Greetings and welcome to the Huntsman Corporation Third Quarter 2020 Earnings Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] It is now my pleasure to introduce your host, Ivan Marcuse. Thank you, Mr. Marcuse, you may begin..

Thank you, Victor, and good morning, everyone. Welcome to Huntsman's Third Quarter 2020 Earnings call. Joining us on the call today are Peter Huntsman, Chairman, President and CEO; Sean Douglas, Executive Vice President and CFO; and Tony Hankins, President of Polyurethanes.

This morning before the market opened, we released our earnings for the third quarter 2020 via press release and posted to our website huntsman.com. We also posted a set of slides to our website, which we will use on the call this morning while presenting 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 SEC 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.

We will also refer to non-GAAP financial measures such as adjusted EBITDA, adjusted net income and free cash flow. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted on the website huntsman.com.

I'll now turn the call over to Peter Huntsman, our Chairman, President and CEO..

Thank you very much, Ivan. Good morning, everyone. Thank you for taking the time to join us. Let's turn to Slide #3. Adjusted EBITDA for our Polyurethanes division in the third quarter was $156 million versus $146 million a year ago.

This is better than we had anticipated when we gave an update in early September as demand trends in nearly all of our polyurethane lines including construction, automotive and elastomers came in better than expected. Margins also improved better than we'd expect given tightening MDI supply-demand conditions throughout the quarter.

These positive market trends and conditions have continued into October. The third quarter improvement in adjusted EBITDA versus the prior year was driven primarily by the ongoing integration of our Icynene-Lapolla acquisition at lower fixed cost, which more than offset lower margins year-over-year. We also benefited from lower benzene costs.

Our differentiated volumes grew 2% and our component of volumes declined 4% in the quarter compared to the prior year.

Throughout the third quarter, variable margins in our differentiated business remained relatively stable at the same time variable margins in our component and polymeric systems improved off of the multi-year lows that we experienced in the second quarter.

The notable increase in component MDI prices over the past couple of months have been primarily driven by real global demand improvements as economies continue to recover from the second quarter Global COVID-related lockdown as well as from various fits and starts and temporary outages within the industry.

Our China business where we have less in downstream differentiation and in other regions of the world has benefited most from the higher prices. Europe has also benefited, but to a lesser degree.

Our higher downstream differentiated margins continue to show stability and importantly we saw meaningful improvement demand in our higher-margin Elastomers business and within automotive.

As is typical, there have been several planned turnarounds within the industry and as the industry responded to improving demand trends there have been various production disruptions.

As we reported a few weeks ago, we have our own production issues in Geismar Louisiana due to a third-party supplier of industrial gas having a mechanical failure, which we estimate will impact us by approximately $15 million in the fourth quarter.

As the various temporary production issues across the industry get resolved, we would expect that industry utilization rates will move back to a more balanced environment versus the seemingly temporary above-average tightness that we are presently experiencing.

However, we do see demand improving and fundamentals well intact construction including insulation is strong, auto is rebounding well and nearly all our other end markets are seeing positive trends subject to uncontrollable and unforeseen events. We would expect component margins to normalize at reasonable levels.

We've shared before we estimate that roughly half of our Polyurethanes business is impacted by trends related to construction with our largest direct exposure being within our insulation business, which makes up close to 40% of our global Polyurethanes segment.

Our portfolio is well-positioned to benefit from the expected growth within the global insulation market, which is our single largest market and we expect that it will be one of our highest growth market over the coming years.

A fast-growing end of our global insulation business is our industry-leading spray foam business Huntsman Building Solutions, which continues to exceed our expectations with the delivery of meaningful synergies from the recent Icynene-Lapolla acquisition as well as from strong market conditions.

We expect the $20 million in identified synergies to be achieved ahead of schedule and be largely completed by early 2021. Continued growth in North America will be supplanted by an aggressive effort to accelerate growth by scaling up this business internationally. Just to give you some additional interesting facts about spray foam.

An average home requires about 1,500 pounds of spray foam materials insulated. That currently sells for roughly a $1.38 to $2.00 per pound depending on the type of application utilized.

Additionally, our polyurethane spray foam utilizes our Eco-Friendly Huntsman produced polyol which uses the equivalency of roughly 10,000 PET bottles per average home otherwise destined for landfills.

Our polyurethane spray foam is an economically compelling, structurally sustainable and environmentally friendly alternative to traditional insulation products.

We believe that our polyurethane spray foam will see strong growth for the foreseeable future, provides an optimal solution in a world that is increasingly sensitive to green and sustainable solutions where building standards are becoming more environmentally stringent.

Today we estimate that our polyurethane spray foam only represents about 18% of the North American insulation market and substantially less than that globally. The opportunities for above-market growth in North America and globally seem promising.

As we sit here today, looking to the fourth quarter, we believe the favorable trends of our global construction and automotive markets continue. We also expect to see continued improved component and polymeric systems margins. Roughly offsetting these dynamics will be the $15 million impact from our partial Geismar outage and some typical seasonality.

Putting all this together, we would expect that our fourth quarter polyurethane results to be in line with the third quarter. Turning to Slide #4, our Advanced Materials business reported adjusted EBITDA of $25 million, down from $51 million in last year's third quarter.

The decline in adjusted EBITDA was primarily a result of revenues being down in aerospace by 68% year-over-year. The aerospace market remains depressed.

While we believe it has bottomed in the third quarter, we do not expect it to begin to start to recover until the supply chain fully destock and adjust to expected much lower production build rates over the next couple of years. Our Advanced Materials segment should be viewed in two segments.

