of Kevin McCarthy, he is from Bank of America. Please proceed..

Yes, good morning. My question relates to your medium-term free cash flow outlook. If I go back to your Investor Day in March of last year, I think you were looking to generate $720 million prior to dividends or $600 million after dividends. Since then, I guess you've got some new capital projects, some restructuring, et cetera.

Are you still committed to that level of free cash flow generation in the two to three year timeframe that you specified last March?.

Kevin, great question. And absolutely we are – I think – in fact the way we described 2015 is in that context. For example, in our free cash flow target of $700 million that you referenced, we have $525 million of capital expenditures.

And so, in 2015, we described our business as $525 million of CapEx plus this $100 million of sort of Rockwood capital that is sort of going to be completed by the end of the year. So, we think that CapEx number is good. We think our interest – our cash interest number that we provided near term is a good number.

Cash taxes, we've reiterated and we've been talking about working capital benefits. And then, the next big number of course is restructuring payments and I think of the $200 million that we're going to spend this year, most of our restructuring will be done. And so, going into 2016, it may bleed over into the first quarter or second quarter.

But, for the most part, it will down to the level that we talked about in our Investor Day of right around $25 million of annual cash restructuring, certainly not the elevated level we're at. Pension costs are coming down, notwithstanding discount rates fell tremendously and our unfunded amount increased by about $400 million.

But we think that pension funding will be below $100 million a year over and above expense. So then you just need to hit the $2 billion EBITDA number and I think that all flows pretty well. But we're on track with that, Kevin..

Thank you. That's helpful.

And second question if I may for Peter, would you provide an update on the timeline that you envision for separating the TiO2 business and whether or not the new restructuring efforts in France will impact the timeline that you had put forth previously?.

No, I don't think that the time – the issues in France will not move that mark one way or the other. We committed to the market two years after the closure of the business that we would be looking to take that business public. And I would still stand by that number.

I think that as we look at the – by the end of next year, which will be two years, by the end of next year, the vast majority of our restructuring, our synergies will be complete. I believe that prices, the recovery in TiO2 should be well underway and I'm not going to say that we are going to be – that we're going to lock ourselves to that timeframe.

I'd sure like to see it happen by then. But obviously, we've also got to see a market that is conducive to IPOs. And there's some external market conditions that we'd obviously want to see take place.

But as far as having the business "in shape" and ready to go with upside and so forth, but still have the ability to assume debt and so forth and operate as a standalone entity. Yeah. I think that that timeline is realistic..

Okay. Thank you..

Thanks, Kevin..

Your next question comes from the line of Hassan Ahmed with Alembic Global. Please proceed..

Good morning, Peter..

Hi..

Obviously, a bunch of questions around raw materials and the like and completely understand there are a variety of moving parts and the like.

But let's – if we were to run a theoretical exercise and assume that oil stabilizes where it is for the remainder of the year, all other raw material prices be they benzene or methanol or the like kind of just freeze where they are right now, completely theoretical, but we obviously have a sense of what your annual purchases are, and you obviously update those amounts at your Analyst Days.

I'm just trying to get a sense that in that sort of a theoretical environment, what percentage of those cost savings could be captured? Is it 10%, is it 80%, just some sense of scale?.

All right. Hassan, it's a great question.

There are just so many moving parts in that question, I mean when I look at the impact of what's happening with ethane to ethylene and look at the impact of what's happening with MTBE and premium gasoline and the impact of people chasing down finished prices to try to maintain volumes and so far, I look at those negatives, frankly, they come up to $150 million, $200 million, they come to a very large number.

I look at the impact – the positive impact to MDI because of falling benzene, the impact to our Advanced Materials because of falling raw materials around phenolic resins and so forth, I look at the impact of lower propylene and ethylene prices to our Performance Products groups and so forth.

I look at the lower energy costs that will be coming into our TiO2 and what have you, which – the falling prices in Europe of oil are going to impact utility savings and so forth more in Europe than they do in the U.S. because Europe is more oil dependent.

I mean look at all of the pluses and that comes up to several – a couple hundred million bucks a year as well. And so, it really – and when I put those two numbers together, the benefits outweigh the negatives.

And it's not where it doubles our EBITDA or something radical, but I think that this is a business unlike some of our competitors that have large ethane cracking commodity sectors and so forth that – where you're permanently going to lose something, I don't see a permanent loss if you will coming to the business because of falling raw materials.

I continue to see a net benefit across the board..

Very fair. And moving on to TiO2, again, a couple of moving parts as it relates to 2015. One of the things that you talked about was a slight increment to the effective tax rate, and the comment that you made was that primarily as a result of not being able to utilize tax allowances out of Europe particularly within the pigment side of things.

So just wanted to sort of get a sense that if I were to take a look at your EBITDA for pigments for 2014, it was around $84 million, which includes one quarter of Rockwood. Now, the puts and takes obviously for 2015 are that you'll have the benefit from the synergies, which you mentioned.

