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

Robert Andrew Koort - Goldman Sachs & Co. Aleksey Yefremov - Nomura Securities International, Inc. Frank J. Mitsch - Wells Fargo Securities LLC Edlain Rodriguez - UBS Securities LLC Hassan I. Ahmed - Alembic Global Advisors LLC Eric B. Petrie - Citigroup Global Markets, Inc. (Broker) John Roberts - UBS Securities LLC.

A very good day, ladies and gentlemen, and welcome to the Huntsman Corporation First Quarter 2016 Earnings Call. My name is Mark and I will be your operator for today. At this time all participants are in listen-only mode. We will conduct a question-and-answer session toward the end of this conference.

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

Thank you, Mark, 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 2016 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 was posted our website, huntsman.com.

In our earnings release this morning, we reported first quarter 2016 revenue of $2.355 billion, adjusted EBITDA of $274 million and adjusted earnings per share of $0.37 per diluted share. With that, I will [Technical Difficulty] (2:16) call over to Peter Huntsman, our President and CEO..

Thank you, Kurt. Good morning, everyone. Thank you for joining us. Let's turn to slide number three. Adjusted EBITDA for our Polyurethanes division in the first quarter 2015 was $131 million. Compared to the prior year, we experienced $9 million of negative EBITDA from foreign currency exchange as a result of the stronger U.S.

dollar, primarily against the euro. If currency rates are maintained in the second quarter it should be a drag on our year-over-year earnings comparison. At our recent Investor Day, we provided a breakdown of earnings for our MDI polyurethanes (sic) [MDI urethanes] (3:02) and MTBE businesses.

Based on feedback we have received, we know this has been helpful to many of you. We plan on continuing to provide transparency to these businesses so that you have a better understanding of their respective earning patterns. Compared to the prior year, first quarter adjusted EBITDA increased $8 million in MDI urethanes and $18 million in MTBE.

EBITDA last year was impacted approximately $60 million by our planned PO/MTBE maintenance outage. Much of that benefit this year was reduced by the negative foreign currency impact and lower MTBE margins brought about due to lower oil prices. We saw strong MDI volume growth in Europe and North America of 6% each.

Growth in Europe, which is our largest market, was driven by broad-based demand, notably in the automotive, composite wood products and adhesives, construction and elastomers markets. The strength in North America was primarily for commercial insulation products.

Asia demand was down primarily due to the economic slowdown that occurred in the second half of last year. The increase in MTBE EBITDA was due to the impact of the prior year's planned maintenance outage, partially offset by lower margins. MTBE is valued as an octane enhancer and fuel oxygenate. C-Factor is an industry proxy for MTBE margins.

Similar to the year-over-year decrease in oil, the C-Factor was 30% lower in the first quarter this year. We expect MTBE margins will seasonally improve during the driving season but continue to be a year-over-year headwind. Let's turn to slide number four. In the first quarter, our Performance Products division recorded adjusted EBITDA of $92 million.

Approximately two-thirds of the earnings from this division were generated from amines and maleic anhydride where we have leading market positions and the other one-third is comprised of surfactants and ethylene intermediates where we are leveraged to the U.S. Gulf Coast cost advantages.

We had a number of moving trends within this division in the quarter. Let me try to summarize a few of them. As indicated last quarter, we've seen increased competition for volumes in amines and maleic. As we enter the second quarter, amines volumes are improving but maleic margins remain under pressure. Surfactant volumes and margins are stable.

Ethylene and other olefin margins remain low relative to this time last year. We're on track to deliver EBITDA benefits from our ethylene oxide expansion starting in the second quarter of this year, and towards the end of the year we'll benefit from our Singapore polyetheramines expansion.

Looking beyond the end of this year, I want to make sure our investment community is tuned into our next major maintenance which will take place in the first quarter of 2017 on our ethylene oxide and ethylene glycol units in Port Neches, Texas. This maintenance occurs once every four years.

The cash costs will be less than $50 million and will last approximately two months. We estimate the EBITDA impact will be approximately $15 million, however, that will largely be conditioned upon economics at the time. Let's turn to slide number five.

