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

Eric B. Petrie - Citigroup Global Markets, Inc. (Broker) Frank J. Mitsch - Wells Fargo Securities LLC James Sheehan - SunTrust Robinson Humphrey Hassan I. Ahmed - Alembic Global Advisors LLC Kevin W. McCarthy - Bank of America Merrill Lynch Aleksey Yefremov - Nomura Securities International, Inc. Ryan L. Berney - Goldman Sachs & Co.

Mike Ritzenthaler - Piper Jaffray & Co (Broker) John E. Roberts - UBS Securities LLC Laurence Alexander - Jefferies LLC Herbert A. Hardt - Monness, Crespi, Hardt & Co., Inc..

Good day, ladies and gentlemen, and welcome to the Quarter One 2015 Huntsman Corporation Earnings Conference Call. My name is Sheila, and I'm your operator for today. At this time, all participants are in a listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

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

Thank you, Sheila, and good morning, everyone. Joining us on the call today 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 first quarter 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 certain 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 sale of our TR52 product line, used in printing inks, to Henan Billions Chemicals.

We believe this helps to provide a better understanding of our Pigments and Additives division. In our earnings release this morning, we reported first quarter 2015 revenue of $2.589 billion, adjusted EBITDA of $285 million, and adjusted earnings per share of $0.40 per diluted share.

I will now turn the call over to Peter Huntsman, our President and CEO..

Thank you, Kurt. Good morning, everybody, and thank you for taking the time to join us this morning. Let's turn to slide number three. Adjusted EBITDA for our Polyurethanes division in the first quarter of 2015 was $105 million, a decrease of $62 million compared to the prior year.

The decrease was attributed to lower PO/MTBE earnings, partially offset by an increase in MDI urethanes earnings. During the first quarter this year we completed planned maintenance at our PO/MTBE facility in Port Neches, Texas. We estimate the first quarter EBITDA impact was approximately $60 million.

We experienced a delay of approximately 30 days in the restart of the facility during April. We are currently operating at normal rates. However, we estimate the second quarter EBITDA impact from the delayed start-up to be approximately $30 million within this division, and $35 million for the company as a whole.

Our PO/MTBE EBITDA declined $73 million, compared to the prior year. $60 million of this was attributed to our planned maintenance outage, while the other $13 million was attributed to lower MTBE margins following lower prices for high-octane gasoline.

EBITDA for our MDI urethanes increased $11 million, compared to the prior year, notwithstanding approximately $11 million of foreign currency exchange headwind, as a result of the stronger U.S. dollar compared to the prior year.

We saw stronger MDI volume growth in North America and Europe, most notably in construction, insulation and automotive end markets. We're encouraged by the green shoots we saw in Europe, as this remains the region where we sell the most product.

The positive trends in Europe helped offset slower than expected growth in Asia, where certain consumer end markets declined and we deselected low margin accounts. Let's turn to slide number four. In the first quarter, our Performance Products division recorded adjusted EBITDA of $121 million compared to $118 million in the prior year.

I believe the strength of this business is underappreciated. Approximately two-thirds of its earnings are generated from amines and maleic anhydride, where we have leading market positions, with higher than GDP growth rates, and serve attractive niche markets.

The balance of the business is comprised of surfactants and ethylene intermediates, which are largely structured in cost-plus contractual arrangements and benefit from the U.S. Gulf Coast ethane advantage.

The combination of these product groups result in a business that has a profile characterized by low earnings volatility, high teens EBITDA margins and attractive return on net assets.

Higher sales volumes and higher contribution margins in our amines and maleic anhydride businesses more than offset lower ethylene margins in our upstream business, which saw margin pressure from lower oil prices and meaningful currency headwinds.

We sold our European surfactants business in the second quarter of 2014 and closed our Patrica, Italy facility in October, which accounts for much of the reduction in our revenues. We believe our refocus on differentiated surfactants will improve our annual EBITDA by approximately $20 million in 2015. Let's turn to slide number five.

In the first quarter, adjusted EBITDA in our Advanced Materials division was $58 million with an EBITDA margin of 20%. This is an improvement of $12 million, compared to the prior year of $46 million. This is another business that seems to receive a lack of focus from the investment community in general.

We successfully completed a major restructuring in this business in the middle of 2014. More than one-third of the earnings from this business are generated from the aerospace market, where we supply epoxy resins used in composites. Sales volumes declined due to our deselection of lower-margin business and the closure of facilities in India and Spain.

