Huntsman Corp (HUN) 2013 Q1 法說會逐字稿

A very good day to you, ladies and gentlemen. And welcome to the quarter one 2013 Huntsman Corporation earnings conference call. My name is Moncie, and I will be operator for today. At this time, all participants are in listen-only mode. We will conduct a question-and-answer session towards the end of this conference.

(Operator Instructions)

As a reminder, this call is being recorded for replay purposes. I would now like to hand the call over to Kurt Ogden, Vice President Investor Relations. Please go ahead.

Thank you, Moncie. Good morning, everyone. Welcome to Huntsman's first-quarter 2013 earnings call. Joining us on the call today are Jon Huntsman, our Founder and Executive Chairman; Peter Huntsman, President and CEO; and Kimo Esplin, Executive Vice President and CFO. This morning, before the market opened, we released our earnings for the first quarter 2013 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 also refer to non-GAAP financial measures, such as EBITDA, adjusted EBITDA, and adjusted net income or loss. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release, which has been posted on our website at huntsman.com.

Beginning in 2013, we began to exclude the amortization of actuarial gains and losses associated with pension and post-retirement benefits from our adjusted earnings measures. This amortization comes from changes in actuarial assumptions and the difference between actual and expected returns on plant assets, and not from our normal operations. This reflects the adjusted EBITDA that would be reported if we adopted a mark-to-market pension accounting method. We believe removing these gains and losses provides management and investors greater transparency into the operational results of our businesses and enhances period-over-period comparability. Amounts for prior periods have been recast to reflect this change. A historical schedule of adjusted EBITDA can be found in our earnings release published this morning.

Let's turn to some highlights on slide number 2. In our earnings release this morning we reported first-quarter 2013 revenue of $2.702 billion; adjusted EBITDA of $220 million; and adjusted earnings per share of $0.19 per diluted share. I will turn the call over to Peter Huntsman, our President and CEO.

Thank you, Kurt. Good morning, everyone. Thank you for taking the time to join us. Let's turn to slide number 3. Adjusted EBITDA for our Polyurethanes division in the first quarter of 2013 was $178 million. We saw a meaningful earnings improvement in our MDI urethane business compared to the prior year. This was offset by lower PO/MTBE earnings, which benefited the first quarter of 2012 by approximately $60 million from industry supply outages.

In the first quarter of 2013, we successfully raised our MDI selling prices and were able to offset the increase in raw material costs. The cost of our largest raw material, benzene, increased in the first quarter by approximately 20% compared to the prior year. We saw strong growth in demand for our MDI urethanes in the Asia-Pacific and North American regions. Our largest markets in the Asia-Pacific region are insulation, adhesives, coatings and elastomers, and automotive. We saw double-digit growth in these markets, primarily as a result of more demanding energy codes for building construction favoring MDI, and strong Chinese automotive demand.

In the Americas, we are seeing signs of a continued recovery in housing and construction. Our largest market, composite wood products, grew at double-digit rates. In the European region, we saw soft demand in Northern Europe for the first time since the European financial crisis. Some of this is seasonal, due to the prolonged cold winter negatively impacting our largest market, construction insulation. We also felt the impact of lower European automotive demand.

We booked blend propylene oxide-based polyols with MDI to create specific polyurethane system solutions for our customers. In the US, we manufacture our own propylene oxide. MTBE is a byproduct of our manufacturing process. Lower-priced butane in 2013 partially offset the decrease in average selling prices that resulted from industry supply outages last year.

This past week we were forced to declare force majeure in Europe on the supply of certain grades of pure and variant MDI products. The situation was caused by a lack of critical raw material supply and off take from our MDI facility in Rotterdam, the Netherlands. We estimate the EBITDA impact on the second quarter of 2013 to be approximately $15 million. As of this morning, our operations appear to be in better shape than last week. Barring any supply chain disruptions, we hope to return to normal operations in the next two to three weeks.

Turning to slide number 4. In the first quarter, our performance product division earned $54 million of adjusted EBITDA. During the first quarter of 2013, we successfully completed planned maintenance on our olefins and ethylene oxide facilities in Port Neches, Texas. This maintenance occurs once every four years. The total estimated impact on the quarter was approximately $55 million. We saw strong demand for amines in the first quarter of this year. We successfully implemented recent price increases for amines and are encouraged by the trends for these products. We also saw a strong improvement in contribution margins for our maleic anhydride businesses which benefited from the lower cost of butane and improved sales mix.