Looking beyond the depressed aerospace segment, there is a much better recovery story within our other formulated Advanced Materials business. Our Specialties businesses excluding aerospace improved throughout the third quarter with revenues down only 15% and EBITDA down 21%.

This includes our Indian do it yourself, DIY business which was heavily locked down during the first half of the quarter. Our sales into the power, electronics, transportation, industrial markets strengthened throughout the quarter, as our EBITDA improved by 50% from the beginning to the end of the quarter and this momentum has carried into October.

The integration of our recent acquisition of CVC Thermoset is on track and delivered a modest contribution to EBITDA during the third quarter of about $2 million. As we stated in our last earnings call, the results of this acquisition are being negatively impacted by a needed inventory adjustment of about $5 million in the second half of this year.

With cost synergies expected from integration efforts underway, we expect 2021 EBITDA related to this acquisition to be close to 2019 levels despite approximately 15% of the business being exposed to the aerospace market. We remain confident that we will achieve a $15 million run-rate synergies by the end of 2021.

Would expect to exceed this target as we move through 2022 and beyond as we anticipate identifying additional cost savings and commercial opportunities. Looking towards the fourth quarter, we would expect our non-aerospace specialty businesses EBITDA to be close to the same levels as prior year and for CVC to make a modest contribution.

We're on the back of continued weakness in our aerospace business and the sale of our Indian DIY adhesives business, we expect the Advanced Materials segment EBITDA to be slightly lower than the third quarter.

Just to be clear on a pro forma basis, meaning if we were to include the DIY business in our estimates for the fourth quarter, our adjusted EBITDA for the Advanced Materials group would likely be modestly higher in the fourth quarter.

Let's turn to Slide #5, the Performance Products segments reported adjusted EBITDA of $36 million compared to $38 million in last year's third quarter. The decline in EBITDA was largely due to approximately 19% lower volumes, partially offset by lower fixed costs.

Our Performance Amines volumes, which make up about half of the Performance Products segment volumes declined by approximately 6% in the quarter versus the prior year, primarily due to volumes in the gas treating. Yet the related EBITDA increased approximately 11% from lower costs and a favorable product mix.

The strength in Performance Amines comes as a result of specialty products used in composites going into the Chinese wind market, coatings and adhesives going into construction markets and our low emission catalysts that provide VOC free solutions going into markets such as installation, betting and automotive.

Volumes and margins in our ethylene amines business continue to be weak due to the overall economic environment and competitive pressures. Overall margins in Maleic remain relatively stable and volumes that go into the construction-related markets are now trending positively.

Despite the fourth quarter being historically the weakest quarter of the year, we expect Performance Products adjusted EBITDA to be similar to the third quarter as its core markets continue to recover. Let's turn to Slide #6. Our Textile Effects division reported an adjusted EBITDA of $8 million for the third quarter.

While volumes in the quarter fell approximately 13% versus last year's third quarter, we did see a significant improvement in volumes and EBITDA versus the second quarter. The volume recovery we are seeing is being led by our home textile products and our athleisure sportswear and protective apparel.

We also see a gradual pickup in demand within our Automotive textile products. We are optimistic that the industry will continue to recover over the coming quarters, generally in line with the reopening of retail stores and pent-up consumer demand. We believe that inventories in the supply chain are on the tight end.

As our customers gain more confidence around the eventual recovery, we expect to see more benefits from restocking as well. Our offering of sustainable products in textiles continues to gain momentum. Just one specific example would be our range of patented Avitera dyes which allows our customers to reduce water and energy consumption by up to 50%.

We are focused within textiles and throughout all of our portfolio of developing profitable, sustainable solutions for our customers. While fourth quarter EBITDA and our Textile division will be down versus the prior year, we expect that this business will continue to show further recovery and improvement versus the third quarter.

Before sharing some concluding thoughts, I'd like to turn a few minutes over to Sean Douglas, our Chief Financial Officer.

Sean?.

Thank you, Peter. Turning now to Slide 7, we were pleased to see a better-than-anticipated recovery during the quarter. Just to give you a flavor of that recovery, we saw monthly adjusted EBITDA more than triple from June to September. At a high level, our adjusted EBITDA is down $27 million year-over-year.

As explained by Peter, this is largely attributed to the significantly depressed sales within our commercial aerospace business and to still recovering demand for retail apparel within our textiles apparel business. But for Polyurethanes volumes were down year-over-year in all segments amidst the global recovery that has been underway.

Though now improving, overall margins were a bit weaker year-over-year, more than offset by lower fixed cost, largely as a result of our response suppression to global COIVD-related impacts. Turning to Slide 8, we ended the quarter with approximately $2.5 billion of liquidity, including approximately $1.2 billion of cash.

In relation to the sale of our India based DIY business, we expect to receive $257 million of cash within the next week. We expect tax leakage to be just under 10%. We also expect to complete the sale of approximately $42.5 million shares of Venator near year-end for approximately $100 million.

This includes cash paid for a 30-month option for the potential sale of the remaining approximate 9.5 million shares at an agreed price of $2.15 per share. The transaction is subject to regulatory approvals, which are progressing and on schedule.

The capital loss on this transaction unlocks cash tax savings of approximately $150 million relating to the taxable capital gain on the sale of the chemicals Intermediates and Surfactants business that was completed earlier this year. Remaining cash taxes owed on this sale are approximately $185 million to be paid in the fourth quarter of this year.

Depending on the timing of completion on the sale of the Venator Shares the net amount to be paid in the fourth quarter may be reduced this year by approximately $150 million. If the transaction closes, subsequent to year-end, the $150 million of cash tax savings will be received near the end of 2021 or the beginning of 2022.