Margins improved across most end markets, as local currency average selling prices increased and raw material costs, such as bisphenol-A and epichlorohydrin, decreased. Let's turn to slide number six. Our Textile Effects division reported adjusted EBITDA of $17 million in the first quarter.

This business is benefiting from an increased focus on higher-margin products and lower structural fixed costs as a result of our restructuring efforts. We expect a seasonal uptick in demand in the second quarter, which is generally our strongest quarter.

In the second quarter, mills and retailers start to prepare for the fall and winter seasons, when there's a higher demand for more organic fibers in darker shades that use more of our chemicals and dyes. Slide number seven, our Pigments and Additives division earned $21 million of adjusted EBITDA in the first quarter.

Our non-TiO2 portion of this division earned $16 million, whereas our TiO2 business earned $5 million in the quarter. Business conditions remain challenging for the titanium dioxide market. However, we are encouraged by the $9 million sequential improvements in earnings compared to the fourth quarter in TiO2.

Although average-selling prices decreased in all regions, as anticipated, this was more than offset by volume growth, most notably in Europe, which is our largest market.

Our aggressive restructuring plan to capture $140 million in synergies and $35 million from the shutdown of our black-end at our Calais, France facility, are progressing according to plan.

We expect to capture combined annual savings of $75 million in 2015, primarily in the second half and an annual savings run rate of $175 million in the second half of 2016. Before sharing some concluding thoughts, I'd like to turn a few minutes over to Kimo Esplin, our Chief Financial Officer..

Thanks, Peter. Let's go to slide eight. In the first quarter of 2015, compared to the prior year, our adjusted EBITDA decreased to $285 million from $329 million. Our first quarter 2015 adjusted EBITDA decreased $7 million compared to the prior quarter of $292 million.

The decrease for both comparisons was primarily the result of the planned maintenance at our PO/MTBE facility in Port Neches, Texas in the first quarter of this year, which resulted in a decrease to our earnings by approximately $60 million. Sales volumes decreased in large part due to the deselection of lower-margin business.

Average selling prices decreased at a more modest pace than raw material costs, which led to an overall improvement in margins. Slide nine. In March 2015, we issued €300 million or approximately $326 million U.S., 4.25% senior notes due 2025. We used the proceeds to redeem $289 million of our outstanding 8.625% senior subordinated notes due 2021.

We expect to save approximately $11 million in annual interest expense as a result of this refinancing. During the quarter, we spent $149 million on CapEx. We expect to spend approximately $525 million on base capital expenditures in 2015, net of partner contributions, including approximately $75 million for the former Rockwood businesses.

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

Based on the preliminary allocation of purchase price accounting for Rockwood, we expect our annual depreciation and amortization rate to be approximately $400 million. Our adjusted effective income tax rate for the first quarter 2015 was 25%. We expect our long-term adjusted effective tax rate to be about 30%.

During the first quarter 2015, the strong U.S. dollar reduced adjusted EBITDA by an estimated $17 million compared to the prior year. Based on current foreign exchange rates, we expect the second quarter year-on-year headwind from FX will be more than the first quarter.

As we work toward improving our free cash flow generation, I'd like you to remind you of a few items to think about in 2015. We believe we will be able to generate an improvement in our working capital investment this year by approximately $100 million.

During the quarter this year, our working capital was flat compared to a use of $214 million in the same period of 2014. Pension funding in excess of expense will be approximately $100 million and restructuring payments will be approximately $200 million.

In-spite of elevated cash requirements in 2015 of approximately $300 million higher than normalized CapEx and restructuring activities, we expect to have positive free cash flow in 2015.

Peter?.

Thank you, Kimo. Let's take a look at slide number 10. About a year ago at our Investor Day, we introduced to the market our near-term EBITDA target of $2 billion. We believe that we could achieve this number in the next two years to three years.

During this past year, we've seen tremendous volatility in raw material costs and an erosion of certain North American feedstock advantages. We've also experienced an unforeseen drop in the euro and other currencies against the dollar, as well as a general overall slowdown in Asia and the TiO2 industry.

I think that it is worthwhile for us to briefly update investors on our latest views as to our ability to achieve this objective. We continue to believe that we will achieve a $2 billion run rate in 2017. However, we also expect the composition from some of our divisions to be different.

As part of the $2 billion objective, we showed last year, we set a target for our more specialty divisions of Performance Products, Advanced Materials and Textile Effects to earn $750 million of EBITDA. Over the past 12 months, these divisions have earned $735 million and will certainly see continued growth.