In the first quarter, adjusted EBITDA in our Advanced Materials division improved to $60 million from $58 million the previous year. I hope the quality of this business is becoming more apparent to the investment community. Our first quarter EBITDA margin was 23%, and even more impressive, the free cash flow to EBITDA conversion was more than 80%.

Combined with low earnings volatility, this has clearly become one of our best businesses. Sales volumes decreased in the America region primarily due to competitive pressure in wind as well as the coatings and construction markets.

Partially offsetting this pressure, we saw a strong volume growth in the European and Asia-Pacific region, most noticeably in aerospace, wind and the electrical markets. Contribution margins improved in the first quarter compared to the prior year as raw material costs decreased and we sold higher value products. Let's turn to slide number six.

Our Textile Effects division reported adjusted EBITDA of $18 million in the first quarter. We continued to see the impact of the de-selection of lower value business on our sales volumes. Excluding this impact, our sales volume grew 4% in key markets, primarily in Asia.

The negative year-over-year comparison will continue until the second half of this year, when comparables should be more representative of underlying demand. Our focus on high value product ranges and low raw material costs led to increased contribution margins.

We expect a seasonal increase in demand in the second quarter, which is generally our strongest quarter. This is when mills and retailers start to prepare for the fall and winter season, which generate higher demand for organic fibers and darker shades which use more of our chemicals and dyes. Turn to slide number seven.

In our Pigments and Additives division, we earned $15 million of adjusted EBITDA in the first quarter. Our Additives business reported $18 million whereas our TiO2 business lost $3 million. Our Additives business is performing fine. Earnings improved compared to the prior year and prior quarter.

Of course, the real story in this division revolves around conditions in the TiO2 market. TiO2 sales volumes improved 8% compared to the prior year on the back of increased end-use demand. It's our sense that the supply chain is pretty lean; that most of the TiO2 inventory in the system is sitting on the shelves of retailers in the form of paint.

TiO2 prices declined less in the first quarter than expected. We think TiO2 producer inventory levels are low, and coupled with stronger end-use demand, our announced price increases are finding greater customer acceptance.

We are encouraged by the trends within this business and are optimistic that with improvements in TiO2 selling prices, and delivery on our cost savings, this division will become cash flow positive sooner rather than later. 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. Our adjusted EBITDA decreased to $274 million in the first quarter of 2016 from $285 million in the prior-year period. During the first quarter of 2015, EBITDA was impacted by approximately $60 million due to our planned PO/MTBE maintenance outage which was partially offset by lower MTBE margins in 2016.

Average selling prices in our more cyclical businesses decreased more than raw material costs, which led to an overall reduction in margins of $56 million. Additionally, foreign currency had a negative impact of approximately $19 million, primarily from the stronger U.S. dollar against the euro.

Compared to the prior quarter, our adjusted EBITDA increased to $274 million from $240 million in the fourth quarter. Sales volumes increased due to seasonal patterns. Average selling prices decreased at a more modest pace than raw material costs, which led to an overall improvement in margins of $14 million. Slide nine.

At the end of the quarter, we had liquidity of $999 million. During the first quarter we spent $99 million on CapEx. We expect to spend approximately $450 million annually on capital expenditures in 2016 and 2017. We expect annual depreciation and amortization rates to be approximately $400 million per year.

Our income tax expense for the first quarter this year was $27 million. We paid $5 million in cash for income taxes during the period. Our adjusted effective tax rate for the first quarter this year was 28% but we expect our 2016 and long-term adjusted effective tax rate to be approximately 30%.

We have been busy addressing near-term maturities of our debt. On April 1, we entered into a new $550 million Term Loan B due 2023. We used the proceeds to repay in full our Term Loan B due 2017, and remaining Term Loan C due 2016. We also extended the maturity of our revolving credit facility to 2021 and increased the amount to $650 million.

As Peter has indicated, we are focused on improving our free cash flow generation. In 2016 we expect to deliver more than $350 million of free cash flow. We want to provide increased transparency to this key metric. As a result, we added a schedule in table eight of our earnings release to show how we are progressing.

