Huntsman Corp (HUN) 2010 Q4 法說會逐字稿

Good day ladies and gentlemen, and welcome to the fourth quarter, 2010 Huntsman Corporation earnings conference call. My name is Alicia and I will be your operator for today. At this time, all participants are in listen only mode. Later we will conduct a question and answer session.

(Operator Instructions) As a reminder, this conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Mr Kurt Ogden, Vice-President, Investor Relations. Please proceed.

Thank you, Alicia and good morning, everyone. Welcome to Huntsman's fourth quarter 2010 earnings call. Joining us on the call today are Jon Huntsman, our Chairman and Founder, Peter Huntsman, President and CEO, and Kimo Esplin, Executive Vice-President and CFO.

This morning before the market opened, we released our earnings for the fourth quarter and full year 2010 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 may also refer to non-GAAP financial measures. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release posted on our website at huntsman.com.

As we refer to earnings, we will be referring to adjusted EBITDA, which is EBITDA adjusted to exclude the impact of discontinued operations, restructuring impairment and plant closing costs, income and expense associated with the terminated merger and related litigation. The sale of accounts receivables, acquisition related expenses, unallocated foreign exchange gains and losses, certain legal and contract settlement costs, losses from early extinguishment of debt and losses and gains on disposition and acquisitions of businesses and assets.

We focus on adjusted EBITDA from a management standpoint as we believe it is the best measure of the underlying performance of operations. And we have received feedback from many of you in the investment community that this is how you prefer to look at our business. A reconciliation of EBITDA, adjusted EBITDA and adjusted net income or loss can be found in the appendix of our slides and in our fourth quarter earnings release.

Let's turn to slide two. In our earnings release this morning we reported fourth quarter 2000 revenue of $2.412 billion. Adjusted EBITDA of $219 million and adjusted earnings per share of $0.24 per diluted share. Our adjusted EBITDA was $219 million in the fourth quarter 2010, compared to $174 million in the prior year, and $273 million in the prior quarter.

The improvement in earnings compared to the prior year was primarily due to increased demand and higher contribution margins. Earnings compared to the third quarter were seasonally lower, however we are very encouraged by the improvement in pricing. Peter and Kimo will provide greater insight into the improvements of our business.

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

Kurt, thank you very much. And thank you all for taking the time to join us this morning.

Let's turn to slide number three. Adjusted EBITDA for our polyurethanes division in the fourth quarter 2010 was $99 million. I want to be absolutely clear on the following point. MDI urethanes earnings improved on both a year over year and sequential basis.

Earnings for our propylene oxide MTBE business, however, declined compared to the prior year when we saw record MTBE margins. We also experienced slower propylene oxide MTBE demand during the fourth quarter compared to the previous quarter as we saw it a typical seasonal slow down. POMTBE earnings are now at a more normalized run rate of approximately $100 million a year.

We've been successful increasing our average selling price for MDI and related systems solutions. Our MDI urethanes margins increased on both a year over year and sequential basis. We expect further price increases in the near term, which are necessary to offset the increase in raw material costs we are currently seeing.

We continue to see a strong recovery in global demand for MDI. Last year the MDI industry grew by over 18% after dropping 4% in 2009. This marked the second best year for growth in over 20 years. In fact, during that same time period, MDI has grown every year but two, averaging an approximate compounded annual growth rate of 7% over 20 years.

During the fourth quarter our growth rates were similar to industry trends. Historically, demand for our products in the fourth quarter is less than the third and this year was no exception. However, demand improved nicely compared to the prior year. The most significant improvement in year over year demand was in Asia. We also saw improved demand in Americas and in Europe.

On a year over year basis, demand in all regions improved most noticeably within the insulation sector. Approximately one-third of our MDI urethanes revenues generated by sales related to insulation applications. We estimate that approximately two-thirds of our insulation related sales are used in commercial applications and the other one-third is used in residential applications. Demand within the automotive sector was particularly strong in Asia and Europe, where as adhesives and elastomer demand was strong in Asia and the Americas.

Despite little to no improvement in housing starts, volumes for our composite wood products sector increased 19% in the Americas, as substitution continues to drive stronger demand. We estimate that the MDI industry operated at approximately 90% in the fourth quarter, after taking into consideration estimated idle capacity. Our operating rates were slightly better than industry rates.

We restarted our remaining idled capacity in the fourth quarter. We will be selling this additional 150,000 tons into the market as market conditions warrant.

Our 2010 MDI EBITDA results were nearly $70 million better than the previous year. Additionally with growing demand and little new capacity entering the markets in Europe and North America, we expect this product to continue to improve in the coming years.