We expect the combination of facility expansions in the U.S. and Asia along with restructuring benefits and organic growth to contribute approximately $150 million more than our original plans. In Polyurethanes, we have three meaningful growth projects underway, including the expansion of our MDI facilities in the Netherlands, the U.S.

and China, as well as the completion of our PO/MTBE joint venture facility with Sinopec in China. We reiterate our earlier forecast of $875 million and feel confident with the market conditions that we see today that this is achievable.

As we review the latest market conditions of our Pigments and Additives business, we see an Additives business that in these market conditions, is generating $100 million of EBITDA.

We have $200 million of additional EBITDA that will be generated through our announced restructuring synergies in the completion of a new color pigments facility in the U.S., giving us a $300 million EBITDA business. We are projecting another $125 million of TiO2 industry improvements and price increase as the industry gradually recovers.

This represents a $135 per ton increase over the next two years, hardly an aggressive forecast. Again, we continue to target a $2 billion run rate in 2017. With present industry trends, we think we will continue to see stronger specialty and differentiated growth than we had expected and softer commodity TiO2 recovery.

Equally, if not more important in our forecast, is our forecast to generate $700 million of free cash flow with this $2 billion of EBITDA. We expect to see half of that $700 million generated in 2016.

I like the fact that we are less dependent on our more commodity products and we see better than expected growth with our specialty and differentiated downstream products.

As we review our performance in the first quarter, our MDI Polyurethanes, amines and Performance Products, epoxy and Advanced Materials and Textile Effects all increased their earnings from the previous year to have the strongest first quarter in our history.

While I was disappointed with the delays in bringing our PO/MTBE facility back on stream as planned, it is operating today.

Looking out over the remainder of the year, adjusted for our PO/MTBE maintenance outage, we should see our combined non-Pigments and Additives division expand their earnings to new record highs and our Pigments and Additives continues to improve throughout the year due to our restructuring and cost cutting efforts.

Despite of the market volatility and FX headwinds, we are heading into a strong year and should continue to generate increased shareholder value. At this time, I'll turn the call over to any questions.

Operator?.

Thank you. Your first question comes from the line of P.J. Juvekar of Citi. Please proceed..

Hi. Good morning. This is Eric Petrie on for P.J. today.

It appears that Rockwood's business EBITDA declined in first quarter, so I was just wondering if you could walk us through what you expect going forward this year?.

So you're asking specifically about the Rockwood businesses?.

Yeah, the Rockwood businesses....

Yeah. I mean..

Maybe on the (19:22) the TiO2 side..

When you look at the sort of the year-over-year pro forma, I think we're showing $73 million of EBITDA going to $21 million and most of that decrease is in our legacy business. I think the Rockwood business was dropped around $10 million. And the Huntsman businesses dropped roughly $40 million.

And that's just basically the mix of specialty TiO2 versus the more commodity TiO2 that we have in our legacy businesses..

As we look at that business going out over the course of the next year, I think, that we'll continue to see more benefit going to the entire Rockwood business from our restructuring and cost cutting than we will through price increases. But I do expect over the course of the year that we'll see improvements in both areas, on an FX neutral basis..

Okay. Thanks. And then secondly, your Advanced Materials EBITDA margin improved nicely in the quarter.

Can you quantify the impact of lower raw materials versus the exit of lower margin business and whether or not you see that as sustainable?.

Well I certainly would see that as sustainable going forward. Again, I think that we presented this past year that we would see kind of two areas of improvement with this business. One would be getting the business right from a cost point of view. And we had to take cost out of the business.

And that's really what we did from 2014 leading into the early part of 2015.

More importantly, I believe, on a longer-term more sustainable basis, is to make sure that we've got the right product mix, and that we're focused on, really, the products that over the course of the next five years we're going to see growth, we're going to see margin stability, and areas where we can improve the overall health of the business.

So again, short-term, over the course of this last year, we've deselected, we've gotten out of some of the lower-margin businesses.

We mentioned on the call, we got out of Spain and Italy and so forth, and as we look at our business going forward, you might see a little bit of choppiness quarter-to-quarter, but I think that the margins of earnings that we see today, over the course of the next two years to three years, certainly is sustainable, if not opportunity for improvement..

Thank you..

Thank you. And your next question comes from the line of Frank Mitsch of Wells Fargo Securities. Please proceed..