That information, along with certain 2016 estimates, are reflected in the free cash flow schedule on the slide. Much of our ability to meet our free cash flow target will be conditioned on our adjusted EBITDA and primary working capital. We consider primary working capital as accounts receivable, inventories and accounts payable.

Our primary working capital use for the first quarter this year of $114 million is consistent with historical averages, whereas in the first quarter last year, we benefited tremendously from falling raw material costs. As a reminder, 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. We are well on track to achieving our free cash flow objective this year.

Peter?.

Thank you, Kimo. Last month, our senior officers had the opportunity to meet with many of you in person at our Investor Day in New York. Materials for this event can be found on our website.

In addition to providing guidance and a thorough review of each of our divisions, we outlined a broader corporate objective that we believe will create significant shareholder value beginning this year. Our first objective is growing margins and earnings in our downstream differentiated businesses.

To this end, during the first quarter, our total company adjusted EBITDA improved to $174 million (sic) [$274 million] (14:55) from $240 million in the previous quarter. Roughly half of that increase is due to better volumes and half to expanded margins. Our second objective is generating more than $350 million in free cash flow.

Last year we benefited from a near historical first quarter drop in raw material costs. This year, our raw material movement was quite average.

However, the non-working-capital spending, largely made up of costs that we can't control such as capital expenditure, restructuring and maintenance, more than made up for the expected working capital increase as we saw our non-working-capital expenses drop in the quarter over $160 million dollars from the previous year.

I think our first quarter results put us well on track of meeting this objective as well. Our third objective is the separation of our TIO2 business through either a strategic combination, or spinning the business directly to shareholders.

The guidance that we gave at our Investor Day was that our Pigments and Additives EBITDA for the year would be slightly positive. Looking at the traction that we are getting in pricing and the delivery of our restructuring, I feel more optimistic about this business today and our ability to complete this objective.

As we report the results of our first quarter, I feel that we are right where we should be in achieving our stated objectives for the year. We're off to a great start for the year and I'm optimistic, as I look out over the coming quarters, that we will achieve our objectives and the full-year EBITDA guidance we shared at our Investor Day.

With that, I'll turn the call back over to Kurt to initiate the question and answers..

Thank you, Peter.

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

Thank you. Please stand by for your first question. Your first question comes from the line of Bob Koort, Goldman Sachs. Please proceed..

Thanks very much. Peter, I just was reading from another actor in the polyurethanes market that Asia maybe was opportunistically better for them.

Can you give us an update on exactly what's going on in Asia and also what you see on the capacity expansion front there?.

Well, I think that as we look at the capacity expansion taking place in China, that we look at obviously a lot of new capacity shifts come on. I think that there will be a gap of a year or two before we see any new capacity coming on in China.

So if anything, we look at the capacity – which I would estimate today in Asia general, China in general, capacity for MDI is around 70%, maybe a bit higher than that but around 70%, and that's going to tighten here over the course of the next year or two.

I believe within all of greater Asia our plant is the next one to start up and that's probably about two years away. As we look around the rest of the world, Europe's is around – operating in the low 90%. Americas is in the low-to-mid 90% capacity utilization rate; putting globally probably somewhere in the mid-80%.

So as I look at the Asia market and China in particular, moving into the second quarter, I wouldn't say that market conditions are great but I would say that they are improving from what we've seen over the course of the third quarter and fourth quarter and early part of the first quarter of this year..

Got it. And could you give us a little more granularity on the TiO2 markets? I know you've been reluctant to call the uptick given some false starts but it seems like there is some traction in certain geographies. Can you maybe go around the world and tell us what you're seeing on pricing and/or volume traction? Thanks..

Well, I think that if we look at where we are in the first quarter, as I said on the call, we were expecting – I think in our Investor Day, we might have actually called out that the first quarter pricing was going to be down and it was going to be down more than it actually has been.

If we look at kind of our average as to where the price would be, the first quarter drop is down less than $100. And I think we gave guidance it would be more than that.