Turning to slide number 5. Adjusted EBITDA in the first quarter in our Advanced Materials division was $27 million. Globally, we continue to see weak demand in our base epoxy resins businesses, which represent 20% of the division's revenues. In addition, soft underlying demand has extended across most of our product categories in the European region. However, we are seeing some bright spots within this business -- notably, demand in the Americas and Europe for our multifunctional resins used in the aerospace industry continues to grow nicely and show strength.

Also, in our Asia-Pacific region, we are seeing attractive growth for electrical engineering products and industrial adhesives used by manufacturers of tankers and ships. In January of this year, we announced a program designed to improve efficiencies and increase our global competitiveness in this division. We expect the program to be completed by the middle of 2014, with future annual benefits of approximately $70 million. We are on track of delivering these savings.

Let's turn to slide number 6. Our Textile Effects division reported an adjusted EBITDA loss of $3 million in the first quarter. This is an improvement of $5 million compared to the prior year. An intense focus on key markets has contributed -- has continued to generate year-over-year growth through share gains, despite muted market conditions.

In the first quarter, volumes in key markets grew 12% compared to the prior year, with our Asia business growing at 14%. Production output at one of our facilities was significantly lower than the early part of the first quarter this year as a result of an upgrade operational systems migration. In addition, production output at two other facilities was impacted by key raw material shortages for several weeks. Both of these situations have been successfully resolved. We estimate the EBITDA impact to be approximately $3 million for the quarter.

Our restructuring efforts are proceeding slightly ahead of plan. The benefits of the restructuring are evident in our fixed costs, which decreased $13 million compared to the prior year. Most of the expected $75 million in annual restructuring benefits are yet to come.

Let's turn to slide number 7. Our Pigments division earned $9 million of adjusted EBITDA for the first quarter. We are seeing signs of demand recovery from the low point experienced in the previous quarter. Our sales volumes were flat compared to the prior year and improved 27% compared to the fourth quarter. We believe global demand trends for the industry have improved as well.

During the quarter, we further scaled back our production. At the end of the quarter, we had approximately 45 days of inventory. We believe the industry has closer to 75 days. This is quite an improvement from the end of the year, when our inventory was approximately 75 days and the industry was at approximately 100 days. The impact of running our plants at lower production rates negatively impacted our EBITDA by approximately $12 million in the quarter.

Our average selling price decreased 11% in local currency terms compared to the prior quarter. However, we are starting to see pricing stability as a result of lower pigment inventories and our announced price increases. We are encouraged by global demand trends for TiO2 and expect margins to improve in the second half of the year. We believe 2014 is setting up to be at or above our EBITDA normalized run rate of approximately $200 million. 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 go to slide 8. In the first quarter of 2013, our adjusted EBITDA decreased $187 million to $220 million, from $407 million in the prior year. $141 million of this change was attributable to our Pigments division, which is going through an industry-wide business cycle. In the first quarter of 2013, our Performance Products business completed some planned maintenance, the impact of which was approximately $55 million.

In the first quarter of 2012, our PO/MTBE benefited by approximately $60 million from the industry supply outages. Compared to the prior quarter, we saw an increase in volumes, most of which was attributable to an improvement in our sales mix. An increase in average selling prices was offset by an increase in raw materials. Of course, the $55 million impact of our maintenance in Performance Products more than offset improvements in sales volumes.

Turning to slide 9, our year-over-year consolidated sales revenue for the first quarter decreased 7%. Sales volumes declined 9%, but were significantly impacted by the planned maintenance in our Performance Products division. Excluding our Performance Products division, the sales volume decline would have been 6%. Regionally, our sales revenue increased 7% in our Asia-Pacific region. Sales revenues decreased in other regions of the world, but our North American region was impacted by the maintenance in Performance Products. Our Polyurethanes business is our largest and made up 43% of our total revenue in the first quarter. Its revenue decreased 3%; however, the comparison is skewed by the higher selling prices we enjoyed in the prior year as a result of industry supply outages in PO/MTBE.

