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. Jim M. Sheehan - SunTrust Robinson Humphrey, Inc. John E. Roberts - UBS Securities LLC P.J. Juvekar - Citigroup Global Markets, Inc. (Broker) Aleksey Yefremov - Nomura Securities International, Inc. Frank J. Mitsch - Wells Fargo Securities LLC Hassan I.

Ahmed - Alembic Global Advisors LLC Mike Ritzenthaler - Piper Jaffray & Co (Broker) Laurence Alexander - Jefferies LLC David Wang - Morningstar Research Roger Neil Spitz - Bank of America Merrill Lynch Herbert A. Hardt - Monness, Crespi, Hardt & Co., Inc..

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

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

Thank you, Carolyn, 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 third 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 non-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 third quarter 2015 revenue of $2.638 billion, adjusted EBITDA of $311 million, and adjusted earnings per share of $0.47 per diluted share.

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

Thank you very much, Kurt. Good morning, everyone. Thank you for taking the time to join us this morning. Let's turn to slide number 3. Adjusted EBITDA for our Polyurethanes division in the third quarter 2015 was $168 million.

MDI urethanes margins expanded compared to the prior year, as our differentiated portfolio continued to deliver high profitability and low earnings volatility. During the quarter, our MDI urethanes business was impacted by two headwinds.

First, compared to the prior year, we experienced $26 million of negative EBITDA from foreign currency exchange as a result of the stronger U.S. dollar, primarily against the euro. Secondly, we were impacted by the slowdown in China leading to negative year-on-year volume growth and placing downward pressure on component polymeric MDI margins.

15% of our global MDI urethanes volumes are sold into China, of which approximately 50% are differentiated MDI or MDI systems.

In contrast, our European market continues to grow, and through the first nine months of 2015, we have increased MDI volumes by 8% in this region, driven by strengthening demand in automotive, commercial insulation, and composite wood product applications.

Our European business represents 40% of our global MDI urethanes sales volume and is our most differentiated region. Margins for MTBE remained strong, but declined compared to prior year as MTBE prices fell more than raw material costs. Fourth quarter MTBE margins usually soften as gasoline demand falls and butane prices increase.

In the fourth quarter, we expect the normal seasonal slowdown in MDI demand to be offset by improved margins. Let's turn to slide number 4. In the third quarter, our Performance Products division recorded adjusted EBITDA of $122 million with an EBITDA margin of 20%.

Approximately two-thirds of our earnings from this division are generated from amines and maleic anhydride where we have leading market positions. Overall, we continue to see healthy demand for our amines and maleic anhydride, although we did see some softness in China in the third quarter this year.

A favorable supply-demand environment for amines enabled margin expansion as the cost of raw materials decreased. The other one-third of this business is comprised of surfactants and ethylene intermediates. Lower ethylene prices in the quarter reduced earnings compared to the prior-year period.

We expect a normal seasonal slowdown in demand in the fourth quarter. Let's turn to slide number 5. In the third quarter, adjusted EBITDA in our Advanced Materials division was $56 million with an EBITDA margin of 20%.

More than one-third of the earnings from this business are generated from the aerospace market, where we supply epoxy resins and hardeners used in composites. Our products are qualified and in many cases are required on long, multi-year production runs of new-generation aircraft.

We are leveraging our technical know-how and applying it in the automotive industry as a search for ways to manufacture lightweight vehicles.

Compared to the prior year, margins improved across most end markets as local currency average selling prices increased in the Americas and global raw material costs such as bisphenol-A and epichlorohydrin decreased.

Sales volumes decreased compared to the prior year, as we de-selected certain low-margin business and experienced some customer de-stocking and competitive pressure.

We'll continue to see the lower year-on-year sales volumes impact of our de-selection through the remainder of 2015 and expect a normal seasonal slowdown in the fourth quarter demand, particularly in Europe. Let's turn to slide number 6. Our Textile Effects division reported adjusted EBITDA of $10 million in the third quarter.

We've targeted key markets such as China, India and Bangladesh to grow our business. These efforts have been successful with sales volumes in key markets grew approximately 2% compared to the prior year.

Our sales volumes decreased primarily in Europe and South America, where we de-selected certain low value business and experienced challenging market conditions. Compared to the prior year, we experienced approximately $3 million of negative EBITDA from foreign currency exchange as a result of the stronger U.S. dollar. Let's go on to slide number 7.