We are doing our best to close this transaction before this year end and are on schedule. We generated $189 million of adjusted free cash flow during this quarter. This is more than we had anticipated for the quarter versus when we addressed you during our prior quarter's earnings call.

In addition to our adjusted EBITDA being stronger than initially expected, with a sharp intra-quarter recovery, more surprising was the increased cash provided by the change in working capital. Not only did we see a resulting larger drawdown of inventory, but also a bigger increase in payables down was expected.

Our days inventory dropped by an additional approximate 5 days than was expected with a similar increase in days payable than was anticipated. Furthermore, we were effective in managing our receivables through this COVID Canyon and DSO also reduced by a few days.

As we shared with you last quarter, we effectively managed our inventories lower at the onset of COVID. Now with this improved recovery our inventory levels are particularly tight. As we sit here today and look into the fourth quarter, we do not expect the typical seasonal release in primary working capital as typically we experienced.

In fact, depending on the nature of the ongoing recovery, we expect to see a modest build in inventories. For your awareness, we have a plan, large scale turnaround scheduled at our Rotterdam MDI site for March-April of next year. This occurs every 4 years. The estimated duration of which is between 40 and 45 days.

The estimated cash impact will be around $40 million and the projected EBITDA impact should be under $10 million. We typically build inventory ahead of turnarounds. During the quarter, we spent $54 million in capital expenditures.

For 2020, we estimate that our total spend on capital expenditures will now be between approximately $250 million and $255 million. This is approximately $25 million more than we had previously guided.

The increase is largely a result of moving forward some deferred payments on our Geismar Louisiana splitter for a total spend in 2021 of approximately $55 million.

With respect to the polyurethane splitter, we still estimate a total spend of approximately $175 million or just over $180 million, including capitalized interest and a startup in mid-2022. That leaves approximately $80 million of spend on a splitter in 2021 and the remaining approximate $30 million of spend in 2022.

In other words, in total, we are still on budget and still on schedule. We are days away from renewing our primary insurance programs. Worth flagging is that the global insurance markets, are experiencing a typical shortage of capacity.

This is not only specific to Huntsman, but it will impact our annual insurance premiums by as much as approximately $15 million, all of which are paid in the fourth quarter. Putting this all altogether, we still anticipate a modest positive adjusted free cash flow for the year 2021.

During the quarter, we did not repurchase any shares but we did pay off the term loan of approximately $100 million. We have a U.S. equivalent of approximately $520 million of euro-denominated notes maturing in April of next year and callable in January which we currently expect to redeem next year with cash on hand.

This will reduce our interest in 2021 by about $25 million. We remain focused on maintaining a strong investment-grade balance sheet, being discipline, sensible and balanced in our capital allocation strategy, and with the recovery underway generating consistent, strong free cash flow. Peter, back to you..

Thank you, Sean. As we move into the final months of the year, I think it's worth looking back on some of our objectives and where we are in our effort to create more shareholder value. Beginning in January, we sold our chemicals intermediate business for $2 billion.

This further transformed our balance sheet and allowed us greater flexibility to pursue aggressively our ability to grow the more strategic ends of our business. This transaction also allowed us to take advantage of tax losses that we are able to realize with the sale of the remainder of our stake in Venator, which we announced this past August.

We are still on track of seeing a closing of this transaction hopefully before the end of the year. We do not see any major obstacles to getting this completed by then. In May, we closed on the CVC Thermoset Specialties business as we sort to further expand and diversify our Advanced Materials division.

While we're disappointed to see the slowdown of our commercial aerospace business due to COVID-19 pandemic, the CVC acquisition will help fill the void created from this temporary loss in sales and EBITDA.

As this valuable aerospace business begins to recover over the next year or two, it will be additive to what we are building with the CVC acquisition and other ends of our Advanced Materials division. We are also well on track to deliver the previously announced $15 million of synergies.

In July we announced our initiative to realign our cost and streamline our operations. At the time, we outlined $100 million of savings from these efforts, which includes acquisition synergies. We are now targeting approximately $112 million and I would expect this number may well grow.

We expect some $20 million to be realized by end of this year and we should be running in excess of $100 million by the end of next year. Last night, we announced the sale of our Indian based DIY business to Pidilite in an all-cash transaction valued at potentially $285 million. Full transaction value represents a multiple of 15x our 2019 EBITDA.

Huntsman will receive $157 million in cash at closing, which is expected to take place within the next week. Then we will have the potential to receive up to an additional $28 million in cash within 18 months depending upon achieving certain revenue milestones that approximate 2019 level.

We built this business from nothing over these past 15 years and have taken this business about as far as we can without material expansion or investment. Pidilite is a respected adhesives business based in India and is well-positioned to now take this business to the next level.

This is a win-win transaction to unlock significant value for Huntsman that we will redeploy in the near term to further reshape our Advanced Materials business. Win a multiple of our sale at the beginning of the year and our -- of our intermediates business and now this India-based DIY business.

These two divestitures should demonstrate the quality of our businesses and divisions. We will continue to assess other assets in our portfolio, but given our balance sheet and global footprint, one should expect more acquisitions than divestitures. Lastly, I'd like to point out the performance of our newly formed Huntsman building solutions.

This is an entity that we formed through the acquisition of Icynene-Lapolla and Demilec, two polyurethane spray foam businesses that we further combined with our polyols and polymeric MDI production.

In the past year, we have created the world's largest polyurethane spray foam business, the world's best insulin, and the fifth largest installation company. We're comm -- we are committed -- we committed to you that we would realize $100 million of EBITDA by the end of next year.

I'm pleased to say that during the third quarter, we hit that runway rate well ahead of our forecast. At the beginning of this COVID crisis, we told you that we would emerge from this mess a stronger company than when we entered it.