Good morning, gentlemen, and a better start to the year than expected. And I think some of this was on the TiO2 front where you did see a sequential improvement, I think you said of $9 million, and the thought was, I think, earlier in the quarter, that that would only be flat.

So what went right in that business?.

I think that we saw a little bit of a volume pickup in the latter part of the quarter, in March; I think in Europe, where we have the preponderance of our business.

If I was just to comment – I'm not trying to divert your attention away from TiO2 at all, Frank – I would say that as we look at Europe in general, I don't want to say that I'm bowled over by it.

But I think that as we look at our urethanes business, our pigments business, those businesses that are pretty centric to Europe, we're seeing better growth in Europe than I think that we would have expected. Again, we're looking at 2%, 3% growth in Europe, and I think that we're seeing some of the early benefits of this coming in pigments.

We still have a long way to go in TiO2 recovery, and I don't want to play too much in the European volume recovery story, but for us, our European volumes, as you look in virtually any of our divisions, we sell twice the amount of volume in our polyurethanes in Europe that we do in Asia.

Across the company, I personally would rather see a 4% growth in Europe than I would a 10% growth in Asia. Not only is the volume stronger in Europe, but the mix is also different as well.

So when you look across the business as well, from my perspective at least, as we start to see these green shoots I referred to earlier in Europe, I think that they have the potential of having an impact as we go throughout 2015..

I guess it would be hard to pin down, is this a function of the exchange rate playing out in the marketplace, or the fact that the cost basis in Europe, being oil derived, and in many ways having come off? And if so, the expectation would be that you've already indicated you expect Q2 to be a bigger negative FX headwind but you're making it up, I guess, on the volume side, if in fact that's the case?.

Yeah. That's right, Frank.

I mean, again, in all of these, I think that we try to – and sometimes when we look at our projections, I think people make the mistake of trying to micromanage; just what impact is a single raw material drop going to have or what impact is FX going to have? When we look at a FX coming from Europe, of course that's going to be a drag on the business.

But when I look at Europe in general, I think that when we see a growing market in Europe, and I would attribute that growth to being able to export. And so we're seeing European automotive, the high-end automotive section, looking a little bit better than we had expected.

But one of the areas of – and again these are numbers, Frank, that we're just seeing really in the last month or two here.

But when I look in polyurethane, some of the construction materials and insulation and so forth, and in Europe seeing a nice improvement over the previous year, that also tells me that the lower interest rates and so forth in Europe are starting to reverberate into the construction industry and so forth.

And we start to see an improvement in appliances and some of those downstream areas, hopefully in the second and third quarter. That would really show they're starting to get traction.

But again, some of these green shoots that we're seeing in Europe in general, and I think it's attributed to being able to export easier, more cash is in the market at a lower interest rate and so forth; again, I'm a little more bullish on Europe than I would have been a quarter ago.

And we're seeing a little bit more of a drag in the Asian markets than we probably would have expected a quarter ago. But I gladly would trade Europe for the conditions I see in Asia..

Peter, that's very helpful, and just a quick one for Kimo. You talked about restructuring use of cash being $200 million for the year. I believe that it was a $94 million negative impact on EBITDA in Q1.

What is the pace of that restructuring cash use for the balance of the year, is your expectation?.

Yeah. It pretty well matches the benefits. And so if you think about the first quarter, we had $5 million worth of benefits in the quarter and so it's slow, but it comes pretty strong in the second half and I would expect the cash flow to be the same. Really second half driven in terms of cash restructuring payments..

All right. Thank you so much..

Thanks, Frank..

Thank you. And your next question comes from the line of James Sheehan of SunTrust Robinson Humphrey. Please proceed..

Thanks for taking my question. Just a follow-up on TiO2. You're seeing volume strength in Europe.

I'm just wondering if you could also give us some color on the price increases you have in that market, whether they're starting to gain traction and whether this improvement in volumes is helping that cause?.

Well I would say that our price increases throughout the second quarter will be few and selective in certain areas. But I've been by and large – I've got a lawyer in the room, I'm not even going to look down towards him. I've been disappointed by and large with the discipline the industry has had in their price increase announcements.

It just seems like it's a soft market..

Okay.

And on Polyurethanes, how much margin expansion were you able to benefit from on benzene in the first quarter? And how much of the decline in raw materials do you expect to capture in the next few quarters, given that benzene has started to rebound here?.

Well I think that as we look at the entire company, and again, it's kind of tough when you look at it quarter-by-quarter, month-to-month, inventory values from the beginning of the quarter to the end of the quarter and so forth, but as I look at the entire company, we've benefited by about $100 million for the quarter.