Our Pigments and Additives division earned $5 million of adjusted EBITDA in the third quarter. Our results were negatively impacted by approximately $8 million due to the explosion of a nitrogen tank owned and operated by a third party at our Uerdingen, German facility.

Approximately $5 million was related to lost sales volumes and unabsorbed fixed costs and $3 million related to clean-up costs that have been excluded from the adjusted EBITDA. Business conditions remained challenging in the TiO2 market. Average TiO2 selling prices decreased further from the second quarter.

The decline was most pronounced in North America where prices declined approximately 8% compared to the prior quarter. Prices in Europe were essentially flat. We are determined to deliver incremental synergy and restructuring savings of more than $100 million in this business by the middle of 2016.

In the fourth quarter, we expect a typical seasonal slowdown in demand. 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 8. Our adjusted EBITDA decreased to $311 million in the third quarter of 2015 from $356 million in the prior-year period. The foreign currency negative EBITDA impact of approximately $43 million was primarily from the stronger U.S. dollar against major European currencies.

Average selling prices decreased at a more modest pace than raw material costs, which led to an overall improvement in margins of $14 million. The benefit of adding the Rockwood Performance Additives and TiO2 business contributed $14 million. Adjusting for the Rockwood business EBITDA contribution, our legacy sales volumes decreased.

Compared to the prior quarter, our adjusted EBITDA decreased to $311 million from $385 million in the second quarter. The benefit of having a full quarter of PO/MTBE production contributed approximately $35 million. Lower sales volumes and lower margins reduced earnings by approximately $86 million. Slide 9.

We have aggressively reduced our planned capital expenditures. Our previous guidance was that we expected to spend approximately $525 million per year on capital expenditures in 2016 and 2017. We've reduced our planned capital expenditures to $450 million annually in 2016 and 2017 now.

That represents a total reduction of $150 million over the next two years. We view our annual maintenance capital requirements, including our environmental health safety needs, as approximately $250 million. We have provided an approximate allocation by division as to how we expect the $450 million to be spent in 2016.

Approximately $10 million of the Pigments allocation is relating to restructuring. The bulk of the capital investment is being spent in our Polyurethanes and Performance Products businesses.

We view these businesses as having the most growth potential in the near-term and we continue to invest in our Advanced Materials business as well, specifically to support growth in the aerospace market. Slide 10. At the end of the quarter, we had $1.2 billion of liquidity.

In August of this year, we extended our term loan B by two years from 2017 to 2019. In September, we redeemed $198 million of our 8.625% senior subordinated notes due 2021 with cash on hand. And we expect the annual interest savings to be about $17 million from the note redemption. Our board recently authorized $150 million of share repurchases.

We intend to enter into a $100 million accelerated share repurchase transaction and we expect to begin the transaction soon and complete it within the next several months.

For modeling purposes, I'd like to point out that we've completed the purchase accounting for Rockwood Performance Additives and TiO2 business, and confirm that we expect our annual depreciation and amortization rate to be approximately $400 million per year.

Our adjusted effective income tax rate for the third quarter 2015 was 26%, and we expect our long-term adjusted effective tax rate to be approximately 30%. Improving free cash flow generation is one of our top financial objectives for the company. In 2016, we expect our free cash flow to improve by at least $350 million.

Most of this will come from reduced capital expenditures, lower cash payments for restructuring, and lower plant maintenance and inspection costs. Working capital movements have been challenging for many to forecast.

At the bottom of the slide, we are showing our historical trends for primary working capital, which we consider to be accounts receivable inventory and accounts payable. Our strongest earnings quarters are generally the second and third.

As a result, we generally build primary working capital in the first half of the year and reduce it in the second half. As we track towards improving our free cash flow profile next year, make sure these primary working capital trends are considered.

We report our quarterly primary working capital movements in Table 11 of our earnings release each quarter. Let me reiterate, we are fully committed to an improvement in our free cash flow generation.

Peter?.

Thank you, Kimo. While our company and industry at large have been hit by a slowing China market and foreign currency headwinds, I think it's worth reviewing where we are and the steps we are taking to create shareholder value. I see four fundamental actions that we are executing to accomplish this.

First, as was announced in our earnings release this morning, we are preparing for the spin of our TiO2 businesses as soon as market conditions permit. We are also aggressively pursuing other strategic options that will result in the separation of this business.

As we're actively involved in ongoing strategic discussions, we will not be commenting further on the strategic options. Again, it is our intent to separate our TiO2 businesses and as quickly in value creating manner as conditions allow.