You'll get the EBITDA benefit from restructuring and the like, but there will be charges associated as well for the restructuring in particular.

So what I'm just trying to get a sense of is that in that tax rate guidance of yours, if I look at the core EBITDA, scraping away restructuring and the like in the sense the negative impact of the charges of restructuring. I mean on a core basis, will you see an uptick in pigment segment EBITDA? This is 2014 to 2015..

Well, so, we provided you on a pro forma basis to kind of help you think about 2014 full year with the Rockwood businesses and inks TR52 stripped out, we provided that in the earnings release. So clearly, with restructuring benefits in 2015, TiO2 on a pro forma basis will be down.

But of course, it will be up on a GAAP basis because, as you said, we didn't have the Rockwood businesses..

Sure. Sure..

Now just a little bit more guidance, the Rockwood businesses with the benefit of restructuring could be up, but the Huntsman legacy businesses will be down significantly given where prices have gone..

Fair enough. Fair enough. Very helpful. Thank you, Kimo..

So, Hassan, let me also just note, kind of going back. I want to make sure that we're clear on the gives and pluses and minuses of energy, because it is something that – I don't want to try to confuse people, but as we look at this, let me just say in a very simplistic way.

If we look at the GAAP EBITDA for 2014 versus 2015, from what we see today, we believe that 2015 is going to be stronger across the board for this company than 2014.

And so, as we look at the benefits and the challenges that we're going through in pigments, I think as I look at the budgeting process we've been through, the planning process and everything, I think 2015 is going to be a great year. I think 2014 was a terrific year. I think 2015 is going to be better..

Very good. Thank you, Peter..

Thanks, Hassan..

Your next question comes from the line of Alex Yefremov with Nomura. Please proceed..

Good morning, everyone. Peter, first question on Polyurethanes business and in particular MDI and the systems business. So far what we have seen on MDI benchmark prices, they've been pretty stable, only $0.05 per pound decline in January and then flat in February.

Are you seeing any discounting to these benchmark levels in MDI specifically? And also, do you see the systems business prices maybe declining more than MDI? And I'm just asking it to you maybe get additional color on your comments about competitive pressure and competitive behavior in the Polyurethanes business. Thank you..

Yeah. Alex, again, I don't mean to sound evasive in this answer. But 2,500 different SKUs, almost 3,000 different SKUs that we've got in this business.

Some of our business – some of our products will not be moving down at all in pricing even in the face of falling benzene; some of our products are already coming down because of benzene weakening and so forth.

The benchmark prices that you see for MDI, I think directionally that they're probably somewhat accurate, when we look at the individual prices that they record, I mean we have MDI pricing that is all over the board, right? I mean, unlike polystyrene or polypropylene, ethylene propylene, something where you have a pretty tight range of a couple of pennies per pound, we go from dollars per kilo, tens of dollars per kilo.

And so, it's tough for me to say that a $0.05 reduction here or there is really what we're seeing. I mean if anything, we want to try to get away, as far away as possible from the benchmark of MDI. We want to add as much value to that and move it further downstream.

So, again I'd say that we are seeing a softening taking place in MDI pricing, but it is nowhere near at this time the softening that we're seeing in raw materials. That's what gives me the confidence that MDI is going to benefiting throughout 2015 in the face of falling raw materials..

So, just a little more color there. 30% of our MDI is sold as a component. There is absolutely a very strong correlation with MDI component prices and benzene prices. So 30% absolutely we will see MDI prices fall with benzene; there may be a bit of a lag, and I think that's what you see in benchmark consultant pricing.

You will see that component price and that is polymeric MDI. The other 70% is differentiated variants and systems; you will not see a listing for that. And that is a bit that we will hold onto longer than the components and hopefully for a long time. But of that, there are some prices that are pass-through contracts and so we won't keep that.

So, really, we have talked to the market about roughly 50% of our MDI that is differentiated, that is not protected from a contractual pass-through standpoint that we are battling to hold on to..

Great. Thank you and a follow-up on MDI market as well. I think you had mentioned in your outlook, strong demand in the U.S. and China and softer in Europe. How do you see supply demand in MDI given continued ramp of capacity in China, and do you expect that to impact either U.S. or European markets in 2015? Thank you..

Well, as we look to 2015, I'm kind of starting to look beyond 2015, looking to 2016.

Remember, when somebody comes on with a facility, if we're coming on with a facility, and it's going to open and it's going to start operating in July 1 of this year hypothetically, Huntsman sales representatives are going to be out six months, nine months before the startup of that facility, and we're starting to get pricing commitments and volumes, right? You see the pricing impact of new capacity, you actually see it coming on a couple of quarters before the actual capacity comes on.