At the present time, while I like the demand in margins going into the fourth quarter, we are also aware and keeping an eye on the rapidly changing market conditions, particularly in Europe, where the number of COVID cases and the National lockdowns have all increased in the past two weeks.

The coming days, we'll see the debt risk of over a 1,000-point drop in the stock market this past week, the effects of Hurricane Zeta and the results of an election where a much loved Donald Trump will either prevail or lose against the much-hated Donald Trump as America either approves or disapproves of his performance.

Either way, this quarter is shaping up to be very interesting.

One thing is certain, we will continue to focus on what we can control, we will continue to support our strong customer base, keep an investment-grade balance sheet, control our costs and add value to our shareholders with smart out capital allocation, so asset divestitures and bolt on acquisitions.

With that, operator, why don't we open the lineup for Q&A?.

Ladies and gentlemen, we will now have our question-and-answer session. [Operator Instructions] Our first question comes from Bob Koort with Goldman Sachs. Please proceed with your question..

Thanks, good morning..

Good morning, Bob..

Good morning..

Peter, maybe to ask Tony a question, I think you mentioned he was on the line, there -- there's certainly been some volatility and production curtailments, as you mentioned, in MDI, but I also sense talking to investors a lot of varying consultants opinions on how much MDI is coming into the world over the next couple of years.

I was wondering if you could talk maybe specifically, Tony, what your business intelligence is telling you about supply capacity coming into the MDI market in 2021 and to the extent we have a normal world, what do you think the demand growth would be in 2021? Thanks..

Bob, good morning. Good to be with you. I see the market to be very balanced right now and over the next 2 years. There are no major new capacities coming into the market, some debottlenecking.

But overall, I think the demand growth and supply growth will be matched and very balanced, and as we exit quarter three, we're seeing roundabout within our business, anyway, a 3%, 4%, MDI growth over last year.

The recovery across all sectors has been really impressive through quarter three, particularly in our insulation business and I see that continuing. I mean I -- there are unforeseen circumstances with COVID and what that may do in quarter four, but right now we're not seeing it.

We have strong order patterns and I think as people are aware, there's a lot of maintenance going on right now and I would estimate it across the global business, we're at about 20% of MDI capacities currently idle with maintenance. But coming back to your question, Bob, I see the situation to be very balanced.

I don't expect the supply to exceed demand over the next 18 months to 2 years..

Great, thanks.

And, Peter, if I could ask sort of broadly through the portfolio, you mentioned MDI and its [indiscernible] insulating properties, but as we start to think about green energy and new deals and stimulus for those sorts of things, it would seem you've got wind, you've got insulation, you've got construction insulation, residential insulation, how can you guys tap that theme that's continuing to grow in significance in terms of energy conservation or New Energy? Thanks..

Well, Bob, I think that as we look at the entire green new deal, there's a lot of it that I have some consternation about, to be honest with you, but there's also a lot of it that when we look at it, particularly around construction and what we see in insulation and OSB, and as we continue to make progress in various grades, they're going to see -- you're going to see in those coming year or so, fire retardancy and so forthcoming into a lot of these products, we'll get better properties.

We're environmentally coming up with a number of opportunities here and I think particularly around energy conservation.

If you look at our amines business, what we're doing to take sulfur and a lot of the bad actors out of gas treating, if you look at our polyurethanes catalysts and other products that take volatile organic compounds out of a lot of the chemistries of today, you look at the water conservation and color conservation.

The chemical industry needs to be, my opinion and Huntsman, in particular, I think we need to be more bold in what we're able to do as providing solutions in transitioning in economy to be more green and to be cleaner and more profitable all at the same time.

So, believe me, I think regardless of who wins, we have internal ideas and strategies and have already met with lobbyists on both sides of the aisle, where we'd like to be part of the solution going forward, not waiting for Inauguration Day, but it ought to be -- we -- I hope that our influence will be felt right after the election.

Because I think we bring a number of solutions to the table..

Great, thanks very much..

Thank you..

Thank you. Our next question comes from Frank Mitsch with Fermium Research. Please proceed with your question..

Yes, good morning. And for what it's worth my vote would be for a much love Ivan Marcuse versus the candidate there. A couple of years ago, you guys did a really good job of detailing the windfall from some of the outages on the MDI front and how that impacted Polyurethanes.

Is there a way that you could kind of quantify what impact, if at all, that showed up in the third quarter?.

Specifically around the under-utilization of production of MDI?.

I mean obviously, we saw some -- you had some demand constraints, but a lot of competitors had downtime. We saw a bunch of force majeures announced. And as you indicated in early September, you thought you would do $40 million higher EBITDA in Polyurethanes and it came in a little bit higher than that.

I would assume that some of that was related to the force majeures, was it not?.

Yes, I think that as we look at it, I mean, ass I tried to articulate in some of my comments, I think we're going to see this most profoundly in China where we have more commoditized production versus North American where we have more formulaic production.

And then we look at taking a lot of our commoditized production of the polymeric and moving it downstream into the insulation business.

I mean, ideally, we'd like to be moving as much of the product that is most impacted by these sort of shortages, we'd like to be moving that product further downstream into spray foam and others, but I think that as we try to put a handle around -- an economic handle, if you will -- I don't like using the word spike because that would denote that we're going to be up X dollars one quarter and down X dollars on another quarter.

But I think that the overall impact of this would probably -- of these shortages and pricing, I think it's probably somewhere around $20 million to -- on a quarterly basis. And as we look at that going into the fourth quarter, we'll probably see the full realization.

I think it probably ramped up in the third quarter, that amount, we -- at the beginning of the quarter, I'm not sure you would have seen a whole lot of that.