You look at the volumes of our raw materials and the volumes of our products that we're selling, it's fair to say that polyurethanes is going to catch the biggest piece of that $100 million, and some of that $100 million is going to be offset with some of the FX and so forth, but again, I think that as we look longer-term in Polyurethanes and in most of our products, and I got a little bit of criticism in the follow-up from the last conference call that we didn't seem to have absolute clarity and certainty as to the impact of what $2 per gallon lower benzene was going to have on the business.

Well, so here we are a few months into the year, we've seen our biggest raw material in Polyurethanes dropped by 50% and the last couple of weeks, we've seen it increased by 50% and I think that, again, I'll say the same thing as when it dropped 50%; let's look at the overall strength of the margin that we're able to capture, the strength of our downstream, the strength of our ability for pricing increase and so forth.

We're going to have a sector of our business that will fall with raw materials falling. We're also going to have a sector of our urethanes business that will, that is calculated on the movement of raw materials.

We've also got a large section downstream that we don't really – we don't go to our customers and say, well the price has gone up or the price has gone down of our raw materials. We're selling them a solution. We're selling them a value that adds value to something that they're producing.

So as we look at our MDI margins across the board, I would say as I did, we kind of gave our forecast for the year, this is going to be a better year or MDI than the previous year. And we're going to see raw materials go down. We're going to see them come up. We're going to see FX headwinds and everything else.

But if we've got the right MDI and Polyurethanes management team, we're going to continue to consistently focus on the right markets, the right pricing, the right relationships. And we're going to continue to create value in that division.

And so we sit here now with raw materials having gone up 50% and I'm still confident that we're going to achieve what we've set out to achieve in urethanes..

Thanks a lot..

Thank you. And your next question comes from the line of Hassan Ahmed of Alembic Global. Please proceed..

Morning, Peter..

Morning, Hassan..

I wanted to touch on the favorite topic, I guess, titanium dioxide. In the press release, you guys talked about bloated inventory levels being, obviously, one of the reasons for a downtick in pricing.

Can you expand on that a bit more? A) Where are those inventory levels for you guys? B) Obviously the volumes sequentially were quite good but are you scaling back on your operating rates to right size those inventories? Any color around these things would be appreciated..

Well. I can't comment on exactly where the industry is. I suspect that they're somewhere around the 60 days, about where we are. I don't have any data that would say drastically different up or down from that.

But we're about that 60 day level and I believe that we're operating, we haven't much inventory for this time of year, and we typically see a volumes start to come back. And I think that the overall industry, it seems that inventories about where they should be. I mean they're lower today than they were last year at this time..

Fair enough. And changing gears a bit, on the MTBE side of things, this year a couple of moving parts. Pricing obviously has come down alongside crude, but then again your raw material costs, be it on the methanol side or the butane side have come down as well.

So if you were to think about it on a year-over-year basis, how should we think about these moving parts with regards to a hit or maybe a tailwind or a headwind or whatever you may have it?.

I would think that, again, we talked earlier in the year that there would be a headwind on MTBE just because of lower crude prices. And MTBE usually is a function as is gasoline, the function of a percentage of the price of crude. So I mean just following that logic, you'd probably see a contraction in those margins as you see crude prices fall.

You know, however as we look around the world today, there's stronger and stronger demand for octane and high octane gasoline today than I probably would have expected at this time. And MTBE demand and oxygenates in general continue to be fairly strong right now, a little bit stronger than I would have anticipated.

So all in all, I think lower crude prices are going to usually represent a challenge to MTBE but where the market is today, and as you well know, Hassan, this is the market it can change hourly. But where the market is today, it feels pretty good..

Very helpful, Peter. Thanks so much..

Thank you. And your next question comes from the line of Kevin McCarthy of Bank of America Merrill Lynch. Please proceed..

Yes, good morning. Peter, in MDI, I think one of your U.S. Gulf Coast competitors had declared force majeure on Monomeric MDI in March. And I was wondering, is that part of the strength that you're citing in the U.S.

market or is it more of a – in the industry level, demand strength? And then over in Europe – I'm sorry, over in Asia, what is driving the deceleration of demand regionally there? And maybe you can give us some color on operating rates?.

What's happened in the U.S. is not – when I talk about the activity levels that we're seeing in demand in North America, I would not attribute the closure that you made reference to. That hasn't had any impact on our demand or on our margins. I think that's fair to say.