Incremental to third quarter results, we are on track to accomplish more than $100 million of further synergy and restructuring savings in our Pigments and Additives division in the fourth quarter and through 2016. Second, the continued strength of our core businesses. A year ago, we generated record earnings from our non-Pigments division.

In our most recent quarter, we were $28 million lower than a year ago from these same divisions. We also had over $45 million of foreign exchange headwinds compared to the same period last year. These divisions remained strong, and they're the core of our business going forward.

Combined, our Polyurethanes, Performance Products and Advanced Materials divisions generated in excess of 18% EBITDA margins in the third quarter. We continue to expand our downstream systems and formulations and expect 2016 to be a stronger year than 2015 in both EBITDA and free cash flow generation.

Third, we're moving forward with a $100 million accelerated share repurchase that will buy an equity at what we believe our shares valued at a price did not fully reflect the strength of our company. We expect this to be completed within the next several months.

Fourth, we believe that our free cash flow generation is one of the quickest ways to achieve a higher multiple. We have gone through an extensive review of our capital spending for this next year.

With the changing values of raw material, slowing economic growth in China and other developing markets, we've prioritized our spending around safety and reliability, completing restructuring opportunities that we have previously announced, and also investing in strategic growth opportunities. Where we can delay or cancel projects, we have done so.

In previous calls, we have guided you to a 2016 number of $525 million in capital spending. After our latest review, we are now projecting next year's capital to be $450 million, a drop of roughly $200 million from our 2015 spend.

In addition to this $200 million improvement, we expect our cash restructuring cost to be $100 million lower and our planned maintenance to be $50 million less. All told, we expect our EBITDA to improve next year and our cash generation to be $350 million higher.

In short, we will separate our TiO2 business, earn greater EBITDA and generate stronger cash flows, while lowering our share count. We've not seen a more transformative strategy since going public. With that, I'll turn the call back to Kurt..

Thank you, Peter.

Carolyn, will you explain the procedure for questions and then open the line for the questions to be taken?.

Okay. Thank you. And the first question comes from the line of Bob Koort from Goldman Sachs. Please go ahead..

Thank you very much. Peter, can you give us some sense? Your urgency to spend TiO2 seems somewhat challenged by a lack of profitability there.

So is there an earnings threshold you have in mind before you could do an encouraging spin, or is it possible to spin even if you have these trough-like conditions?.

Well, I think, Bob, you need to have a viable ongoing business. It's going to have a positive cash flow. Now I think that as we look at our savings, so far this year we believe that through the end of 2015, we'll accomplish $75 million of savings in our Pigments and Additives business. We'll have another at least $100 million through 2016.

In addition to that $100 million, we'll have another $30 million of cost savings through the startup of our Augusta color pigment facility. So, $175 million to $200 million of cost savings coming into this division.

But I think that before we spin it, we obviously have to have a viable ongoing business that is able to generate meaningful positive cash flow. Exactly where that is in the cycle? I wouldn't say that we're exactly sure down to the penny, but I do believe that we'll be in a position hopefully in the middle or latter part of this next year..

Ongoing CapEx in that business is probably going to be around $60 million, $70 million. So obviously you need EBITDA in excess of that to be cash-flow positive, if it's modestly leveraged..

And historically, when you talked about your CapEx spending, it's been in a lens of a growth company and some specialty assets in particular.

I'm just curious, as you've gone back and audited the performance of that expenditure level, has it met your expectations? Has the tougher environment diminished those returns? And of the increment that's still a growth cap spending over your maintenance CapEx looking forward to 2016 and 2017, can you give us some sense what the return hurdles are there?.

Yeah. As we look at our past capital expenditures, I think that as we look at areas like MDI and our margins on a per pound basis in MDI, we're significantly better off today than we were, for instance, in the last recession that we were a couple of years ago.

And I think that the earnings and the margin levels, particularly in the downstream on MDI, are certainly stronger today and they're more stable today. And I think that's a direct result of that investment.

As I look at the growth of our amines and the growth of our maleic anhydride, both the margins and the growth in the earnings and the volume of those businesses, I think that has been significant. I also look at the growth that we've seen in the aerospace industry around our Advanced Materials.

So I think that all of those have been fundamentally sound investments.

Going forward, I think that we obviously were – I have tried to look at – perhaps the biggest change that we've seen in some of our CapEx going forward has been the loss of the margins that an ethane to ethylene supply chain would have given you compared to just a couple of quarters ago.

And I think that that lost in that margin and also the slowdown of demand that we've seen this past year, particularly in the Chinese market, we're not going to be investing capital in markets that have seen significant slowdown in their growth.