When the capacity itself comes on and hits the market, that's usually less disruptive than when you see a couple of quarters in front of that, when people are out trying to buy up excess volume to fill the capacity. I hope I am making sense. So, you don't just start up a plant and say, let's go out and start selling now that we've started up a plant.

So, as I look at the capacity that is coming into the market today, I believe that there's enough capacity that is coming into Asia that will continue to supply the Asian market.

There is a little bit of – there's some few debottlenecking projects, there's no grassroots capacity that's coming on in the next year or even two in Europe or North America. And so, as I look at that European and North American market, I believe that they're going to get tighter.

I believe today, they're operating at close to 90% capacity utilization. I think over the course of the next year or two, they're going to be moving into the 91%, 92% capacity utilization. And the Chinese material is going to be – is probably going to keep capacity utilization there probably in the high-80%s, 88%, 89% capacity.

And I think that – and again remember, on those commodity grades of MDI, you can ship some of that crude MDI, if you will, around the world. But on the downstream, the system, the higher end value-added components of MDI, it's very difficult to make those products in China. You have to ship them to the U.S., hypothetically to U.S.

or Europe, you have to ship them in a cryogenic refrigerated storage and over time, and I'm talking weeks, maybe a month or so there, the products starts to discolor and goes off spec. So, excess capacity in China does not necessarily mean that all of that tonnage kind of slops over the rest of the world as it does in other products.

So, long answer, my apologies. As I look at capacities in MDI, I think that they're tight today and gradually over the course of the next year or two, they're going to keep getting gradually tighter outside of China and I think they're going to stay pretty well balanced within China..

The Yantai – what is it, 600,000 ton plant in Bajiao is in the market today. So it's there and they are selling. I don't think they're selling anywhere near 600,000 tons out of that plant, but at the same time, they shut down a Yantai city plant of 200,000 tons, that is already in the market. So, as Peter said....

They're out there putting it in the market..

There really isn't a lot – there's debottlenecking, but there's not large chunks coming on in the next couple of years..

Great. Thank you very much. Very helpful..

Your next question comes from the line of Laurence Alexander with Jefferies. Please proceed..

Hi. Thanks.

Just one, quick one left, is there an inventory revaluation adjustment that will affect Q1 results as well?.

No. Actually in Q1, we would expect inventory levels to rise in a seasonal basis, so it's unlikely you would see that in the first half of the year..

Thank you..

Your next question comes from the line of Herb Hardt with Monness, please proceed..

Good morning, gentlemen.

It's a twofold question – one is, has anyone else gone along with your price increase on TiO2? And secondly, am I correct in understanding that net-net worldwide TiO2 capacity is sort of flattish over the next two years?.

Well, I think that you have, globally, I'm trying to think of anybody that's adding capacity. There's a new plant that's coming on in Mexico. I described some years ago, we need that like a hole in the head and I'd reiterate that same thing today, but that's coming on probably in the next year or so.

I'm not sure when that will come on, but beyond that, I think you've got some debottlenecking consolidation and so forth that are taking place in China, but I don't see any capacity, new capacity that's coming on anywhere around the world..

And in terms of competitors meeting your price increase?.

So, as far as competitors meeting our price – yeah, our price increase has been out there for about 72 hours and so I'm sorry, I thought the same part of your question was around the capacity utilization.

The price increase, I haven't heard of any competitors at this point, but I certainly – I would be surprised if people would be responding within a day or two. I mean, look, we're doing not what the competition is – we're not trying to follow anybody here.

We're looking at market conditions within Huntsman and everything and we're going to go out with or without competitive support, but knowing how much everybody else is hurting, I – we'll see what they do..

Thank you..

Your next question comes from the line of Jeff Zekauskas with JPMorgan. Please proceed..

Operator, we'll take this as the last question. We've kind of gone over our time here. But I want to make sure that given the volatility and so forth within the market, we had adequate time on Q&A. So, Jeff, go ahead..

Okay. Thanks for squeezing me in. So, I had thought that China exported 150,000 tons more TiO2 in 2014 than it did in 2013 – and that that was the primary reason for the oversupply in the market.

Is your data different?.

Yeah. Listen, when we think about Chinese exports, we exclude the Asian region, right? But that's a natural place for the Chinese to export to. We think about exports into our markets, which is North America and Europe. So, we think the North American and European imported product from China has been very flat and it's been about 150,000 tons..

Yeah, a while ago, Latin America, Africa, U.S., Canada, Europe, over the last couple of years, it's – there's been some volatility on a quarter-to-quarter basis. But it remains fairly consistent and it's – most of that growth is taking place in the APAC area.

So, I'm – sorry, when we look at Chinese exports, we typically don't look at what's going on within Chinese neighbors and so forth..

Okay. Great. Thank you so much..

Thank you..

Allison, this is Kurt. We want to thank everyone for joining us this morning. We will be available for follow-up discussions if you'd like to have then. But once again, thank you for your time..

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day..