Let's turn to slide number four. In the fourth quarter, our performance products division earned $89 million of adjusted EBITDA. We earned $367 million for all of 2010, an all-time record for this division. We recently announced the Stu Monteith has been appointed President of this division following the resignation of Daniele Ferrari, who left to pursue other business opportunities. Stu joined Huntsman in 1994 and his valued leadership has been vital in building the specialties business group of this division.

We have reorganized this division so that the entire business is more market facing. Our specialties group is comprised of a means, maleic anhydride, carbonates, and industrial surfactants, and accounts for approximately 65% of the performance products divisions earnings. Our intermediates group includes household surfactants and linear alkylbenzene, or LAB, and makes up the remaining 35% of earnings.

Compared to last year, fourth quarter earnings improved in large part due to higher margins across all products and stronger demand in agri-chemical applications, as well as industrial fuels and lube applications. We also saw meaningful improvements in demand in margins in maleic anhydride.

Over the course of the next few years, we will bring to market additional amines and maleic anhydride capacity through joint venture projects and de-bottlenecking opportunities. While our performing products sells products all over the world, approximately two-thirds of our production is located along the US Gulf Coast, giving us a unique cost advantage compared to many of our global competitors where over 60% of our raw materials and manufacturing costs are natural gas liquids.

Turning to slide number five.Adjusted EBITDA in our advanced materials division was $17 million in the fourth quarter. While our sales were about flat with the previous quarter, our costs were up sharper than our pricing. For 2010, we earned over $140 million of adjusted EBITDA, more than double the results of the previous year.

This division is comprised of formulated systems and specialty component businesses, which represents approximately 90% of our earnings. The other 10% come from base liquid resins, which are lower margin and more commoditized.

Compared to the prior year, revenues improved within formulated systems and specialty components as a result of improved demand for electrical engineering and wind energy products. These markets, in addition to our coatings, adhesives and aerospace, should continue to expand throughout 2011. We are aggressively increasing prices and expect to see margins increase this quarter.

Let's turn to slide number six. Our textile effects division reported an adjusted EBITDA loss of $1 million in the fourth quarter. As part of a business improvement plan, we have focused on driving growth in specialty products. In 2010, we exited certain high volume, low margin commodity products. Excluding the impact of this bottom slicing, our year over year sales increased 5%. Our current business portfolio is now more profitable on a per unit basis than it was in 2009.

In 2010, retail market conditions improved somewhat in developed economies, but remain fragile. US retail sales improved during the holiday season and toward the end of the year, which was a positive sign as we head into 2011.

We've increased our market share in 2010. In 2011, we will market new products which are more environmentally friendly for the textile mills we serve and help them reduce their utility costs. New products will also provide the end consumer more fade resistance, longer lasting colors and greater technical performance from the textile products they purchase.

While this division still has a ways to go until we are satisfied with its earnings, we believe we are on the right path. Our EBITDA in 2010 was $25 million better than 2008 and over $70 million better than 2009.

Let's turn to slide number seven. Our pigments division earned $71 million of adjusted EBITDA for the fourth quarter and represent an improvement compared to the prior year's adjusted EBITDA of $22 million, and the prior quarter of $66 million. The supply demand balance for quality pigments is very tight and expected to continue. We estimate the industry is currently operating close to full capacity as evidenced by producer inventory levels remaining at less than 40 days inventory on hand for sustained period, which we have not seen for many years.

We've successfully raised our average selling price, which increased on a local currency basis 17% compared to the prior year and 5% compared to the prior quarter. Effective January 1, we announced a global price increase of $200 a ton, and are in the process of implementing this increase. Last week we announced price increases in Asia Pacific, Africa, Latin America, and the Middle East for $200 a ton effective March 1. This morning we announced 175 euros per ton increase in Europe effective April 1. These price increases will help offset expected raw material price increases.

In the first quarter -- excuse me, in the fourth quarter 2008, we launched a multi-year internal program named Transform within our pigments division. This program is focused on improving our manufacturing efficiency and overall cost structure, as well as commercializing new product innovation and diversifying our end market exposure. We have realized annual savings of more than $70 million from the program thus far.

Our recently announced agreement in principle to use spent asset at our Calais, France facility to produce magnesium sulfate fertilizer, is a means of commercializing co-product as a component of Transform. Upon completion of this Calais project, we expect to improve in excess of $20 million, our adjusted EBITDA in this division.

Before sharing some concluding thoughts I would like to turn a few minutes over to Kimo Esplin, our Chief Financial Officer.