So I think that, again, as I mentioned in my comments, we want to make sure that we stay focused on where we can create value on a per pound basis on our downstream businesses..

And Bob, as we look at incremental discretionary capital sort of over and above that environmental health and safety threshold, we are looking at things that are unleveraged IRR of 20% or better..

Great. Thanks, guys..

Thank you for that question. The next question we have comes from the line of Jim Sheehan from SunTrust. Please go ahead..

Thanks.

Peter, could you give us your current outlook on MDI operating rates by region?.

Well, I think that as we look at that on a by-region basis, and again, as I look at that on a regional basis, I don't have the information as to what competitors are doing. And so, as I look at that, it's – I'm taking a stab at these sort of rates.

But if I look at the Asia market, you're probably looking at somewhere in the very high-70%s to around an 80% capacity utilization. As I look around Europe, you're probably in the high 80%s to 90% capacity utilization. And the Americas is somewhere around the 90% capacity utilization. I will remind you that those are very macro numbers on the industry.

And as you look at your downstream businesses where we have seen margins fall on the more commoditized end of our MDI supply chain, on the more specialty end of the MDI supply chain, many of those grades, I won't say that they are impervious to supply capacity utilization, but they're far less sensitive to capacity operating rates.

I'd also remind you that as you look at some of those downstream derivative products, you may be long in Asia, but shipping a lot of those products cryogenically where you have – it's very expensive to ship and the longer those products are on the water, if you will, they start to discolor and so forth.

So the idea that you've got too much capacity in one region and perhaps better balance in another, that doesn't necessarily mean that the balanced region is going to be flooded by the region that's overbalanced. So I hope that makes sense.

What I'm trying to say, it's more than just a simple capacity rate exercise to see where profitability is in polyurethanes..

And maybe specifically I can add, Jim, again, we mentioned that 30% of our urethane business is this component business and we mentioned the China component margins have dropped, where in China roughly half of our business is component. But in the Americas and in Europe, our margins have remained relatively healthy in that component area.

So it's been primarily limited to sort of Chinese pressure right now..

Thanks a lot for all the detail.

And moving over to TiO2, do you see any more opportunity for Huntsman to do capacity rationalization there or do you expect that to occur with one of your competitors?.

I probably shouldn't be commenting on what our competitors may or may not do with their capacity utilization.

As I look at the steps that Huntsman has taken to rationalize capacity and also permanently close capacity, I think that on a percentage basis, at least from that information that's been publicly released, we have been the industry's leader in this area.

And I think that as we look at this, this is something that we're going to continue to assess internally and I think that we've taken some very bold steps in this direction..

Thank you very much..

Thank you for the question. The next question we have comes from the line of John Roberts from UBS. Please go ahead. John, you're live on the call. You may have yourself on mute..

Yes. Hi.

Can you hear me now?.

We can. Yeah..

Hi. Guys, the focus has been on exiting the lower value businesses.

Any thought to monetizing the higher value businesses?.

Well, I think that it's fair to say that as a company we're continuously reviewing strategic alternatives and ways to improve and increase shareholder value. Are we out actively trying to monetize or try to sell the higher value-added ends of the business? No, we're not.

But, again, I think that we owe to our shareholders to continuously be looking at our portfolio and see where we can create the most value..

Okay.

And then, is it fair to say that any strategic options you pursue in TiO2 will be unlikely to require more cash in?.

Yes..

Okay. Thank you..

Thank you for that question. The next question comes from the line of P.J. Juvekar from Citi. Please go ahead..

Yes. Hi. Thank you. Kimo, a quick question for you. Last year, you talked about free cash flow about a year ago and how management was being compensated on it. But then we haven't had much free cash flow since then.

Does a decline in TiO2 explain most of it?.

P.J., no, we've been consistent with the story. We told you and the market repeatedly that 2015 was an investment year where we wouldn't have a lot of free cash flow. We had $200 million of restructuring in the Rockwood business. We told you that we are going to have at least $100 million of capital to replace IT systems within Rockwood.

2015 was never going to be a very good free cash flow year. We've always focused you on 2017, and we said that that was a $700 million free cash flow year. And we've recently said that 2016 would be $350 million better than 2015. So, well on our way to that $700 million number. But 2015 never was going to be a good free cash flow year.

Now, management is paid on free cash flow. It is relative to budget, and we have budgeted pretty where we're coming out in 2015. It was going to be, for the most part, a break-even year from free cash flow..