As we look at the second quarter, and the traction that we believe that we'll be getting in pricing, I would be reluctant to put a number just because that number is still in the process of being negotiated. But I do fully expect to see prices increase across the board in every region of the world.

Not unilaterally at exactly the same pace; it will be more in certain areas than in others. And I would say that for Huntsman, that every one of our customers will be accepting a price increase in the second quarter..

Wow. That's quite clear. Thanks..

Thank you..

Thank you. Your next question comes from the line of Aleksey Yefremov, Nomura Securities. Please proceed..

Good morning. Thank you.

Could you address the rising raw material environment in the second quarter, specifically benzene, and how do you expect this to be reflected in your second quarter EBITDA?.

Well, if the markets are – is tied typically around 90% capacity utilization, you should have some pretty good ability to pass through price increases at that point. Raw materials across the board are putting upward pressure on our raw material costing and so forth.

Benzene did spike last month and this month it seems to have come down just a little bit. So I wouldn't put too much in any one given month.

But I do feel that the markets on MDI in particular – you mentioned benzene, and obviously MDI is the single largest consumer of benzene – I do believe that the markets for MDI are strong enough that as prices increase, it may not be month for month but certainly within that quarter I believe that the pricing, we'll be able to increase to be able to offset any price increases in benzene..

Thank you, Peter.

And turning to amines and epoxy, two of the three areas where you highlighted higher competition, what is the outlook going forward? Is there a reason to believe that this was just a one-quarter aberration and things could improve?.

Well, I think that when we look at some of these differentiated chemistries, I think that it's important we look at these on a yearly basis. I mean, our amines EBITDA is down from where it was a year ago.

But the business in the first quarter is generating just shy of 20% EBITDA to sales margins; maleic anhydride is just shy of 30% EBITDA to sales margins. And I think that these are probably more in line with historical sort of margins in those businesses.

When we look a year ago at this time and compare our performance in maleic anhydride to a year ago, we had – a number of our competitors were in upset conditions and we essentially were moving maleic at some of the highest prices and highest margins that we've ever seen in the market.

So I wouldn't place too much into this notion that because we're off from what probably were peak economics – I'd focus more on the year sort of average EBITDA margins and the growth that we're going to continue to see in those businesses.

There will be some lumpiness in amines as you see a new facility start up in polyetheramines that will put pressure for a quarter or two as that product goes into the market; and certain amines will be up, certain amines will be down, so...

But by and large, I think that these are solid, around 20% EBITDA to sales sort of margin businesses in the amines.

Maleic is going to be in the mid to high 20%s and our epoxy business is going to be in the low 20% to EBITDA sales – and this is – obviously when we talk about the bifurcation of our Pigments business, this is the core of the business going forward and this is going to be the strength on which we'll continue to build our company around..

Aleksey, you remember at our Investor Day we provided the 2016 guidance that ethylene would be down, and it is.

And we mentioned that maleic anhydride and amines would be down a bit, but they would be offset by our two facilities that are coming online second half of the year, our Jurong Island polyetheramines facility and our ethylene oxide derivative business in Port Neches, Texas.

So we will be year-over-year down until those facilities start to come up second half and then we'll be able to offset that headwind..

Great. Thank you very much..

Thank you. Your next question comes from the line of Frank Mitsch, Wells Fargo. Please go ahead..

Yes, thank you, and a nice start to the year, gentlemen. Hey, Peter, you were very explicit on the expectations on the TiO2 pricing front and you reported pretty good volume growth here in Q1, up 8%.

How are the volumes trending in April and what sort of expectation levels do you have for Q2 and beyond?.

I think the volumes as we look at where they are today, they continue – and I wouldn't say going through the roof. I don't think that there is, by any stretch, panic buying out there, but on the other hand, is the demand growing at 8%? Probably not quite to that degree. There obviously is some pre-buying.

I think I said in the last quarter that one of the indicators of a successful price increase is that you will get people that will be pre-buying and if people say that they don't believe the price increase is going through, but they're out there pre-buying the material, that's usually a contradiction.

And so are there people out there that are pre-buying? Yeah; certainly are trying to get ahead of the curve. But I think that the overall supply chain for TiO2 going all the way down to consumers is pretty shallow. Q2 demand continues to be positive.