Revenues for our MDI urethanes improved 6%. Compared to the prior quarter, sales revenues increased 3%, primarily as a result of higher average selling prices in response to higher raw material costs. In addition, we saw modest improvement in our sales mix. We saw growth in the North American and European regions, primarily as a result of improved average selling prices. Sales revenues improved in our Pigments business as a result of a 27% increase in sales volume, whereas an improvement in MDI urethanes was primarily the result of higher average selling prices.

Slide 10. At the end of the quarter, we had approximately $832 million of cash and unused borrowing capacity. Our Board declared a dividend of $0.125 per share, payable on March 29 to shareholders of record on March 15. This represents an increase of $0.025 per share from the previous rate. This is the first change since we began paying a dividend in 2007 and comes after having completed two successive record-earnings years.

During the first quarter, we extended the maturity of our debt at attractive interest rates. Yesterday, we completed an amendment to our accounts receivable securitization program that extends the maturity, reduces the borrowing rate, and increases the availability under these low-cost programs. Reducing our debt remains a priority of our management team and our Board. Some of the debt that we have refinanced was originally booked at a discount to the face amount because it was issued to us at below market rates. As a result, as we have refinanced this debt, we recognized the difference between recorded and face value of the notes. In the last two quarters, we have recognized an increase in the recorded value of our debt of approximately $100 million. Our current net debt to the last 12 months adjusted EBITDA is 2.8 times. Our target is to have a sustainable net debt leverage ratio of 2 to 2.5 times.

We spent $89 million on capital expenditures in the first quarter. In 2013, we expect to spend approximately $450 million on capital expenditures, which approximates our annual depreciation and amortization. I will now turn it back to Peter.

Thank you, Kimo. We started off the first quarter of 2013 with strong earnings from our core Polyurethanes divisions and continued margin expansion from our amines and Performance Products divisions. In fact, if we pro forma the $55 million loss attributed to our planned maintenance shutdown, we would have had one of the strongest first quarters in our Performance Products division we have ever experienced. Throughout the year, we will see the impact of our cost restructuring project in our Textile Effects and Advanced Materials divisions.

Despite poor industry conditions, we continue to fully expect these divisions to improve over their previous years' performance. Additionally, we expect the MDI side of our Polyurethanes division to continue to show strong earnings growth over the previous year. While our Performance Products group was delayed in our restart from the recent maintenance work, improving market conditions give me reason to believe that we should more than make up the $55 million of costs in the first quarter and finish the year equal to, or even slightly ahead of, last year.

There have been a number of stories speculating about what we may be doing with our Pigments division. We've stated in the past that we want to be part of any consolidations in this industry that create long-term value. Huntsman continues to explore various options that may be of benefit to our overall business. I am encouraged by the improving market fundamentals of demand and lowering inventories that we see in our TiO2 business. For obvious reasons, we will not be commenting on speculative questions regarding our Pigments business.

In closing, last quarter we made some forecasts that, with the exception of our Pigments division, all of our other divisions will be doing equal to, or better, than 2012, in spite of a sluggish global economy. I continue to support this forecast. Regarding TiO2, we continue to see signs of improvement, with better demand and lower inventories. I believe that we will see a real turnaround by year end and throughout 2014. With that I will turn the call back over to Kurt.

Thank you, Peter. Moncie, that concludes our prepared remarks. Would you explain the procedure for questions and answers, and then open the line for questions?

Thank you very much.

(Operator Instructions).

We have a first question in the queue from the line of Peter James Juvekar from Citi.

Wow. New name for me. [laughter] Can you talk about your operating cash flow which was down from last year? And I know (inaudible) earnings are down. But what else is affecting cash flow?

I didn't know that PJ was for Peter James, PJ. That's nice to know. Well, we have some working capital headwind. That is -- we have improved our inventory days but we need to still bring our inventory down on a relative basis, Peter -- PJ. We will be at a peak in the first quarter and it will come down the rest of the year in terms of days. But we saw some increased revenues in the first quarter and that built our receivables.

The other bits of operating cash flow were our big turn around spend. We had roughly $58 million worth of costs on the turn around plus the $55 million of lost revenue -- or lost EBITDA. When you think about the cost of that turn around in the first quarter, it was closer to $110 million. So, really, I guess the unique thing in the first quarter in terms of operating cash flow was that number in the turn around.