Thanks, Peter.

Let's turn to slide eight. In the fourth quarter 2010, our adjusted EBITDA increased to $219 million from $174 million in the prior year. The primary reason for the year over year increase in adjusted EBITDA was an increase in general demand in corresponding higher sales volume. This chart shows that volumes accounted for $85 million of the improvement in earnings. Margins also improved as increased average selling prices more than compensated for the increase in raw material costs.

Compared to the third quarter of 2010, our fourth quarter adjusted EBITDA decreased $54 million, or 20%. A 20% fourth quarter sequential decrease is consistent with the historical seasonality of our business in a normal year. Further, in a normal year approximately 20% of our annual earnings will be generated in the fourth quarter.

This year, our fourth quarter represents approximately 25% of our 2010 annual earnings, which underscores the positive momentum within our business. Our 2010 fourth quarter adjusted EBITDA, was greater than any fourth quarter in our history given our current business portfolio. We are particularly pleased with the sequential improvement in average selling prices in our largest businesses.

Please turn to slide nine. Our year over year sales revenue for the fourth quarter increased 17% as a result of higher average selling prices and improved recovery in global demand. We saw the most dramatic sales growth in the Asia Pacific region, which improved 40%. Our largest regions, Europe, and US and Canada, improved 15% and 10% respectively.

Approximately 80% of our revenue comes from three divisions. Polyurethanes, performance products and pigments, which recorded revenue increases of 12%, 23%, and 33% respectively. In total, our average selling prices increased 8% in local currency terms and our sales volumes improved 11%.

Sales, compared to the prior quarter, increased slightly, although total volumes decreased 6% consistent with expected seasonality.This was more than offset by higher total average local currency selling prices of 5%. It is worth noting that revenues from our MDI urethane's business increased 2% driven by MDI average selling prices rising 6%. This is an important trend as we look at the expanding margins of this key business line.

On to slide 10. We have recently indicated that we think our business with the current asset base, will generate adjusted EBITDA of $1.325 billion within the next two to three years. To frame this number, our 2010 full year adjusted EBITDA was $872 million. We think that in a cyclical peak adjusted EBITDA could approach $2 billion.

As our earnings increase over the next few years, we expect to generate meaningful free cash flow. We expect to further reduce our indebtedness with this additional cash by approximately $500 million. Delevering our balance sheet is a priority of management and of our Board.

Turning to slide 11.At the end of the year we had approximately $1.4 billion of cash and unused borrowing capacity. We continue to take advantage of attractive debt markets in an effort to improve our debt maturity profile.

In November we issued $180 million senior subordinated notes due 2021 at an effective yield of 7.25% and redeemed the remaining $188 million of 7 and 7/8 senior subordinated notes due 2014. In January of 2011, we completed the redemption of $100 million of 7 3/8 percent senior subordinated notes due 2015, with available cash. Pro forma for our January 2011 early redemption of $100 million senior subordinated notes, we had approximately $1.3 billion of liquidity, consisting of $870 million in cash and $461 million of unused borrowing capacity.

In 2010, our net capital expenditures were $202 million. In 2011, we expect to spend approximately $350 million in capital expenditures. In 2010, our adjusted effective tax rate was 25%. We expect our long-term effective rate to be between 30% and 35%.

The lower 2010 rate was due to valuation allowances in countries such as the UK, Italy, and South Africa where we are enjoying pre-tax income with very low effective tax rates. These are countries where we have meaningful pigments operations.

I will turn it back over to Peter for some concluding remarks.

Thank you, Kimo.

I would like to take this opportunity to emphasize our commitment to the Asia Pacific region. This strategically important region currently accounts for approximately a quarter of our revenue and even greater percentage of our Company's growth, providing a unique footprint within the chemical sector. We are focused on providing greater resources through this region in order to accelerate our growth.

Today we are announcing that Tony Hankins has been appointed the new role of CEO, Asia Pacific. He will continue to serve as President of our polyurethanes division and relocate the divisional headquarters from the Woodlands, Texas to Hong Kong. Tony and his polyurethane's team will join Paul Hulme and the textile effects division that are also based in Asia, giving us two out of our five divisions headquartered in Asia. We believe this will further enhance our enviable position in Asia and strengthen our long-term position in this growing market.

This past year, our adjusted EBITDA improved by nearly $350 million, or 65% compared to the previous year. This past quarter was the strongest fourth quarter we've ever achieved with the current business portfolio that we have. While I harbor some concerns about potential raw material volatility and a continued sluggish US housing market, I'm far more optimistic about what I see for 2011. Global capacity additions in our industry do not seem excessive and pricing continues to be strong in many of our division.