And we're focused on a third quarter price increase and how we implement that and what we'll be able to get from that. And so I am very hopeful that over the course of the second and third quarter, we'll continue to see demand growth and prices improve. They desperately need to..

All right, that's a very salient point about the pre-buying. Thank you. And just briefly the Advanced Materials business, as you highlight as one of your best ones, I think reported a record EBITDA. You talked about competitive pressures in the Americas but on the outlook you cited aerospace being a positive.

Are the competitive pressures expected to abate and can you give some color on where you think that business can head to?.

Well, I think that that business is going to be probably – the business has improved because of the restructuring that's taken place and because of the product shift that has taken place.

And I think it is fair to say that probably midway through this past year, the restructuring was completed, and as we look at the restructuring being completed and kind of the balance of customers having been completed, that's a business that we ought to see the EBITDA in that business growing at probably twice the rate of GDP.

The aerospace industry is going to grow faster than the rate of GDP. The conversion from aluminum to epoxy carbon fiber materials is going to grow faster than the rate of GDP. The replacement of ceramics and other materials is going to grow faster.

Areas like wind, which is a relatively lower margin but higher demand use for epoxy, that's going to continue to be volatile. And there is going to be orders that we'll choose to pass by because of margin levels and orders that we will aggressively go after.

So probably continue to be a little bit of volatility in some of the trends but the overall margins in that business ought to continue to be fairly consistent and growing..

Frank, just to give you a sense for segments. Aerospace for us globally was flat in the quarter. It has historically been a pretty good growth segment in the Americas. It was down, and I think you've probably heard that from other folks in the industry around aerospace. But we expect that to come back.

There were some issues with Boeing but in terms of other segments, electrical was strong for us and also our adhesive do-it-yourself, DIY, markets were pretty good. So we would expect, longer term, aerospace would continue the trend that we have seen with more and more airplanes using composite materials..

All right, terrific. And you're correct, we have heard that from some others here in Q1. I appreciate it, fellas. Thank you..

Thank you..

You bet..

Thank you. Your next question comes from the line of Edlain Rodriguez, UBS. Please proceed..

Thank you. Good morning, guys. Peter, just one quick question. I'm trying to assess like the sustainability of the price increase in TiO2.

I mean, do you feel that supply-demand dynamics have changed for the better and that should allow prices to sustain, like the higher prices?.

Well, yes. Simply put, I think that there have been some closures of capacity in the market, there has obviously been greater discipline on volume. I think that there have been a number of Chinese manufacturers that have shut down this last year, smaller manufacturers; you've seen a consolidation in the Chinese producers this last year.

So again, I hope that we see these price increases for what they are. I mean, if we're successful in the first quarter and even in the second quarter, we're barely getting back to where we were in the third quarter and fourth quarter of last year, which were pretty bad market conditions. So we've got a long ways to go here.

We're in the right direction. We're going to continue to get price increases I believe. And I can only speak for Huntsman. I can't speak for our competitors, but for Huntsman, we're going to continue to be very disciplined in pushing those prices through..

I'll just add that [Technical Difficulty] (31:02) roughly 60 days of inventory as an industry is our expectation; we think by the end of the second quarter we'll be in the 50-day range. And utilization rates are in the mid-80%s. And we see that as an average industry metric. We're not at average margins. Not even close to it.

So margins fell way beyond where they should have, given where global utilization rates are, when you include the Chinese. So we would expect that there will be a third quarter price increase that will be effective globally and we will see price rise again in the third quarter..

No, that's good. And hopefully you don't see some of your competitors like ramping up capacity just to take advantage of the higher prices..

Agreed..

Thanks..

Thank you. Your next question comes from the line of Hassan Ahmed, Alembic Global. Please go ahead..

Morning, Peter. Not to bore you guys with a barrage of TiO2 questions but just if you would allow me I'll throw another one in. So as I looked at the market in 2014, it signaled that maybe we were hitting some sort of a bottom in terms of TiO2 pricing and margins and the like. And I think what blindsided all of us in 2015 were the major currency moves.