By the fourth quarter, you probably ought to see that in full effect of around $20 million, but again that's a really -- it's a really tough thing to calculate, because as you get shortages on a global basis, bear in mind that you're looking at anywhere from 30 to 60 days to be able to take MDI from point A in Asia or point B in Europe or the US and move it to other areas of the world.

So people somehow think that you can instantaneously move product globally. That's just really tough to do. And how much of this is a spike in margins and pricing, so forth, how much of it is due to a recovery of demand, how much of it is due to outages and so forth. It's -- at the end of the day, it's tough to tell..

Yes, fair enough. Fair enough. And then if I could, kind of interesting, at the first-quarter conference call, I think some of the discussion was around how the pandemic might impact M&A and move it to the side, and obviously, you guys have done a heck of a job remaking the portfolio or making some changes here there via M&A since that time frame.

And so with the announcement of the sale in India, I think you indicated, when talking about Advanced Materials, that you're looking to redeploy that money into M&A in that front. When -- what sort of timeframe, what sort of size are you looking at? Any sort of color you could provide there would be great..

Well, right. We're in the process right now of actively reviewing a number of opportunities. And as we look at this, we want something that's going to have synergies, hopefully, some product pull-through, some synergies around that. Something that will be additive to our technology and something that we can globalize.

And as we kind of look at that matrix, we're looking actively right now at multiple options. And I would say that again, I stress in my comments that we'd like to keep an investment-grade balance sheet and we certainly don't want to stress those statistics.

So I mean, it's a bit too early for us to name potential candidates here, but I think we also mentioned that this acquisition would likely be in the Advanced Materials segment as well..

So that's something we can look forward to kind of the early part -- earlier part of 2021, you think?.

I would hope the sooner the better, but you know the way that transactions go, it's just -- they kind of have a life of their own..

Terrific, thanks so much..

Thank you. Our next question comes from Mike Sison with Wells Fargo. Please proceed with your question..

Hey, guys, nice quarter. Peter, when you think about the insulation business and there are folks who think that housing will remain pretty strong for the next couple of years, given, I think, there is a trend to maybe moving [indiscernible].

Is there -- do you think this is a business that grows double digits, high single-digits? So what's the cadence of growth as we head into two thousand -- into 2021?.

I think that you're going to see high single digits. But as you look at this, I keep a couple of things in mind. First of all, we look at spray foam in general, that's about 18% of the North American insulation market and that's for the entire spray foam industry. That's not just Huntsman, I may have misspoke in my comments here, leaving a word out.

That's entire industry supplying and not just Huntsman. But as we look at that spray foam opportunity here, if you were to look at probably one of the easiest ways we talk about the greening economy, here is one of the easiest ways to conserve CO2.

Just under 50% of all energy consumed globally is consumed to adjust the environment of our homes and offices and insulation is one of the easiest ways to do that.

The studies that we've done internally with our own customer base of people in spray foam, you're looking at heating bills that are cut in half with people that take that cheap pink garbage out of their attics and they put it in our high-quality spray foam, and so that's not a sales [indiscernible] by the way.

And so, as we look at it, there is really through very little effort. You can have a real impact on the environment.

If building standards were to just marginally change or to match much of what you see in Europe or even in many of the states in the US and you were to see a build rate of 1 million homes, which is down significantly from where we are today.

I'm kind of taking a worst-case scenario of 1 million homes annually, and we would have a 20% penetration in something like that. You would see this business in very short order in the next couple of years, doubling. But I think on a realistic.

I mean, we kind of look at present market changes without any changes in legislation or anything else, this business we think will continue to grow, in very high single-digit sort of numbers and that's on a global basis..

Got it, thanks. And then I guess a quick one for Tony. I think you said 20% of global capacity is out.

How long do you think it will take to get some of that capacity back online? And then when you look at where pricing is now relative to last year sequentially, it's up quite a bit, could you maybe talk about how the timing flows? I know you mentioned, Peter, $20 million, maybe this quarter, but the -- will you see more of that effect in the first quarter versus this quarter?.

Mike, going back to your question of 20%. So it's hard to tell because it's -- these plans around the world and our competitors clearly have a better view than I do on this, but I think that some of that's going to come back in quarter four. Geismar plant is scheduled to come back online on November 15.

And the plants, when they come back, it takes some time to get them back to full operating rates.

So I think we're assuming that most of that outage is going to continue through quarter four, and then we'll slowly start to work its back -- way back into the market in quarter one of next year, but our history has shown that these plans take longer to come back than people forecast.

It is a complicated process to get an MDI plant back on stream and it always seems to take longer than we expect. So I think you should assume for the next three to six months that capacity is slowly going to work its way back into the market..

And I would just like to clarify that when we talk about that $20 million, that is a fourth-quarter number and that's assuming that the pricing that we're seeing today holds out through the quarter.

And I would say that when you look at how much of that was in the third quarter, it would have been felt very, very little in the final part of the third quarter..

Got it. Thank you..

Thank you. Our next question comes from John Roberts with UBS. Please proceed with your question..

Thank you.

Peter, do you have any thoughts on how quickly Performance Products in the non-aerospace part of epoxies can get back to pre-COVID levels?.

Yes, I think that as we look at it, I think by the early part of next year, I think that if present trends continue -- and again I want to emphasize that if you are asking me that question 10 days ago versus today, kind of pre-European lockdown versus post-European lockdown, there's just a lot of noise and static in fourth quarter and I'm generally a pretty optimistic person, so I mean, take that for what it's worth.

But as we look at the non-aerospace segment of Advanced Materials, I think that you're -- we're somewhere around to 90% of where we were. Today, we're somewhere about 90% of where we were a year ago.