Okay. Thank you. Thank you for that. And then, just sort of overall question, one of your customers was commenting on Henan Billions and improvement in quality of their chloride TiO2 product. What's your view on that? And if that's successful, would you encourage others to build more chloride TiO2 plants? Thank you..

Again, P.J., I don't think I'm in a position to comment on what competitors may or may not build.

I would say that at the present market conditions with TiO2, whether you're a chloride producer or a sulfate producer, whether you're in China or in North America, whether you have low cost gas or whether you have cheap labor, in today's margins I'd just be shocked if anybody is out there looking at investing money in new TiO2 capacity thinking that this is a wise move..

And specifically the chloride, I mean, in a given region, I would suggest that probably margins for sulfate and chloride are pretty similar. So it doesn't appear to me that there is any advantage for chloride in Asia where you have sulfate and chloride, or in Europe where you have sulfate and chloride..

Thank you..

Thank you. The next question we have comes from the line of Aleks Yefremov. Please go ahead..

Thank you and good morning. Could you comment on your fourth quarter EBITDA outlook? I think in your prior press release, you had expected around $300 million. Is this still the goal? Thank you..

Yeah. I think that as we look at our fourth quarter, we're probably looking at a very similar fourth quarter to last year.

I don't think that we're going to see the large seasonal drop-off from third quarter to fourth quarter that we typically see in this business, because I think a lot of our third quarter volume, some of that was pushed into the fourth quarter and some of the margin that we would like to have seen in the third quarter we pushed into the fourth quarter.

But as I sit here and look today, very early in the fourth quarter, we haven't gotten any results from the fourth quarter, just looking at order patterns and so forth, I think it's going to look similar to where we were a year ago in our fourth quarter earnings.

I would just say that if I have a concern, I look at the C-Factors of MTBE, which change on a daily basis and they're about 40% lower than they were a year ago. That's a large volume commodity product that we have and it's about 50% lower than it was in the third quarter from where we sit today. So, that's something that changes on a regular basis.

Also I'd say that as we look at the North American price on TiO2 going into the fourth quarter, it appears that there continues to be slippage on that North American TiO2 price going into fourth quarter and what impact that's going to have in other regions on pricing and so forth, it's simply too early to tell.

But those are probably two variables that we'll be commenting on further in conferences and so forth as we get further into the quarter..

Thank you, Peter. And a follow-up question on your MDI volume softness in the Americas, what was the reason behind that? Is there any connection with what's happening in MDI in Asia? Thank you..

No, I don't think that it's any connection with MDI in Asia. I think that we've had year-to-date looking at the numbers. I think that we just had a slower construction market than we would have expected. And as we look at some of the construction and the insulation markets and so forth, those have been softer than I would have expected.

They were particularly softer at the beginning of the year. And as you've seen with housing starts and so forth, we've seen a stronger number late in the third quarter, beginning of the fourth quarter. So I think a later start than what most people probably anticipated, including us.

But I don't see a lot of MDI products that are produced in North America that are shipped to Asia that would be adversely affected by the slowdown in Asia..

And that insulation construction market that we're pointing to that was soft for us is largely a commercial construction market for us..

Thank you very much..

Thank you. The next question we have comes from the line of Frank Mitsch of Wells Fargo Securities. Please go ahead..

Good morning, gentlemen. And Kimo, congratulations on doing the refinancing when the debt windows were much more attractive than they are today. So, kudos in that regard. Peter, you've mentioned that you're expecting 2016 EBITDA to be higher than 2015.

And I was wondering does that also include TiO2, since we do seem to be exiting 2015 with a bit of a whimper, and probably not large reasons for optimism in 2016 other than perhaps the self-help stuff that you guys are doing..

Yeah. I would say that we're entering the end of the year at the TiO2 market with probably more of a howl than a whimper. But as I look throughout the next year in TiO2, again, with the cost-cutting and so forth that is coming into place, Huntsman will be taking every advantage we possibly can to increase prices should market conditions so warrant.

And I would be very hopeful that fourth quarter 2016 TiO2 margins are certainly going to be better than they are today for this company. As I look around the rest of the company, I do see expanded growth in our margins.

This past year, in 2015, we had a very large maintenance shutdown in the first quarter that was planned that we won't be having this next year. We'll have the benefit of a new ethylene oxide facility and the downstream derivatives that that will be bringing.

And we'll have some of the benefits of continued growth in aerospace and the automotive market and our downstream businesses. So, yes, I think in our next conference call we'll probably be giving some more guidance on a division-by-division basis as to how we see 2016.