Okay. Can you update us on your ore contracts and what sort of ore inventory do you have on hand? Did you stockpile any ore before year-end? And related to that, last year you were trying to convert one of your facilities to utilize more ilmenite ore. So just give us an update on that. Thank you.

I think that most of the ore prices that we are seeing right now, of course of the majority of ore that we are buying is ilmenite. And that price has stayed pretty stable. We did pre-buy last year some ores that were the rutile grades and some of the slag grades, but we haven't been stockpiling that -- those products, since the first of the year.

So, PJ, the big contracts in slag -- I think there is one that expires at the end of 2013, the big contracts expired at the end of 2012. We think that those slag raw materials or inventory will last us through into the third quarter of 2013. That should benefit us in 2013 again through the roughly first three quarters by about $60 million.

And anything on your conversion of your Italian plant to flex down to more ilmenite.

Yes. That is a sulfate slag plant. We are increasing its flexibility so it can consume up to 60% ilmenite. That should be well on its way by the first part of 2014, in terms of its ability to use those grades.

Thank you.

We have the next question from the line of Kevin McCarthy from Bank of America Merrill Lynch.

Yes. Good morning. To follow-up on TIO2, you had commented that would be looking at EBITDA at or above $200 million in 2014. Is that correct, first of all? And, second of all, would you need additional selling price increases in order to achieve that level of profitability?

Yes, we would need additional selling prices to achieve that level of profitability and we believe that in -- that we will see price increases that will start taking firmer traction throughout the second half of the year and we believe that in 2014 that we should be running at an annualized run rate of $200 million, thereabouts. Which we consider to be a normalized run rate. But no, we will have to see price increases take place in order to achieve that.

Okay. And then, second question on a different topic, you reference the force majeure at Rotterdam. I saw late last week one of your competitors had declared force majeure on rail shipments of PO and cited a strike action on the rail providers. Is that the issue in your case? And, if so, has that strike been resolved?

I am unfamiliar with the strike. Our issue is the port of Rotterdam, because all of the major facilities there are so interconnected, usually every couple of years there will be a massive turn around project where you'll have multiple facilities -- these aren't just Huntsman but also owned by other chemical companies as well -- where utilities will shut down, the power plants will shut down, ethylene manufacturing, basic raw materials will shut down, so forth. So we can't come up fully until all of our raw material suppliers are up and running. Most all of them are now up and running. Our facility is capable of returning to full rates as soon as we are able to receive the -- our full slate of raw material products. We believe that is in the process of correcting itself as we speak. That will be resolved in the coming week or two.

Last question, if I may, in the polyurethane segment you indicated year-over-year volume decline of 8%. Would you provide some color on how that might have been broken out between MDI and MTBE?

MTBE dropped in quite a bit in its volume during that time frame. And that was roughly because of timing of shipments from a year previous. And, so, as we look across the board in Polyurethanes, we saw our PO/MTBE drop year-over-year by about 13% again. That was, our manufacture -- our production rates were about equal during those two time periods, but it was a timing issue on shipments of last year. We had some fourth quarter shipments last year that went into first quarter of last year that made last year look particularly strong on shipments. I think that, that drop in demand is mostly around the area of MTBE. Around Polyurethanes, we saw, basically the markets were flat in overall demand. We saw Asia was up. US was up and Europe was down.

Okay. Thank you very much.

To add to that, by the way, again in terms of urethanes, revenues were up 6% year-over-year if you take out the PO/MTBE piece.

My comments were around volume.

We have a next question from the line of Evan Marques from KeyBanc Capital Markets.

Hi, Thanks for taking my questions. Real quick, how much cost savings were in total, hit the first quarter, on a yea-over-year basis? Or, where was the benefit?

Of the roughly $200 million in cost reduction initiatives we have, we had roughly $25 million of benefit in the quarter from -- off of that $200 million initiative.

Great. So, roughly $13 million was in the textiles and the rest to the other segments?

Yes.

And then in the other segments, I think that was evenly split between Polyurethane and Advanced Materials.

Great. And then, how much was the earnings change in the PO/MTBE business on a year-over-year basis?