And I would expect that to be back on year-over-year, non-COIVD sort of volumes by the early part of next year, again assuming that we continue recovery, not that we fall back down. The aerospace segment of that.

Just again, looking at what's been said by Boeing and by others, I think that you're simply looking -- I'm looking at kind of a two-phased approach.

One is, how long does it take us to get back to a normal -- a post-COVID normalized build rate, if that makes any sense, because right now I think that Boeing essentially is going to stop production, just clear the inventory of planes that are sitting around Victorville and all over the place waiting for customers to take those.

Once the existing inventory of planes clear out, then you go to what I would call that new normal, which is a greatly reduced production rate. And then probably a couple of years down the road, you kind of get back to a post -- a pre-COVID, sort of a level of fly again.

And what that world looks like and which planes are actually put back into the fleet and so forth, time will tell. But the non-aero business of Advanced Materials continues to do well, continues to grow well, and I think we'll have a lot of applications as we look to that excess capacity going elsewhere..

And then could you just remind us what percent of the Polyurethanes segment sales are component in polymeric MDI that's not protected by spread margin contracts?.

In the US, and again, those spread contracts are only about -- that's -- virtually all that's in North America. And it's about -- 60% of that is the polymeric and is under contracts..

Thank you..

And again, that's in the US. That -- we haven't really -- that really hasn't caught on in other parts of the world..

Thank you. Our next question comes from Aleksey Yefremov with KeyBanc. Please proceed with your question..

Hi. Yes, good morning, everyone.

Peter, your current domestic spray foam business, I think you're saying about $100 million normalized EBITDA run-rate, how should we think about the international opportunity? And can you give us some idea on how soon you can get there, maybe some targets for next year and next two, three years?.

So I think that over the next couple of years, I think we're really focused on over the next 12 months. We look at the EBITDA of that business. I would say that I think there's a real opportunity today. About 10% to 12% of that EBITDA is coming from international markets and it would be great if we could see that go up to a quarter.

It's an enormous opportunity for us and we look at the penetration of polyurethane spray foam in Europe and in Asia, we already have the infrastructure there. We have the blending capabilities. We have the people there. We have the distribution networks throughout Russia and in China and Europe and Southeast Asia.

So I would hope that over time, we're going to continue to see that strong, single-digit, pushing 10% sort of growth on an annualized basis in North America, and hopefully, we ought to see better than that internationally, once we're up in operational.

But we're start -- we're starting at a very low basis there, but it still is EBITDA positive even today..

Thank you. And question for you, Peter or for Tony.

Some of the trader ags [ph] are reporting strong demand for rigid insulation panels in Europe, is this a normal cyclical recovery after lockdown or is this also a result of maybe the secular impact from the EU policies?.

I think there is going to be -- the Green Deal that we're seeing in Europe greatly is a great incentivize -- incentive for builders to -- and architects and construction firms to be implementing the best practices and the best installations and the best energy conservation and it would be natural that they would be moving to Polyurethanes.

So when we look at that rigid foam section, I don't think it's just Huntsman, but other companies are seeing a healthy demand particularly given where the macro economies are in these countries.

Thank you..

Aleksey, I think, just to add to what Peter said, we're also seeing continued strong demand for DIY, particularly, in Europe and North America. So a lot of that insulation and particularly in the composite wood products business continues to see very strong growth in both Europe and America.

And I think that is a result of the continuing pandemic and people continue to use discretionary spend on improving their homes, which is benefiting our business very significantly..

Thank you. Our next question comes from Hassan Ahmed with Alembic Global. Please proceed with your question..

Peter, a question around the polyurethane business, some of the trade publications have been talking about fairly tight conditions on the polyols side of things, and how with rising prices and polyols, scarce availability, there has been reduced demand for TDI.

Now the question really is that -- I’ve heard your comments, obviously MDI demand seems to be quite strong.

So my question really is, have you been gaining share from TDI?.

I don't really think so, a lot of the applications of the TDI goes into -- don't necessarily compete with us head-to-head. I mean, there is that fringe area around soft foams going into furniture and so forth, but I think it's a pretty small segment. We really don't have a marketing effort that would say we're going to target TDI or TDI applications.

Again, there is overlap, Hassan, you're absolutely right. It's not something that is a major effort for us. As we look at polyols, I think we're finding ways to relocate and replace our polyols.

We particularly like the polyester polyols to the extent that we can build out end of our MDI and our Polyurethanes business into the polyester polyol or TEROL business. We're using that technology of recycled bottles and moving that ahead. I think for us, that's going to be something that will be a high priority for us..

Very helpful, Peter. And as a follow-up, going back to the sale of the Indian DIY business, obviously you got a great multiple. If I run the numbers, obviously, you're looking to replace the $19 million, $20 million of EBITDA that you generated from that business in 2019. According to the press release, you said rather quickly you want to replace that.

Is it fair to assume that $19 million, $20 million of lost EBITDA in any business that you acquire -- it would be at, I'm assuming, a multiple significantly lower than your sale multiple. So, it's a two-part question.

Is that fair to assume? And second is, how quickly will you be able to replace that?.

Well, I think it's obvious from what I said earlier, we're actively reviewing opportunities. We’re in negotiations with options that we think will be an opportunity to expand particularly Advanced Materials and I don't want to get into where that multiple might be and so forth. It's just right now.

I think it's a bit of a sensitive time to be talking about potential acquisitions..

Fair enough. Thank you so much, Peter..

I would just say, whatever the acquisition, as we've always said that post-synergies, those multiples would be very close to where we trade or better. So I think, when you look at on a post-synergy basis certainly, it could be a lot better..