I think that as we look at the Asian markets, I think that there's a general softening of the market conditions in China. I know they published some GDP numbers here recently.

If we look at kind of across the board in China and in greater Asia, I think that people are certainly feeling the effects of lower prices, a longer Chinese New Year just as when it fell this year on the calendar and so forth, and as we look at the construction and materials business in China, it certainly has slowed down.

Again I think that if we look at overall in China in general, this is going to continue to be a growing economy. It seems to be a growing market for us. Exactly where we are today, I'm not sure that I'd read that into a full year's sort of projection or condition..

Maybe just a little bit more color on Europe specifically, Kevin. Europe, we saw our construction and insulation business grow double-digit as well our composite wood area. Auto continues to be strong. It's been strong even over the last year when Europe was fairly flat.

And correspondingly Asia, as Peter said, is down a bit on the construction and insulation side. And we think that reflects the market that it is a softer construction market right now..

How would you characterize operating rates globally in MDI?.

I think again, you have to look at it regionally. I would say that in North America that it is in the low 90s%, and the market is improving. I think that it's been similar to last year. I think we had a later start to the construction year than we typically have seen. Looking at April, I think we're seeing a bit of the impact of a late winter.

Looking to May, I think that we're going to see a rebound of those construction patterns. We're not seeing our North American construction, housing and so forth customers come back and say they're cutting their projections as much as just cutting the timing of their orders.

So I continue to be quite optimistic on the North American economy in-spite of this point to GDP. I think a lot of that might have been weather related. I think again we saw a lot of that last year. In Europe, as we look at capacity utilization, we're probably operating there in and it feels like in the mid to upper 80s% capacity.

But again – well then in Asia, I would say that it's probably similar to Europe. Now we do have announced price increases in Asia in MDI, in certain grades of MDI.

And as we look around Europe and North American markets, particularly in light of rising benzene prices, we're in the process of studying where we need to be going with pricing in those regions as well.

But I would just emphasize that as we go further and further downstream and we look at a larger percentage, 60%, 70% of our business is more dependent on formulations and further downstream blending and so forth that I believe that those margins are going to be less operating rate sensitive than perhaps where we were a few years ago..

That's helpful. Thanks for the color..

Thank you. And your next question comes from the line of Alex Yefremov of Nomura. Please proceed..

Good morning, everyone..

Good morning..

Peter, just wanted to follow-up on the MDI question in Asia.

Have demand and margins deteriorated progressively throughout the quarter? Or did things get worse in the beginning? And how are you exiting the quarter? Are things actually getting better for the second quarter and the rest of the year in Asia?.

Well, if we look at Asia in the quarter, demand certainly softened. So I'd say that that was headwind. Margins would've increased during that same time period. So I think that there is a discipline on pricing. There is ability to take advantage of falling raw materials and so forth.

So again, I wouldn't read too much into Asia when you look at capacity utilization and sensitivity towards that capacity utilization..

So you should remember, in 2014, let's see if I can remember this, demand in Asia grew 10%. Fourth quarter demand grew I think 6%. And here we are in the first quarter with a softer demand; a kind of flat market is what we can see. But as Peter said, the margins expanded in the first quarter largely because of raw materials..

Great. Thank you.

And as a follow-up, if you look across your portfolio in the second quarter, do you think you can grow EBITDA year-over-year despite the slight spillover of the outage into Q2?.

I think what we're saying is we are up year-over-year, adjusted for the turnaround..

Yeah, in the second quarter, that's right. So taking the $35 million out, we would see margin growth..

Got it. And a final question if I may, just a follow-up on an earlier question on Performance Additives. If you look at legacy Rockwood Performance Additives business, on my math it would've been down year-over-year about $10 million EBITDA.

First of all, is that correct? And if that is correct, what is driving the Additives business declines?.

Well, it wasn't $10 million down, but it was about half that. And some of it was the color business, which goes into construction in North America. It's largely a North American business. So our color business is down a bit. And a little bit in the Functional Additives business that is manufactured out of Duisburg that goes into coatings.

That was a little softer..

Thank you..

Thank you. And your next question comes from the line of Bob Koort of Goldman Sachs. Please proceed..

Good morning. This is Ryan Berney on for Bob..

Good morning, Ryan..

Just had a question on – within the Polyurethanes portfolio you have the component piece and the differentiated piece.

I was wondering if you could comment on whether that mix is different in Europe versus Asia?.