But right now, if we see similar market conditions in 2016 to 2015, we certainly expect a stronger year from an EBITDA basis and from a free cash flow basis in 2016 than we've seen in 2015..

Assuming TiO2 is in both years on that comparison. Again, a 2016 year that may not be great for TiO2, but still will be better overall..

Okay. Terrific. That's helpful. And just a follow-up. You had mentioned obviously the 8% decline in North American pricing and you're seeing that continuing to slip here in North America in Q4, I believe you just said.

What are you seeing in Europe and Asia in that regard?.

Well, we look at dollar pricing. Again, we sell product in Europe both in euros and in dollars, but I'll do dollar pricing just because it's easier to track global prices that way. And from the second to the third quarter in our pricing, I'm just talking about Huntsman here, prices were only $2 difference per ton one quarter to next.

I mean, they really were absolutely flat, whereas in that same time period you saw a better than a $200 a ton fall from the second to the third quarter.

So I'd like to think, and I think I've called the bottom of the TiO2 market in the previous five conference calls, I'd like to think that as you look at the European TiO2 pricing, we're not seeing erosion from the second to the third quarter.

Now I didn't say anything about the fourth quarter, because we're still out trying to keep prices stable or increase if we possibly can in face of a falling North American market. But as we look at the European pricing from second to third quarter, it looks like you've hit a bottom here.

And as you look at the APAC on a dollar basis, prices fell there about $75 a ton and NAFTA again with over $200 a ton. So I'd like to think we've hit the bottom in that European market. Asia, the drop in pricing in Asia seems to be slowing, and NAFTA is rapidly catching Asia and Europe..

Whereas we started the year with almost a $600 – well, in the first quarter, almost a $600 per ton differential between U.S. and European dollar prices. We're probably going to be ending the year at close to $200 a ton differential....

Terrific. That's great..

...which is about the freight cost to get product from point A to point B globally..

Yeah..

Terrific. Thank you so much..

Thank you, Frank..

Thank you. The next question we have comes from the line of Hassan Ahmed from Alembic Global. Please go ahead..

Morning, Peter..

Morning, Hassan..

Peter, a quick question on the MDI side of things. One of your competitors, one of your sort of publicly-traded U.S. company competitors talked about polyurethane strength and they particularly cited China in Q3. So I'm just trying to get a sense. I mean, my understanding is you guys, obviously, saw weakness in the overall MDI market.

I'm just trying to get a sense, was it sort of share losses? Was it de-stocking? Was it the overall market compressing? Or a combination of all three?.

Well, I think there's the trend – first of all, I'm not aware of any customer that we have lost or any market share that we have lost in the Chinese market in the third quarter.

So I think that what we saw in the third quarter, and I compare that with other products within Huntsman in the third quarter, I compare that with what some of our largest Chinese competitor has seen in past quarters, and what some of our other competitors that have Chinese manufacturing footprints have reported in China, I don't think that our numbers are at all inconsistent with what others have done.

The company, and I'm not sure we're both talking about the same company you made reference to earlier, but they probably may have other urethane products in their portfolio, maybe starting from a different volume base than what Huntsman has. I'm just – again, without looking at details on the numbers, can't accurately comment on that.

But, again, I think that the market conditions that we're seeing in China, we certainly are not losing customers or market share. And I think that we supply into everything from automotive to construction, to footwear, to personal products, consumer products and so forth. I think we have a very wide base that's reflective of the overall Chinese GDP..

Very fair. And moving on to TiO2, you guys talked about the pricing differential between Europe and the U.S. compressing from, if I remember correctly, $600 a ton to $200 a ton. And obviously this was one of the reasons why, over the last couple of quarters, we saw sort of pricing come down in the U.S.

Has this sort of reduction in that differential actually resulted in lesser European product coming to the U.S.? Have you started seeing that?.

Well, I would still – I again can't comment on competitors. Huntsman, internally, we will continue to take advantage of places where we can move our product and ship our product at a higher price and where we have opportunity to do that in North America.

We not only have North American production, but we also have routes to market from Europe to North America. We'll continue to aggressively take advantage of that..

Super. Thanks so much, Peter..

Thank you..

Thank you. The next question comes from the line of Mike Ritzenthaler from Piper Jaffray. Please go ahead..

Yes. Good morning. Yes. In terms of cost and productivity, Peter, you had obviously mentioned pigment synergies as ongoing. The reductions in CapEx I think make a lot of sense.