Excellent. Thank you, Sean..

Thank you. Our next question comes from Jeff Zekauskas with JPMorgan. Please proceed with your question..

Thanks very much.

Your EBITDA and Polyurethanes was above where it was last year and volumes were flat, and what you said is, the markets are a little bit tighter than they might be ordinarily, but your volumes should grow, so order of magnitude, should the Polyurethanes segment earn in 2021 what it did in 2019, just roughly?.

Yes, I would hope that it would be close to that.

As we look at that, probably, let's say, in 20 years -- you're asking a 2019 number versus a 2020 number?.

2021.

In other words, 2021 should look like 2019, given that the third quarter is a little bit better, a little bit tighter, it's going to loosen up, your volume is going to grow?.

I think that as we look at the volumes and so forth, especially if you factor in the HPF in Huntsman Building Solutions, we ought to be doing better in 2021 that we did in 2019..

Okay.

And what will it take to get the Textile Effects business back to normal?.

People going to stores and buying clothes. I think, again there you will see -- as I look at the recovery of demand in Textile Effects, we were down 60%, 70%, the lowest point year-on-year demand. And now, I look in the fourth quarter, we’re down single-digits from where we were a year ago.

Granted a year ago, when I compare this year's fourth quarter to last year's fourth, Textile Effects was feeling more of the of the impact of COVID then the other divisions, because it's so Asian-centric and of course, being the virus started in China, that was impacted and that area of the world has impacted before any place else.

So as we look on year-on-year comparisons, we'll probably see that exceeding last year first in Textile Effects. As we look at Textile Effects to see a rather rapid recovery to a point, and then that last point will come about gradually and slowly, I think through the early part of 2021, as stores and retailers start opening.

We clearly have seen that there are certain clothes and apparel and textiles that people will buy online. People typically buy their athletic wear and so forth online, people typically don't buy formal clothes and things that need to be fitted, things that need to be tailored.

I think that people want to try on and so forth, people typically don’t buy that online. And so, there are certain segments that are doing well. Other segments that are not doing very well and that will -- I think recovery is, as you mentioned, the retail outlets start opening.

Auto is gradually recovering, home textiles is recovering, and these are recovering a lot faster than the retail end, as well. And anything dealing, of course, with PPE, the personal protective equipment and everything, we're seeing a growth in that area as well..

Okay, thank you very much..

Thank you. Our next question comes from David Begleiter with Deutsche Bank. Please proceed with your question..

Thank you. Peter, you mentioned talking about the India Adhesive sale that you won't be looking into other assets.

I assume they're pretty small, but any more color on what those could be in the size of those other assets that could be reviewed?.

No, where we were talking about divestitures or acquisitions, I never wanted to use the word never or say that there is parameters about what we may or may not do. I'm quite pleased with the portfolio and the shape of the overall portfolio, but at the same time, a part of our job is that we have is to look at our assets, to access our assets.

And as I look specifically the DIY business in India, I think that we took an asset from nothing, we built it, and for us to have continued to build it at that rate, we would have had to have started consolidating market share, putting in quite a bit of investment and capital and retail advertising and so forth, and the company that we sold it to, Pidilite, is already in that segment, doing all those things.

They put a higher value on it then we did internally.

To the extent that we have other products and lines in the business that would fall into that same sort of parameter, I think we owe to our shareholders to look at where we can create the most value, but I think that generally, I don't see a lot of pieces for sale within the company and I look at the size of the acquisitions, look at what we've done over the last couple of years between the consolidation of our Maleic Anhydride, CVC, Demilec.

I think these are pretty good-sized acquisitions that are meaningful, you're not risking your balance sheet, you're not stressing the balance sheet, but we see meaningful synergies and meaningful opportunities to globalize and build these businesses..

And just for cost savings, I think you increased the target from $100 million to $112 million, a modest increase, but where did that $112 million come from?.

I think you're looking at hundreds of thousands of dollars here and there, and you're looking at opportunities.

I think it's not all coming from one specific segment and I think each segment, as they start looking within their area of opportunities for consolidation and rationalization and streamlining businesses and so forth, they're finding opportunities as you start digging through these sort of projects..

Thank you..

Thank you. Our next question comes from PJ Juvekar with Citi. Please proceed with your question..

Thank you. Peter, can you talk about performance Products business? You had 19% volume declines or sales declines, I should say, in this quarter and 20% decline in second quarter. So you're not seeing much sequential pickup, but despite that, your EBITDA margins have been very resilient, EBITDA really is not down that much.

So can you just address the top line versus the bottom line in Performance Products?.

Yes, our biggest volume in that Performance Products is our Maleic Anhydride and I would just note that our biggest single facility that almost exceeds the rest of the capacities combined globally within Huntsman is our Pensacola, Florida site and that's why it was down for hurricanes that passed through the area, and some of the residual impact of those hurricanes.

So I think, third quarter we had some one-offs on volume and on availability of product. Certainly, the demand for the product grew throughout the quarter.

Maleic Anhydride is used a lot in -- if you were to go into the -- think of the bathroom fixtures and apartment fixtures that you would see, the kitchen fixtures and that you would see in an apartment or a hotel. And so, we're seeing very -- anything that has to do with residential construction and installation or OSP or Textile is doing quite well.

Anything that has to do with closed-in small unit apartment construction, hotel construction has been recovering at a much slower rate than the residential.

I think the Maleic construction applications -- I don't want to say that they're all tilted towards that apartment and hotel construction, but they are tilted a bit in that and so you're going to see -- I think you're going to see a slower, quote unquote, construction recovery in Maleic but you'll see it nonetheless.