This past November we announced our expectation to achieve an adjusted EBITDA of $1.325 billion within the next two to three years. Given current improving global economic trends, I can continue to be very confident that we can achieve these earnings. With new capacity coming on in many of our products lines, strengthening MDI and TiO2 markets, a continued recovery in North America and Europe and continued strong growth in Asia, we feel that we are in a very favorable condition to continue to create share holder value.

With that, I will turn the call back over to Kurt.

Thanks, Peter. Alicia, that concludes our prepared remarks. Would you explain the procedure for Q&A and then open the line for questions?

(Operator Instructions)Your first question comes from the line of Andy Cash from UBS. Please proceed.

Couple of questions. First one very simple. Was there any impact on your [important etches] cracker due to the Enterprise incident and how might that have affected your performance products in the quarter?

It's a pretty good question, Andy. We did see a decrease in the pressure in the raw material lines that service this facility from the Mount Bellevue area. For those of you unfamiliar with this, the Enterprise Products company is one of the largest companies for storing and transporting NGO raw materials into the petrol chemical industry. They suffered a fire and a loss of pressure in some of their pipeline systems in the US Gulf Coast. I believe this is about a week or two ago.

We did suffer slowdown for about a day and a half period. I should also note that during the early part of February, during a two week freeze in the US Gulf Coast area that we suffered some outages as well due to the freezing conditions here on the US Gulf Coast. That will be affecting our performance products division probably -- I don't have an exact number on this, probably to the tune of $5 million to $7 million in the first quarter.

Okay. So, a temporary impact there. Second question I had --

I should note, Andy, that all of our facilities are up and running. We didn't sustain any long-term or permanent damage.

The other question and last question I have relates to your long-term projections for polyurethanes. If I look at 9% adjusted EBITDA based on 2010 polyurethanes business and then you've got your upper teens EBITDA margin projection with $550 million in EBITDA, I'm assuming that most of those businesses should be growing in the next few years. That would imply that at $550 million, if you took a 17% EBITDA margin that would imply sales would actually decline. So, I'm a little bit -- maybe your sales projections are really much higher and this is a very, very conservative number. But maybe you could walk us through are you expecting to improve the mix by reducing some of the low margin businesses? I'm a little bit --

You are talking about the $550 million number was from the November presentation that we gave to Citi that was talking about a two to three year horizon forecast.

On chart number 10, slide 10.

I think -- as we look at that, Andy, I would agree. As we look at those businesses and we look at the impact of higher raw materials and some of the market conditions over the course of the next two to three years, personally I would hope we would do better than that. I don't disagree with your analysis there.

I would caution you that really is a function of where you think benzene and other raw material prices are. I think you have to be careful around on the top line. You are right. We have kind of 9%, 10% EBITDA margin and historically that's averaged in the mid to high teens. We are suggesting that it's going to go back to the mid and high teens. The top line is really going to be again a function accrued.

Just if you're expecting that business to grow, do you see and it's going to be tight, supply and demand going to be tight. What's your thinking on potential grass roots MDI facility in the Far East?

We continue to work with the Chinese authorities with the environmental and operating permits. And we would hope to cross what I would say would be some crucial decision making points later on perhaps in the middle of this year. And again that largely is in the hands of a -- of the Chinese government.

We have announced our intention to expand rather significantly our Qiao Xing facilities just outside of Shanghai. And I would say that of the 150,000 tons that we are starting up in North America, we will be moving that to the market, global markets that need it the most, and most of that tonnage, I imagine, will end up in Asia. Until we are able to expand capacity there. We are today, with our capacity in Asia, we are sold out.

Thank you very much, Peter.

Thank you.

Your next question comes from the line of Robert Koort from Goldman Sachs.

Thank you. Good morning.

Hi, Bob.

Peter, a couple of questions around the TiO2 side, obviously you have put in some more prices that looks like you exited the year with darn near 20% year on year pricing. Can you give us some indication of how much that price will be offset by higher ore costs into 2011? And then it seems like the legacy contracts in the industry had caps and collars on how much raw material inflation you might be subject to and some of those ore suppliers suggesting those caps and collars are rotating off or not coming up again, or not going to be renewed. So, can you give us a sense of what that -- if we start throwing in some volumes, some of these price hikes you can get pretty excited, but I suspect some of that will be offset?