Obviously the dollar strengthening relative to the euro the way it did, and that, at least in my mind, disrupted pricing a bit further. Now, the euro/dollar dynamics seems to have changed but if I take a look at the South African rand, it continues to weaken relative to the dollar, down a good 14%, 15% year-to-date.

There are substantial mining operations out there. So my question to you is that obviously the commentary on TiO2 pricing is quite positive, but as I take a look at the cost curve of TiO2, factoring in this move in the rand, is it still supportive of these price hikes? Again, coming back to the sustainability of these prices..

Yes, I do.

When I take into the value of the rand – and that's something that we've looked at very carefully internally – we take that into account and we look at the impact that's going to have on the ores and the raw materials, and you still – I think that the pricing that we are pursuing at this point is de minimis in ratio to where the industry needs to be, and recovering just a very low margin.

So I think that that's not going to have a material impact on our ability to get the prices up..

Very fit.. And a follow-up again on TiO2. Could you talk a bit about currently what sort of trade flows you are seeing, be it China to the U.S., Europe to the U.S.

and the like?.

I think that we're seeing pretty seasonal, pretty consistent flows of what we've seen traditionally. I don't think that we're seeing any major spikes or any major slowdown in any region. I think that for this time of year, that we are seeing demand picking up in the northern hemispheric markets and it's about where we would expect it to be..

But specifically relative to Chinese product landed in North America and Europe, we have not seen any real change. It's fairly de minimis. It is not a factor relative to market pricing.

As you mentioned, as you described sort of the events of 2014 with the euro weakening, and the soft economic demand in Europe and really dollar pricing falling well below, North American dollar pricing, and that pulling down global pricing, I thought that was exactly spot on. It was not the Chinese that were chipping away at price globally.

We didn't see that and we don't see it today..

Very helpful, guys. Thank you so much..

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

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

On the TiO2, could you give us an update as to how much of your targeted Rockwood deal synergies you realized in the quarter?.

We achieved roughly $50 million total in the quarter, which is the run rate that we said we would have, so really the $100 million that we had targeted to capture in 2016 is, for the most part, in the bag.

And we will not see significant benefits from the run rate we enjoyed into the first quarter except for the startup of the Augusta color pigments business that will be a little later on in the year..

Okay. And secondly, on polyurethanes, pricing was down about 20% year-over-year.

Can you just discuss trends between component and your specialty downstream applications?.

Well, I think Peter mentioned that the trends in China are up in polymeric MDI, so that's good. Still, on a year-on-year basis we are down in polymeric MDI pricing in China but the trend is moving up, and certainly on a sequential basis, we are up. You'll recall that that is roughly half of our Chinese business is polymeric MDI.

In Europe and in Americas it's been pretty stable where it represents a smaller portion of our overall sales..

That's helpful.

And then last, on TiO2, just if you look historically based on those pricing initiatives you put on the table, how much were actually implemented?.

In the second quarter?.

If you can discuss second quarter. I didn't know if those were still under negotiation but I was more looking back at 2010, 2011, 2012 time period, given utilization rates were different and demand environment was different.

But what was your typical capture of your announced price increase?.

Well, when the prices were running up, in 2011, 2012, we were getting 100% of those price increases. Typically, if you look at over a decade type of a time period, you're usually getting between 50% and 75% of a price increase, typically on a large-scale commodity product for global price increases.

Given where we are in the cycle and given the need to improve margins, I would certainly hope for better than that..

Okay. Thanks..

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

Hello, John..

Yes, can you hear me now?.

Yes..

My apologies here. A competitor reported this morning that its urethane systems had double-digit global volume growth. You're up 3%, adjusted for the maintenance outage.

Have you had a chance to think about where the difference might come from in the performance?.

No. To be honest with you, I have no idea who that would have been or where they would have seen it. I think that with our downstream systems business, I think that we have grown that much better than GDP over the years it now makes up a substantial part of our total EBITDA and I think that we are certainly not losing business in that area.