Yeah. I mean Europe, we would have as large of a components business, a differentiated business, than we have anywhere in the world..

And then from your perspective, the capacity that's being added in Asia, not necessarily your own, but by competitors; is that, from your perspective, mostly a commodity grade?.

Well, yeah. I mean it's crude MDI, and then what they do beyond that, further downstream. There certainly is more crude MDI, or base MDI, capacity than splitting capacity. And if you were to look at Huntsman, we have a large MDI manufacturing joint venture with BASF in China.

We, as Huntsman, 100% wholly owned, our splitting capacity downstream from that has the ability to take that MDI to add value, and that's where you differentiate the MDI. So when you look at China, I think it's important not only to look at the crude MDI capacity that's coming out, but also the splitting MDI.

The splitting MDI capacity that's coming out in China is quite small in comparison to the overall MDI that is coming on in China as well..

Okay. Thanks.

And then just lastly on that point, looking out over the next couple of years, do you anticipate there being a position in China where they would move into an export situation with polyurethanes?.

Well, they certainly could, yeah, in the more commoditized grades. But again, let's remember that where Huntsman's focus, where we're growing the business and where we're going to make the most money is on our downstream grades. And when you talk about some of those grades, you're shipping cryogenically.

This is product that'll discolor in a pretty short basis. These are customers that want the handholding customer service and technical support and so forth. I think it would be very challenging to build a North American or to build a Chinese business with a Chinese platform for North America or a Middle East platform for someplace else or a U.S.

platform. Again, you can help supplement some of those volumes and so forth but, yeah. Are you going to see exports from China? Yeah. Are they going to attack the downstream and have a material impact on those downstream businesses? No..

Let's remind you, I think today a large Chinese manufacturer is currently an exporter of MDI out of China. I think all the western producers are importers of MDI..

Yeah, we're certainly a large importer into China from the U.S..

Right. So you got flows going both ways..

Okay. Great. Thank you very much..

Thank you. And your next question comes from the line of Mike Ritzenthaler of Piper Jaffray. Please proceed..

Yes. Good morning, Peter..

Good morning..

so in China, the Netherlands and the incremental capacity in the U.S., when those might begin to contribute to earnings and the relative magnitude of the various projects?.

Okay. So you're specifically on a project-by-project basis....

Yeah. In the past – I was just going to say, in the past you had a chart of some of the different projects that you've got going on globally. I'm particularly interested in the MDI's ones that you were discussing earlier..

Okay. So in MDI, we're bringing our Geismar facility up to 500,000 metric tons of capacity. That should be done the fourth quarter of this year, and that will have an annualized EBITDA impact of around $30 million give or take, depending on where prices are at the time.

What we see with our expansion in the Netherlands, that will be the second quarter of 2017. So that one's quite a ways off. The PO/MTBE joint venture should be completed in the fourth quarter of next year. Probably a startup, I would imagine, shortly after the Chinese New Years of 2017, so could have a first quarter start-up of 2017 on that one.

And then our own MDI in splitter expansion in Caojing, China, again that would be the doubling of our business in our MDI supply in China, that should be in the second half of 2017. Yeah, all of those are subject to local permits and construction lead times and everything else, but that's pretty much what we're expecting at this point..

Right. Of course. Yes. No, that's helpful. And I guess one for Kimo on free cash. You outlined some of the puts and takes for 2015 and clearly the first quarter was impacted by the -outage.

Is it the contribution margins within the differentiated businesses that gives you the confidence in positive free cash in 2015? And just as an add on to that, if half the $700 million potential in the portfolio comes in 2016, is that, how much of that expectation, or how much of that improvement in free cash over 2015 is business specific, like MDI pricing and things like that? And how much is kind of financial, like working capital, I guess, maybe asked a little bit differently how much of that $350 million or so is within Huntsman's control, do you feel, versus end-market health and improvement?.

Yeah. Well I think as you think about the $2 billion in 2017, I mean it's the same kind of question you're asking around 2016. I think we have growth projects that get us there. There's some margin expansion that we need to get to the $2 billion including, as Peter mentioned, roughly $135 ton margin expansion in TiO2.

And we have some MDI margin expansion baked in there. But for the most part it's topline growth and it's fixed cost reduction in our businesses. So our view on 2016 and free cash flow is again a continuation of restructuring benefits, some growth in our business and bringing on projects on time and on cost.

So we feel pretty good about both of those metrics, free cash flow and EBITDA. And don't think we have crazy assumptions relative to cycles or raw material assumptions..