I think, Bob, you are absolutely right. As I said in my call, we are increasing these on anticipation of coming price hikes. And we, like most producers, have contracts that will lock in ore prices for some period of time or will allow them only to increase by a certain percentage. And you are right, as those contracts are renewed, I would imagine as we look at the trend of the negotiations that are taking place, those safeguards that we have seen in the past will most likely be coming off.

Somewhat similar to a lot of our TiO2 pricing, where you used to seeing 90 day, 120 day sort of protection terms in the market. Those are becoming much tighter as well as the industry continues to tighten up.

As you look at the overall ore supply in our industry, I haven't much concern around the supply of ore at the present capacity. The present utilization rates. But I do have some concerns as I look out over the next three to four years, if you think that this industry is growing at 3% or 4% and if you were to see some sort of a return in housing and automotive in North America, particularly housing to perhaps 1 million units. I don't want to sound like an alarmist here, but I do think TIO2 and the supply of ore into TiO2, it used to just be a given that if you build the TiO2 capacity the ore will always be there.

And I'm not saying that the ore will not be there. I'm saying that it may not be as plentiful as we have seen it in year's past. And that may even be a limiting factor in the coming years on new grass roots expansions that come into this industry.

As we look at our own ore situation for this next year, we are forecasting an increase of about 20% on ore prices. So, I would just give you a cautionary note there, Bob, when we talk about that 20% in ore prices we are also seeing acidic prices increasing, coke prices, energy prices continue to be strong in Europe and Asia. Caustic prices are going up. It's not just ore, but a lot of the raw material in TiO2 is going up as well.

I have a call from an analyst or two this last quarter saying that I sounded a little pessimistic about TiO2. I remain very bullish on TiO2 and I think it will be a great market for some years to come. But my only point in saying that last quarter and re-iterating it this quarter is that, yes, we do have pricing momentum in this industry. We've also got raw material pressures in this industry as well. It's yet to be seen just how much of that will counter -- how much, one, the raw materials will counter the market pricing.

Bob, let me give you a couple of numbers. Ore represents just a little less than half of our direct costs in TiO2. And Peter said 20%. So, the other half is probably going to go up close to 20%. So, think about total direct costs, not only just ore, moving up approaching 20%.

All right. And on a related raw material note, can you talk a little bit about advanced materials, the 5% margin there in the fourth quarter seemed that maybe the miss number to say it's advanced materials if you can only deliver a 5% margin. What's the outlook there?

I know you have got BPA and EPI that are probably not going to help things. Are you going to see market improvement in margins as you go through 2011? Or is there a lead lag issue with raws? You mentioned the fixed costs. Give us some direction on what the path is in advanced materials?

A good question, Bob. And I think as we look at the business I just remind you that over 2010, over 2009, we more than doubled our EBITDA during that time period and we look from the fourth quarter 2009 to fourth quarter 2010, we were up revenues of 16% and our volumes up about 7%. And even sequentially coming off of a very strong third quarter into fourth quarter, our revenues and our volumes were down about 1% to 3%.

So, as we look at our fourth quarter, a lot of our indirect costs we did get hit with some currency. We got hit with some year end expenses that some year end billings on promotions and ads and so forth that should have been billed to us probably over the year. As you look at our indirects, we are actually up fourth quarter last year to fourth quarter this year up about $8 million.

So, say what I do about our indirect costs and so forth. We are very aggressively out moving prices up in this business. And I believe that this business ought to be in a mid-teens to upper teens sort of an EBITDA business. As I look at our fourth quarter, I am very pleased with what I see across the board. I'm pleased with a lot of the revenues and volumes of our [advanced to geos], I was not -- I believed that we ought to and we should be doing better certainly this upcoming quarter when we look at our advanced materials.

For the year it was 11% EBITDA margin and you will see that again if 2011 or even a little better. I will just point out that our Swiss based businesses, that would be textile effects and advanced materials, does have some Swiss pressure from a currency standpoint. That has really appreciated well ahead of the euro and we are reducing costs to the extent we can there.

Thanks .

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

Good morning.

Good morning.

Good morning.

First question I have is just as you look at 2011 planned outages or major shut downs compared to 2010, are there any swing factors that we should be aware of? That would complicate year over year comps?

As I look at our major facilities that we have in our MDI and our polyurethanes, we certainly don't see anything that would be material in our urethanes and our performance products. I don't see anything that would be material to the bottom line from 2010 going into 2011.

In the fourth quarter, we do take down some of our ethylene oxide and ethylene glycol units for about a month. And they will impact us a little bit. Generally our big MDI units are taken down every year anyway. The comparables aren't unusual.