And I think that as we look at our growth in Europe and North America, 6%, given the anemic GDP growth that we are seeing in those markets, I think that sort of 6% growth speaks extremely well for how we are doing year-over-year..

Okay. Thank you..

Thank you. Your next question comes from the line of Jeff Zekauskas, JPMorgan. Please proceed..

Morning. This is YoYo Yeung (39:51) for Jeff. So you mentioned that MTBE business should continue to have some margin pressure.

Could you provide some details as how do you think about MTBE price, how do you think about methanol price and why is it that the margin should continue to be depressed?.

Well, the reason the margins will be depressed is typically in the past, we produced – well, not in the past, but currently today, we produce MTBE largely based on North American GAAP economics. Methanol coming from methane, the butylenes coming from butanes and so forth. These are typically very favorably advantaged raw materials.

We are selling in the gasoline markets where gasoline is based on crude oil, largely, since we are selling it overseas, Brent sea crude oil pricing. So as you would imagine the price of U.S.

natural gas staying relatively flat over the course of the last year or so, and you look at the price of crude oil having dropped from the first quarter of last year, where it was around $50 plus a barrel to around -in the low $30s average in the first quarter, I think you would see why there would be a natural margin compression there..

What I mean is, like, sequentially, MTBE price should rise because of the driving season but methanol price seems to be maybe relatively flat to up in 2Q.

So sequentially do you think your MTBE profit will go up or down?.

Well, again, I want to be clear, most of our raw materials in MTBE are based on U.S. natural gas, which really hasn't moved a great deal in the last couple of years.

Gasoline, which has its major raw material being crude oil, where you're seeing the price of crude oil drop by 70% plus in the last couple of years, you're obviously going to see the raw materials for one dropping much quicker than the raw materials for the other.

So I wouldn't base MTBE manufacturing economics the same that I would gasoline manufacturing economics. I think a good way to track this is probably through the C-Factors in the industry and look where those C-Factors are and that's a publicly published sort of a number.

And that will give you some sort of indication as to the typical margin between your raw materials of MTBE and the selling price octane value of MTBE..

Maybe I can give a little bit more help in terms of high-level sensitivity. On a pro forma basis, Q1 MTBE would have made $20 million. Of course it was a negative $13 million because of the turnaround. Now, our crude oil price average last year was about $49 a barrel.

Now, again, compared to first quarter 2016, we did $8 million of EBITDA in MTBE, and crude oil averaged $33 a barrel. It's roughly $4 million per dollar of crude oil. So $16 a barrel fall, times four, divided by four quarters of course, you get about $16 million of headwind in MTBE year-over-year. That's about where we came out.

It's about $4 a barrel of crude relative to MTBE value just simply because of the stoichiometrics that Peter walked you through..

Maybe as a follow-up, in the old days you mentioned that the change of price in benzene could be probably about a quarter of a lag to impact your raw material and product prices. So, benzene prices was lower in the first quarter versus 4Q 2015.

So does that mean your second quarter you would see meaningful margin expansion in MDI? And also as crude oil prices started to recover, maybe benzene prices will start to improve starting in 2Q 2016.

So does that mean that maybe second quarter is the highest margin for MDI and profit will come down a little bit through the remainder of 2016?.

Well, depending on the end product that you're selling, some of our end products are very sensitive to raw materials and will actually move with the cost of raw materials because the way we sell them will be a raw material throughput. Others of our end products are free floating on pricing and so forth and have very little to do with raw materials.

So typically I'd rather see lower raw material prices than higher raw material prices but, as I've said the last couple of quarters, I wouldn't get too transfixed on raw material prices. I'd stay focused more on the margin between raw materials and the product price that we are ultimately selling.

And when raw material prices come down, that's no secret to our customers. They are going to be pushing product prices down. When raw materials go up, we're going to be pushing those product prices back up. So there is not going to be an exact quid pro quo on a monthly basis.

But I think on a quarterly basis, you'll see some of these spikes and some of the low pricing will really iron themselves out. So what I'm trying to say is I think that as I look at – I've heard a couple of people say that the best of the MDI markets are behind us because benzene prices have stopped falling.