But what role can cost efficiencies in the core businesses play in achieving some of the profit growth that you've outlined in the pre- (43:02) – because it sounds as though you're more or less satisfied with the structure of the core segments? Is that fair?.

Well, I think that as we look at the restructuring that we've done through the company, I look at that very much like I would CapEx expenditures where we're investing cash, investing dollars in divisions, and we want to make sure that we are restructuring the cost of those businesses to take into account what we see in global trends and growth and so forth.

So, two years ago and this past year and finishing up earlier this year, we spent considerable amount of money in our Textile Effects and in our Advanced Materials divisions. And I think that's money very well spent and the impact of that is reflective in our expanded margins which have almost doubled in Advanced Materials.

It has gone from a solid negative number to a near double-digit sort of number in Textile Effects. So I think that as we look at that cost basis within the company, I don't know if I'm ever happy with where we are as far as our cost structure, there's always room for improvement, but I think that we're in a comfortable zone right now..

Okay. Okay. That's helpful.

On de-selection of businesses within certain markets, you had emphasized that in a couple of the core segments as well, how should we think about the potential for further calling in 4Q and 2016? Is this going to be a theme that is ongoing for a period of time?.

I don't believe so. This is part of the restructuring of our Advanced Materials and Textile Effects, and I think that's where you've seen the vast majority, if not all, of that de-selection taking place. We've shut down some of our uncompetitive sites and distribution networks with distributors and so forth.

And if customers are unwilling to pay what we believe the product is worth and the service is worth, and somebody, a competitor is willing to lose money on an account that – I'm not going to chase after that sort of business.

But I think that as we look at our existing production facilities and our existing customer base, I think those are pretty well matched.

And I think that through 2016, you certainly will see far less de-selection than in 2015, because I think we've got a very well balanced match between our customer base today, the volumes that they're taking, and our production base today..

Okay. Fair enough. Thank you, Peter..

Thanks, Mike..

Thank you. The next question we have comes from the line of Laurence Alexander from Jefferies. Please go ahead..

Good morning. Just a quick one.

Given the curtailment in your CapEx, is there any impact on your operating leverage, if demand – if volumes do improve in 2017, 2018, or how do you think about operating leverage?.

I think we've got sufficient capacity in our business today. We've got sufficient de-bottleneck capacity in our businesses today. And many of these projects we have delayed and some of them that we've canceled.

Those that we've canceled, as we look at those, Laurence, I think that we probably – if the demand all of a sudden globally were to return to where it was maybe two years ago or something, you see near double-digit growth in China and so forth, I think we could resuscitate those projects as quickly as we'd need to.

But, again, I think that where we see global trends kind of moving in the next year or two years and our CapEx budget over the course of the next two years, I think that we're going to be able to achieve reliability, we're going to be able to achieve downstream differentiation and some small strategic growth where we need to..

Specifically, the $450 million will allow us to de-bottleneck our amines plant in Singapore. We have de-bottlenecks, as Peter mentioned, in both Rosenberg and in Geismar in MDI, but also it includes an expansion of our multi-functional product that goes into aerospace for Advanced Materials.

In all of those key areas that includes completion of the current projects that I think we have disclosed in our conferences and have a slide on..

And then, separately on Advanced Materials, can you give a little bit of granularity about which end markets you've seen particular weakness in? And was it just a pause that you saw related to the lull that you saw in Chinese orders or is it an ongoing erosion in activity?.

Just looking for some more granular data here on Advanced Materials..

Well, so aerospace, as you know, has continued to be fairly strong. The area that we tend to de-select and hasn't been all that strong for us is coatings and construction. We have seen some strength in wind in that business just recently, and our electrical insulating businesses have been fairly strong there.

But, generally, consistent with what Peter mentioned around urethanes, we saw Asia as a soft market for us in the third quarter. Across the company, we were close to double-digit volumes down in Asia for the third quarter, and that's part of what prompted our pre-release that we saw a very soft August, particularly in China..

Thank you..

Thank you. The next question we have comes from the line of David Wang from Morningstar. Please go ahead..

Hi. Thank you for taking my question. Just wanted to ask a little bit more about polyurethane volumes and margins.

How much of the EBITDA growth that you expect should be predicated on China growth at current levels or a little higher, weaker than we saw in Q3? I'm wondering because we've seen some capacity additions by yourself and competitors in the region and just as we're seeing demand sort of decelerating. So it'd be great if you can add some color on that..