And secondly, now that you are speaking more in terms of fairly optimistic on the mid-cycle on the near term horizon and highlighting sort of a peakish EBITDA target, how is that affecting your perspective on M&A?Particularly the need to either add additional legs to the platform or to strengthen the position you have?

I think -- very good question. I think that we will be looking at this certainly on a deal by deal basis, if you will. I believe that as you look at the industry, I don't believe that this is going to be a peak as we have seen in the past where you peak out in the year because of all of the new capacity.

What's different this time around is you just aren't seeing as much money. I can't speak for the commodity side of the chemical industry, but on the intermediate and differentiated side, I'm not seeing as much money going into what I would call a reckless abandonment and expansions on a global basis. And I think that when you look at the overall industry it's going to remain -- it's going to remain strong here for a couple of years. Again, as you look at the overall strength of this industry it really goes around overall capacity utilization and GDP growth globally. So, those are two quite positive factors as from where I sit today looking into the future, they look like those are lining up to be quite strong here for the next couple of years.

Our Board is very committed to continuing to strengthen our balance sheet to continue to reduce debt and so forth. And I think that we are going to be focused on M&A opportunities, but we are going to want to make sure that they are accretive to our earnings, are accretive to our share holders. And we may be more creative perhaps than in the past where you go out and take on debt and buy in an acquisition. We will be looking at potential mergers. We will be looking at potentially other structures that are perhaps a little bit different than with a we have done in the past.

I would just emphasize that the strength of our -- maintaining a strong balance sheet, maintaining a strong dividend and being able to capitalize on our own technology and our own growth internally is going to be very high on our list of priorities.

Laurence, just to add from a cash standpoint, you should only expect Huntsman to be doing more bolt-on type acquisitions, nothing that would change the credit profile of the Company.

Then lastly, just one quick one, if you look at a demand trends since the Chinese New Year in your more short cycle businesses, can you give us any comment on what your initial impression is?

The Chinese New Year seemed to have been -- to be rather short which tells me that a lot of people are getting back to work. So, I think it's probably too early to tell you trends across the board. We saw two years ago the Chinese New Year seemed to drag on for a couple of weeks because people were reducing inventories and so forth. And just anecdotally, it feels like people are back to work, demand and production is heavy. And we continue to see, really across the board, strong demand within China and across Asia.

Great. Thank you.

Your next question comes from the line of PJ Juvekar from Citi.

Good morning, Peter.

Good morning, PJ. How are you?

Good. On the loss-- last call you talked about Chinese adding 100,000 tons of TL to capacity every year. Do you think they could accelerate that if TL becomes tight or would it be limited by feed stock availability?

I said 100,000 tons per year and that's what we believe they have been averaging over the last couple of years. I would expect that to continue. I think you raised a very good point.

A lot of the feed stock availability in China is quite limited. And it appears, just again from some of the statistics, there is so many producers that you look at the TiO2 industry outside of China and you look at it inside of China, it's two different profiles as the average size of plants and technology and so forth. It appears that there is more and more buying that is taking place outside of China on the ores, which tells me that there is probably less ore availability on the short term at least. I can't answer as far as what the Chinese mining companies are going to be doing on the longer term basis.

Okay. And you mentioned there has been no new investment in ore industry and that concerns you. I think it takes 80 years to build a new ore mine. If that continues, do you think the value will shift to the ore industry from the TiO2 industry?

No, because I believe the TiO2 industry is tight today. I believe that more value is -- that's why I say as prices rise in TiO2, that was what I was trying to say earlier, I don't believe all of that price increase benefit goes to the TiO2 producers. It has to start going to the ore producers as well.

I think you are right. I think it's about five to eight years to bring on new ore capacity. And you look at the places in the world where that new capacity has been found and where the new deposits have been found and where they hope to exploit those in the coming decade, these are not bashed into stability. These are shipments that are being guarded with mercenaries and so forth.

I think that more is going to have to be -- more margin is going to have to be in the hands of the producers and the mining companies over the course of the next decade to justify this.

Thank you for that. And just last quickly do your magnesium sulfate plant at the Calais site is interesting. Can you do that at all of your sulfate facilities? Thank you.

I believe that we have two other facilities where this may make sense. And I -- this is not to say that Huntsman is going gang busters into the fertilizer industry, but I do believe that this is a very interesting -- you look at magnesium sulfate and what it goes into and the growth particularly in the palm oil plantations and so forth if southeast Asia. And right now we are doing it in the joint venture so that we aren't getting into the sales of fertilizer products.

Who knows in the next project how that will be structured and so forth. If this one works as we believe it will work very effectively for us, we will certainly be looking for further opportunities. And this was just enhance our profitability and our cost basis in TiO2.