I don't buy that theory and I think that the strength of MDI is going to be on the quality, the performance we give to our customers, and our discipline in pricing. It's not going to be just because of benzene prices..

In fact, an interesting exercise would be – and we've done this -is to correlate benzene prices with our margins and there is no good correlation between benzene prices and MDI margins on a quarterly basis. Now, on a monthly basis, as Peter said, maybe. But not on a quarterly basis.

It suggests again that we are able to move benzene prices through our systems and our polymeric component businesses pretty quickly..

Thank you..

Thank you. Your next question comes from the line of Bob Amenta (46:40), JPMorgan. Please proceed..

Thank you. Good morning..

Hey, Bob..

Just a quick, I guess, bondholder question on the TiO2. I mean, I guess it's good news, bad news.

I mean, if you are able to get it to $100-odd-million and you do spin it debt free, clearly the shareholders would own a little bit of each if they held it so it's kind of a neutral for them, away from any margin expansion you might get or multiple expansion.

But would you look at taking back some sort of non-cash payer contingent – any kind of intercompany or whatever you want to call it, something such that Huntsman, remaining Huntsman might get something down the road if it does return to $400 million to $500 million and can handle $1 billion dollars of debt or whatever the number might be..

Bob (47:27), as you said, we are prepared to spin it debt-free. There is a likelihood we can put some debt on it. I mean, we are just not going to over-leverage the thing like we've seen spins done in the segment. It's going to be modestly capitalized and so there could be some debt on it.

From a tax-free spin and what the IRS will allow us to do from an intercompany standpoint, it's not clear to me. We do not want to encumber it, as a cyclical business, with a whole bunch of debt.

So we'll do something on a modest basis and I think everyone will be happy because, as you said, our shareholders will continue to hold the upside in this business that we think is significant in the near term..

All right.

So it sounds like whatever this happens and whenever it happens, it is what it is in terms of there won't be some down-the-road contingent payment back? It will be what it can handle at the time and that will kind of be it?.

Bob (48:28), from an upside perspective, it will be likely that Huntsman Corporation will retain an interest in the spun business, and of course, as the company sees fit to sell down in the secondary, those shares, those proceeds will likely be used to repay debt. So it will be from equity that will be retained in a tax-free spin.

As you know, the company will need to spin 80% of the voting rights but it will be able to retain 20% of the votes and some economic interest in the spun business. And we would look to that on the backside as proceeds to reduce our leverage..

Okay, yeah, that....

Let's make sure, Bob (49:10) – that we make sure that we keep some flexibility here as well. I mean, we certainly don't want to paint ourselves into a corner today as to what we are going to be doing a few quarters from now.

I would just say that as we look at the spin, we are more encouraged by the economics today than we have been at any time over the course of the last year. The structure makes good sense to us.

And we believe – again I wanted to say this – I've said this many times before, there is nothing fundamentally wrong with the TiO2 industry as much as this is a business that when you start looking at the core performance, if you look at Huntsman without TiO2, we would be going into 2016 here generating a record amount of free cash flow with some of the highest margins we've ever had in our history and with better-than-GDP growth.

And this is a company without the Pigments business that would have a significantly higher multiple than we have today. And I believe that the Pigments business, on a standalone basis, capitalized right, moving into the markets, likewise may well even have a better multiple than Huntsman's enjoyed for the last year as a standalone separate entity.

So, as we look at the upside on a potential valuation from the multiple basis, the direction of where the two businesses would be going, I think that there is significant value that would be created on either one of those.

And as far as the balance sheet issues, let's get a little bit closer to launch date on something like that, and I think there will be a lot of answers at that time..

Yeah, no, I appreciate all that. I just had been assuming 100% was going and it sounds like that was probably not a good assumption. Okay, that's all I had. Thanks..

Welcome..

Thank you. And I think, operator, I think given the time that we have taken from everybody listening in on the call, I think that we'll wrap things up here..

Yeah. This is Kurt. Yeah, we want to thank everybody for joining us this morning and to the extent that have you additional questions, please feel free to reach out to the Investor Relations team. Thanks again..

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. All have a great day. Thank you..