I'm sorry. The question again?

How much did the MTBE business contribute to EBITDA in the quarter or what was the change year-over-year?

Well, we don't break that out but it was, again, because it was pretty well flat year-over-year, urethanes offset obviously the amount of PO/MTBE that was down year-over-year.

Okay. Great. Thanks for taking my questions.

Next question from the line of Andy Cash from Robinson Humphrey.

I would like to go back to PJ's question about the cash flow. If you look at the end of last year, you guys generated cash from operations of about $774 million. If you are just building a bridge for the year, obviously net income, change in net income will be what it will be and DNA looks stable. As you look at outlook on the change in working capital, with inventories up this year, they are going to be coming back down again. How do you expect working capital will change over the course of the year?

We think working capital will be a source of cash this year. Obviously it wasn't in the first quarter, consuming about $80 million. Again, as I mentioned we think about inventory, it's really is at a peak in the first quarter. It's higher than it was last year in terms of relative days and we see that coming off and generating cash flow. We do have seasonality in the business and we do typically see a build in receivables about this time of year as well. So, again, unlike last year, we think the full year will be a source of cash if crude oil and other carbon based raw materials behave themselves.

Okay. Just a follow on, any other things such pension or any other obligations that might have an impact on cash from operations this year?

No. We mentioned this pension expense issue. Just a change in the discount rate increased our obligation by almost $600 million and the methodology that is used in pension amortized that over the average life of the employee, which is about 15 years. That and the P&L, increases pension expense by about $40 million. That is what we are excluding from adjusted earnings.

Okay. Thank you very much.

The next question is from the line of Robert Koort from Goldman Sachs.

Thank you, good morning. Peter, I wanted to dive in a little more on TIO2 and get a sense from you where your inventories stand today, what your operating rate levels are, and then I think you and a few others in the industry expressed some confidence of getting sequential improvement as the year unfolds. I was wondering if you can speak to the typical buying patterns of your customers are? I get the sense on the paint side of things, they don't buy as much in the second half seasonally and I am just wondering if that's going to create somewhat of a headwind to getting the pricing cycle going again.

We believe, Bob, that the operating rates today as an industry -- again these will vary because we don't have exact numbers as an industry. The industry is operating today at around 80% capacity. That is up from where we have been the last couple of quarters, which were in the low to mid-70s. As I look at the past quarter, volumetrically we finished the first quarter with as high of volumes in sales that we have seen over the last 12 months. So, volumetrically for March, we finished out the volume. Directionally, we are heading in a strong direction. So, as I said in the past, we need a couple of things in order to get pricing to be able stick in this industry. We need volumes to be able to recover and we need pricing to stop falling. So, as we look at pricing during the first quarter, we saw a little bit of erosion that took place throughout the quarter. But by and large we started seeing for the first time, prices gradually in certain areas for certain customers start to increase as we moved into the second quarter.

Again, I want to be clear as we move into the second quarter, without full industry support in pricing, I believe that second quarter will look similar to the first quarter on a contribution margin basis. We're going to continue to see pricing come down a little bit in the second quarter, but I think we're going to see volumes make up for that lower pricing. So we ought to see contribution margins stay about flat in the second quarter. If we continue to see the days of inventory drop, as we have seen from the fourth quarter moving into the first quarter, I believe that, again, with the de-stocking that, I believe is largely completed, the improvement in demand that we are seeing on a global basis, and the opportunity to raise prices before us, it gives me reason to believe that the second half will be stronger than the first half of the year.

Thanks for that. On a separate note, I know last year at your investor day you spoke to the benefits of having some North American exposure to the shale gas revolution. I was wondering if you could calibrate as we look forward, have you fully exploited that or is there some more opportunity still in front of you?

I think in the current production, that we have fully exploited that. But as you know, we have announced are expanding the ethylene oxide capabilities. We will be expanding the ethylene capabilities. As we expand this, I see more and more of our global production, particularly in Performance Products that will be able to benefit from this lower cost shale. I would hope that would -- as we look at amine sales and surfactants and glycol sales around the world, that is going to benefit even though those sales will be taking place globally, that will benefit from a North American supply basis that's able to take advantage of the low cost gas.