In fact, it transforms that Calais plant into one of the lowest cost facilities in Europe.

From where it was two years ago, I think it was one of the upper quartiles as far as the most expensive facilities in Europe.

Thank you.

Your next question comes from the line of Frank Mitsch from BBT Capital Markets.

Good morning, gentlemen. With respect to the plant in Calais you said you were expecting that to save or add $20 million to your profitability. What is the timing on that?

That would be about 18 to 24 months. I would say that it's probably closer to the 24 month side of that.

Great. And then you had a bit of a discussion on that segment, on the TiO2 segment in terms of higher costs and higher prices, et cetera. And coming back to a comment that Andy made on your expectations of polyurethanes, on pigments you are expecting two to three years kind of a good case scenario, $300 million. You earned $71 million this quarter. Annualize that, you're about within spitting distance. Without putting words into your mouth, Peter that $300 million, that's not a two to three year time horizon. It's probably sooner than that?

I certainly would hope so, Frank. A lot of that is going to depend on ore availability and pricing and so forth, and it's going to continue on global demand. Yes, I would hope that it's much sooner than later.

Now switching gears over to Asia. I think sales up 40%. I think you made the comment that you're sold out in that part of the world. If so, when will we anticipate seeing better volumes or additional volumes to come in?

I think, and again that was an MDI polyurethanes in Asia where we were sold out, and we will have 150,000 tons have started up in the fourth quarter out of Geismar. Much of that product will be going to Asia. But obviously the US market starts to rebound--or continues to rebound and as we start seeing more demand and insulation.

So, if we are coming back into the US housing market, if the US housing market were to rebound and I wouldn't say -- I don't have any internal projections showing housing going back to 2 million units per year, but if we get back to 1 million units a year, which is where it was a record low for the last 15 years with the exception of the last two years, 1 million units. We would see our MBI going into the construction and residential area, OSB for the plywood and construction board and insulation. We would see that segment more than double.

So, how much of that 150,000 tons would make it to Asia and how much will stay in North America, simply put, Frank, we are going to be in a very tight situation in Asia as we look out over two to three years. If we get the permission and the economic justification to build a new facility in China, you're probably looking at two to three years by the time that facility is up and going. And I would say that two to three years would start once the permitting process and everything is over. You are probably looking at three, perhaps a bit more than three years from now.

So, as you look at some of these things, you do have a facility coming up, a grass roots facility coming up in China I believe in two years from one of our competitors. And I believe that, that's it for the major capacities that are going to be coming into the polyurethane markets over the course of the next two to three years.

Any chance that the outgoing US ambassador in China can bring home some business licenses prior to his departure?

Frank, I wouldn't touch that one with a ten foot pole. I would certainly hope they've got plenty of insulation in that embassy over there to save the US taxpayers as much money as they could.

Terrific. Thank you.

Your next question comes from the line of Laurence Jollon from Credit Suisse.

Good morning. It looks like in polyurethane this quarter did a pretty nice job covering higher benzene prices. I forecast, or I should say I estimate, benzene was up 13% in the fourth quarter. Looks like polyurethane prices were up about 9%, so a nice job there. As benzene shot up in the first few months of this year, can you talk a little bit about your ability to achieve price increases in the current quarter? Or do you think those price increases will flow into the second quarter?

I think those price increases will be effective by the end of the first quarter. Let's just quickly look at the economics. So, as we look at our November, December benzene price, it's right around $3.25. And price effectively went up by March. The contracts for March are around $4.25. That's a $1 per gallon and that comes out to about $0.08 or $0.09 per pound on MDI costs.

We've announced a $0.10 per pound increase January and February in the Americas and EUR250 per ton coming out to a $0.15 per pound increase in Europe. And as we look at these, we are putting these in as quickly as possible and I believe they will be implemented by the early part of April. The latter part of March. Fully implemented.

Again, I would remind you that benzene prices will hit us almost immediately. Our price increases typically take two to three months. In the first quarter we will see the impact of higher benzene prices and the ongoing effort of raising our MDI prices to the point to either offset all of those increases or hopefully to exceed the amount of those increases. It won't be until the latter part of the first quarter, early part of the second quarter that we have been able to fully see the realization of those price increases.

Simply put, during the first quarter we will see a margin bite in MDI as we are in the process of raising prices and as we are faced with higher benzene prices. Having said that, as we are out raising prices right now on MDI, and I don't want to get into specific regions of the world market by market, but we feel confident by what we are seeing today that we will be able to achieve the full 10% and the full $0.15 over in Europe. Again, I say that we feel very confident about that, but we were in the process of implementing those as we speak.