Fair enough. Thank you..

Thank you. And your next question comes from the line of John Roberts, UBS. Please proceed..

Thank you. The biggest increase you made in 2017 was in the Performance Products areas. So I just wanted to make sure I haven't lost track of things there. Most of that production is now in the U.S. And how much of it is gas-based versus oil-based. Maleic would be oil-based. EO, EG would be gas-based and amines would be gas-based.

Could you maybe just give us some color since you made a pretty big increase there?.

Well if we look across the board as to kind of the pieces that we see of the increase on Performance Products. So the ethylene oxide as we said in the past, we see that, that's obviously going to be a gas-based.

And purchased ethylene, again we're a net buyer of ethylene and we'll be buying close to about 1 billion pounds-plus of ethylene once that facility is up and sold out. And I think when we, by the time we're doing that. I think it's going to be a buyer's market in ethylene. So that's a piece of it.

When you talk about our maleic anhydride being oil-based, that's mostly gas-based business with butane, and so I think that business – but when we look at the difference here, that $75 million of improvement going from $500 million, which is kind of where the business is today, in that general ballpark, going to $575 million.

I look at that EO expansion, it's $35 million of that, the European shutdown of our surfactants business being another $20 million of that $75 million, and that's a shutdown that has already taken place.

And then I'd say the other $20 million comes from amines expansions, which are taking place in our European, North American and our Singapore locations. And as we just see the organic growth of that amines business improving by $20 million over the course of the next year or two here.

So I don't see that $500 million going to that $575 million, I don't see that as really a big stretch. I think it's quite realistic. Those are each projects. The organic improvement in that business is actually quite small as part of that $575 million..

Thank you..

And your next question comes from the line of Laurence Alexander, Jefferies. Please proceed..

Good morning.

Just quickly, does the diminished prospects for the Pigments business at all alter your thinking about going through the hassle and cost of doing the spin or, conversely, the long-term prospects of keeping the balance of the business in your portfolio?.

No. If anything, Laurence, the volatility of the Pigments business and the strength and continued improvement of our non-TiO2 businesses, just proves that we're on the right course. We want to see the separation take place. We continue to explore our options of an IPO or a spin of what's going to be of greatest value to the shareholders.

I think that it's absolutely essential that we're well on our way of proving to the market and accomplishing the $200 million of improvements that we're going to see in that business, regardless of what happens in the overall market. That's something that's under our control.

And so no, I mean as we look at that today I think we're on the right course. And as I said in my comments, the improvement that we see in that business, you look at the $100 million is kind of the core business. That's today at today's crummy markets. The $200 million of cost improvement is under our control.

That's something that I feel very confident that we'll be able to – that's a $300 million Pigments and Additives business. And then $125 million of coming of improvements from price increases, which is $130 a ton, taking TiO2 margins from historically bad to just bad.

So I mean as I look at our leap of faith there, there's nothing that I see there that's a real role of the dice. We control the vast majority of that. So I think as a business it's going to improve here over the course of the next 18 months.

It's going to be more valuable 12 months to 18 months down the road and I think it's going to be a much stronger candidate for us to pursue those routes of separation. Then perhaps I would've thought a quarter ago. I think we're on the right course and I get – as you can tell. I'm a huge proponent of that as is our board..

Okay. Great. Thanks..

Thanks. Laurence..

Sheila, this is Kurt. I believe we have time for one more question, please..

Yes. Thank you. So the last question comes from the line of Herb Hardt of Monness. Please go ahead..

Good morning. My question regarding the TiO2 industry, you've gone a little bit a downsizing with the closure in Calais.

Do you see any of your competitors doing similar things?.

I wouldn't hesitate to tell you if I knew but I just did not and I simply wouldn't know. The first I'd know if something like that would be when there's a public announcement that's made..

Our general sense is that, some of the things that TZMI has published relative to Chinese producers consolidating and shutting down inefficient plants is true, just as anecdotal view..

Yeah. We're – we certainly should say, we are seeing that in the industry, right? That's not a rumor but that's something that is happening so yeah. That would certainly be something that's changing..

Okay. Thank you..

Thank you..

Sheila, this is Kurt. We want to thank, everyone, for joining us on the call today and if there are any additional follow-up questions, please feel free to reach out to a member of the IR team. Thanks again for joining us..

Thank you, Kurt. So, ladies and gentlemen, thank you for your participation in today's conference. This concludes the presentation. You may now disconnect and have a great day..