So, I think you'll see that recovery coming and I think the hurricane impact on production limited the number of pounds that we had to sell..

And the EBITDA, can you address that? It’s been quite resilient, what accounts for that?.

I think that those are our strong products. I think we have unique businesses and applications. Margins are stable and these are great businesses..

And then just quickly, you earlier mentioned about your green PU spray foam that will include PET bottles, how do you charge a product like that? Do you get some kind of a green premium or is it going to be priced in line with the existing product? Thank you..

Well, I think over time you start seeing the quality of the product that we have and the base -- how it's made and the Greening [ph] effect. I don't think that we're getting a green premium today.

I do think that all things being equal, and you've got an opportunity to use something that is made that will be in your house for decades to come, that's made from recycled PET. You look at the environmental advantages that come from all this.

I think that there is a premium and I think that over the course of the next year or so, as we start more aggressive advertising and more aggressive promotion and so forth in this area, again, I want to remind you that this is a business that two years ago -- we weren't even in this business.

So we view this business really as, still to some degree as excited as we are about it, we're still rather in the infancy of the business. I think consumer habits and consumer sentiment is going to be very high and then, they're going to care about this stuff. So yes, I hope that over time we would be able to have a green premium..

Thank you, great idea. Thank you..

Thank you. Our next question comes from Kevin McCarthy with Vertical Research Partners. Please proceed with your question..

Good morning. Thanks for squeezing me in. I wanted to ask about your equity earnings which came roaring back sequentially to $21 million in the quarter versus a quarterly run rate of about $2 million in the first half. I'm cognizant you have a JV with Sinopec in China that makes propylene-oxide and other products.

Was that a meaningful contributor? And if so, what are your thoughts on sustainability of the third quarter level, as you look into the fourth quarter level and beyond? PO seems really tight these days in some parts of the world..

I think that we did see an impact in the third quarter from a joint venture we have in China for the PO/MTBE facility that we have with Sinopec. I think that as we look at this on a more normalized basis, I think that number will probably be around $40 million. I count on about $10 million a quarter on average, on something like that.

I'm not sure we mentioned or not, but in the fourth quarter, I think we do have a T&I [ph] at that facility. So I certainly wouldn't be looking for a repeat in the fourth quarter of we saw in the third quarter..

I see that's helpful and then, Peter, just coming back to the subject of capital deployment, you've obviously got a lot more financial flexibility pro forma for the deal that you announced yesterday, as well as the Venator transaction.

It seems as though acquisitions are plan A, but in a scenario where we started to see more prevalent lock downs, a more difficult winter, if you will, resulting in equity-market volatility, how would you characterize opportunity for repurchases in coming quarters?.

Repurchases of stock shares?.

Of Huntsman shares, yes..

I never want to say never, but I think that, as we look at the balance sheet and as we look at our priorities of a dividend of M&A, and then organic investments an organic growth internally, when we look at the IRR on what we're able to get today, I'm not sure that -- I think it will be quite a while until we’re buying any more shares.

I don't foresee that in the foreseeable future. But again, if something were to radically change, it's something we obviously ought to be considering, but present scenario, it would be tough to see that..

Understood. Okay, thank you so much..

Thank you. Operator, why don't we take one more question? I think we've gone over our time limit here, but we'll take one more question..

Thank you. Our final question comes from Laurence Alexander with Jefferies. Please proceed with your question..

Good morning.

And just a quick one, how much of your business is run on market-facing dynamic similar to the building products business you highlighted? And how do you think about the pros and cons of restructuring the company on an end-market basis, as opposed to a product line basis?.

Laurence, I apologize, I don't have a precise and clear answer. I've always been a bit of a believer that you've got to control your supply chain. You've got to control the cost in the supply chain.

We've looked internally multiple times of looking at having -- in Aerospace division, Automotive division, a construction division, have all of our product flow into that one division. I don't know, and there are a lot of our competitors that seemingly every 2 or 3 years they kind of pencil in back and forth.

I think that those opportunities, particularly as we look at construction in auto, which is 60% plus of our overall business, we try to capitalize on relationships and applications and so forth.

But if you've got an application that’s going into a coding application on a car and a product going into the seat on a car, quite frankly most car manufacturers don't tie the two together.

And they’re not going to pay you anymore, or treat any better because you're supplying with paint, you're supplying with foam, and you're supplying with wiring cable.

I think you lose some of that efficiency of just looking at the supply chain, looking at your working capital, looking at your technology transfer [indiscernible] and keeping an eye on benzene, down through nitro-benzene, analene, MDI, the formulations systems and so forth, keeping an eye on that entire line, rather than being modeled into what we're doing in an end-market.

But you really have to, in my opinion, walk and chew gum at the same time, you've got to be able to look for those opportunities, but I just don't think that they’re as prevalent as they usually are.

Building materials might be -- we've continued to experiment with that, as we look at what we're doing with spray foam and how that might overlap with some of the applications in OSP, and how that might overlap with some of the rigid foam. We're already in all three of those, we’re market leaders in all three of those.

To the extent that we can find consolidation and opportunity, we’ll certainly be doing it. But again, you look at the customer base regionally, it just varies from company to company and contractor to contractor and state to state, to be honest with you. So I think we'd rather be focused on a very targeted approach rather than a macro approach..

Thank you..

Sorry, that was a long-winded answer..

Well, it stopped me from asking a second question, so that's perfect..

Okay. I was victorious then. Thank you very much, Laurence. Good to hear from you..

I know we didn't get to all of you, so feel free to give me a follow-up call afterwards and thanks for joining us..

Ladies and gentlemen, this concludes today's web conference, you may now disconnect your lines at this time. Thank you for your participation and have a great day..