Thank you for the explanation. My second question on pigment is a broader industry-wide concern. If the whole industry is running at 95% to 100% operating rates today and typically historic base would say TiO2 of volumes have risen in line with GDP, obviously higher than that in the developing economies, I guess my fear is how was the industry actually going to meet expected volume growth next year?Is it simply a little bit of debottlenecking?

Let's remember that over the course -- the last time outside of China that a new grass roots facility was built in this industry was over 20 years ago. So, that tells you that the industry over the last 20 years has done a pretty good job debottlenecking 2% or 3% per year and as a matter of fact, probably better than that. Because if you look at the margins for TiO2 over that 20 year time period, they are down more than they are up. This is a business I just remind you that little over a year ago we have people calling us and asking us, why don't you shut the whole thing down and throw away the keys? So, as we look at the overall capacity of TiO2, it seems like there is a pretty good debottleneck rate of about 2% or 3% growth.

Again, I think that when you have margins that are as high as they are today, people obviously are aggressively going after that debottlenecking as quickly as they can and as effectively as they can. The next 12 months, I think that you will see some of that debottlenecking coming into the industry. Sooner or later I would imagine there is going to have to be some new lines built or something more than just tweaking existing capacity.

And then that brings to question where does the ore come from for that? And will the ore be out there? I believe that it will. That's just my thinking at this point.

Again, if you go back through the numbers historically, I think Huntsman is a good representation of that. Experience we can debottleneck roughly 1.5% a year. And then as earlier in the call suggested, the Chinese bring on roughly 100,000 tons a year, that's roughly 2.5%, 3% growth.

If TZMI is right, there is going to be 4% growth, someone will have to bring on big chunks of capacity. And that's a lot more expensive than these little 1.5% debottlenecks of 10,000 to 15,000 tons every couple of years. Someone will have to bring on some big chunks. They are very, very experience and someone would have to believe that this an extended cycle to see any kind of return that exceeds 15% to 18% IRR, and that's a difficult conversation to have given the last three years that this industry has suffered.

Very helpful. Thank you.

Your next question comes from the line of Edlain Rodriguez from Gleacher Company. Please proceed.

Thank you. One quick question on TiO2, given the sluggish housing and construction market we are seeing right now, can you talk about the push back you are getting from your customers with all of those price increases?

We are getting push back for the price increases, but we are also getting very -- a great deal of demand for more product. At the same time we are getting push back and at the same time we are getting more orders.

The automotive industry seems to be doing well globally. Asia continues to expand. There seems to be a great deal of -- I don't know if people are out running around buying new homes, but they certainly seem to be doing a lot of remodeling, a lot of touch-up within their existing home and so forth. And demand continues to be there. Evident of the low inventory that we have today going into the paint season, which typically starts fairly aggressively here in about a month.

Do people like the price increases? Probably not. At the same time they want the product as well.

And they are concerned about the availability of that product.

Longer term, yes they are. Short term and longer term.

Thank you.

We will take one more question and then we will wrap it up at the top of the hour here.

Your next question comes from the line of Bob Amenta from JPMorgan Asset Management. Please proceed.

Thank you, good morning. Just two quick ones and one you may have mentioned and I missed it. You used to have a previous quarters chart about year-over-year order patterns and I had like a 19%, 17% and 11% increase for the previous three quarters. Did you have a number like that for the fourth quarter?

Yes. Let me grab it.

Kimo is pulling that up, do you have a second question?

Yes, it was -- it will come out when you file the K and everything, but working capital for the fourth quarter and I know it's probably impossible with raw material volatility to guess for 2011. At least for the fourth quarter, what kind of use or whatever that might have been?

Primary working capital was a positive source of cash of $130 million roughly. And to our old slide, we felt like because we really reached our pre recession levels of volume, we pulled that slide out, Bob, but I like it, too. We are roughly even with the fourth quarter of 2007. So, we were really back to pre recession levels in terms of volumes, but it was up 11% year-over-year. Total Company volumes.

So, you remember how that sequences back to the fourth quarter of 2008 we were down 22% volumetrically. We moved up and so for the 2010 year we go 19% first quarter. 17% second quarter. Third quarter is 11% and fourth quarter is 11%. Year-over-year increases volumetrically. So, again, we are back to that fourth quarter pre recession total volume number.

I appreciate it. I think that's all I had. Nice quarter. Thanks, guys.

Thank you very much. And again thank you all very much for taking the time to join us this day.

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