I think that as we look at our MDI growth in margin and in volume, I would put much greater emphasis on what we're seeing in Europe and North America, both in margin expansion and to some degree volume expansion, given the fact that these two products – or these two markets alone make up greater than 80% of our overall demand globally.

Again, China's a great market. It's always going to be there, and it's going to be longer-term. It's going to be a continuously growing market for us.

But when we talk about MDI and we talk about polyurethanes, we talk about downstream differentiation, we talk about where we have our lowest cost production platforms, where we have the most extensive networks, they're in North America and Europe, and that will be where the future of our margin expansion overall for the company is going to be..

And the expansion we've done in China, specifically in MDI, is a plant with BASF that is a 2018 plant. And so, that is out there a ways. We're currently selling all of our product that is produced in China and MDI we're completely sold out..

Matter of fact, we're importing MDI into China and buying product for resale in China. So it's a good market for us..

Okay. Great. And your margins in Performance Products and Advanced Materials continues to be pretty high this quarter versus the past couple of years.

I was wondering if you can talk a little bit more about how much of that is attributable to the cost cuts within your control versus lower raw material costs?.

I think that when we look at Performance Products, most of the earnings there, two-thirds of the earnings there is coming from our amines and our maleic anhydride businesses. Those are businesses that have really not benefited a great deal by falling raw materials or by cutting costs.

They benefited by the past capital that we've invested in those businesses and new capacities and building up on our routes to market. When we look at our Advanced Materials, again, I think that the overall business that certainly benefited in the margin expansion has taken place by cost-cutting.

But, going forward, I think that when we look at the growth that's taking place in the automotive industry, the aerospace industry, DIY industry and so forth, and our epoxies in Composites division, most of that growth is going to be taking place in expanding our customer base and our technology..

Great. Thank you for taking my questions..

Thank you..

Thank you. The next question comes from the line of Roger Spitz from Bank of America. Please go ahead..

Thank you. Good morning..

Morning, Roger..

Can you break the Pigments and Additives Q3 EBITDA of $5 million down between the TiO2 and non-TiO2 EBITDA? And of the $39 million for the year-over-year, the $39 million from Rockwood, can you tell us what part of the $39 million was TiO2?.

Yeah, sure. Just pulling that up here, Roger..

Great..

So, Roger, so we mentioned that the Rockwood business contributed roughly $15 million in the quarter, and that business was impacted roughly another $5 million for the blast we had. So you can pro forma that up by another $5 million, so call it $20 million, if you will.

When you look at the overall business, the TiO2 business had a negative EBITDA of $10 million. Again, Rockwood being a positive EBITDA, the Huntsman legacy business being negative EBITDA..

Okay.

And the year-over-year, the $39 million, how much of that was TiO2 from Rockwood?.

From Rockwood?.

Yeah.

The $39 million from Q3 2014, right, $18 million was your TiO2?.

Yeah. Sorry. It was almost all of our legacy business was impacted. I think year-over-year there was a $27 million reduction in EBITDA from our legacy Huntsman TiO2 business, if that helps..

Okay. And lastly, you said a third of the Performance Products EBITDA was from the upstream ethylene intermediates and surfactants. I wonder how much of that 33% is (55:03) just ethylene cracker itself. It feels like the vast majority of that might be that.

Would that be a fair comment?.

No. The surfactants business is the most part of toll business and it makes up most of that..

Most of that. Okay..

And glycol – surfactants and glycol that third, yeah..

So you're saying that the Port Neches ethylene is a much smaller part of that?.

Well, it's a 400 million pound cracker. It's not a massive contributor to EBITDA here. And it does contribute, and we like it, but it's not most of that one-third..

Yeah. So it's maybe somewhere around a third of the earnings of that surfactants and what we would say the upstream business..

All right. Thank you very much..

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

Okay. We have another question from the line of Herb Hardt from Monness. Please go ahead..

Morning.

My question is back to TiO2 and can you give us a sense of operating rates for the company by region?.

Yeah, sort of just pulling that up. I think that as we look at it on a global basis, the operating rates, again it's tough to see competitor capacity here. There is no published data in that area. It feels like we're probably globally somewhere around 80%, low-80%s capacity utilization.

And I think that as we look in each of the regions, I think it's probably within a couple of points of that, that low- to mid-80% capacity utilization..

Okay. Thank you very much..

Thank you..

This is Kurt. We want to thank everybody for joining us on the call today, and we will I'm sure speak to you during the course of the quarter. Thank you..

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