We also have announced an expansion of our MDI capacity at our Geismar, Louisiana facility up to 500,000 metric tons of capacity. Obviously, the new tonnage in MDI, in Polyurethanes, will be able to benefit from the gas advantage and also from the byproduct advantage. Again, we are not just able to get in North America, in the area of Polyurethanes a benefit from our raw material costs. We are also able to get a benefit from our byproducts that are coming off our MDI process, that we are actually able to sell into the fracking and into the energy industry, which we are not able to do in other parts of the world. As I look in those two biggest value drivers, if you will, Polyurethanes and Performance Products, I believe that we have exploited as much as we can in our existing platform. But again as you look at MDI, we are expanding MDI capacity. And if you look at Performance Products, we are expanding the natural gas and ethane consuming ends of those products which will give us a greater opportunity to export the products globally.

Would you consider investment or co-investment in a Methanol plant?

That is something that we continue to review. We are one of the largest consumers of methanol. Obviously, if the right opportunity were to avail itself, that is an area where we would have an interest in exploring opportunities -- I think would create real value. Our consumption today of methanol would account for -- depending what you would categorize as a world scale facility, anywhere from half to three quarters for the capacity of a world scale facility. So, I don't want to get ahead of myself but that is an area that I would hope that we would be able to take advantage of in the next year or so in methanol production.

Thanks very much.

Next question is from the line of John Roberts from UBS.

Good morning. This is a question for either Peter or Jon Senior. You guys have seen a lot of cycles in a lot of chemicals. I'm curious how you see the TIO2 cycle is different from your history, because the marketplace is speculating on you being a dis-investor with the cycle down when your history has been, you time the cycle very well in the past. And it seems a little inconsistent to me?

Well, I think that as we look at the cyclicality of the TIO2 industry, I think the industry -- I will speak for myself here. I was taken by the fact that within a four quarter period, you literally saw the highest quarter in, virtually in the history of that product and within four quarters, you saw one of the lowest quarters in the history of that product. I have seen the [syrinx] and olefin's and a lot of polyol's and so forth, and I have never seen one where you literally peaked and a hit a valley all within the same year. From first quarter to last quarter last year. In spite of that, I think that you need to have a longer term approach. TIO2 is going to be a product that will come back as the US housing comes back. There was obviously a lot of panic buying that took place two years ago, where some of our paint customers were -- pre-bought as much as six to nine months of inventory, in some cases. I think that as those inventories have diminished, TIO2 will get back to its normalized run rate, what we believe to be around $200 million. That's not to say that it's not going to have peaks and valleys, but as I have long maintained, I think it's going to stabilize here going forward.

And is I have said in past calls, we certainly want to be part of -- and we believe there is room for industry consolidation, for a company to take advantage of synergies and so forth, that can come about through this consolidation and frankly we continue to work towards being part of an objective that is going to create value longer term for Huntsman.

Secondly, could you give us a little color on the rate of sequential progress on Textile Effects? We didn't see a lot, sequentially here. Does it turn positive in the current quarter and then continue to improve through the year?

I believe that Textile Effects will be profitable in 2013. That means in the second quarter, we better start making money in the second and certainly the third quarter. It's too early on -- I'm not here to speculate where we are going to be in the second quarter, but I would be disappointed if we didn't make money in the second quarter.

Thank you.

Next question is from the line of Mike Ritzenthaler from Piper Jaffray.

Good morning. In the amines business, can elaborate a little bit more about the end market dynamics that are helping price increases stick? And can you please compare the 1Q results and the qualitative outlook you provided comments versus the previous high water marks for that business?

I am going to let Kimo take the second half of that question. I don't have the data in front of me. On the first half of that question, there is a lot of downstream curing applications that -- where we continue to benefit. We continue to benefit in our crop protection end of the business for amines. That is used quite heavily in crop protection. It's used quite heavily in the energy enhanced oil recovery area. We continue to benefit from that. Europe continues to be a rather stagnant market force in that area. But Asia and North America, particularly North America, continue to be strong markets for us.

Maleic anhydride, which is not an amine, but it is a product that we have in our amines -- we run it under the our amines umbrella of operations. That, obviously, is benefiting from the increase in demand that we are seeing in both the housing market and the decrease that we are seeing in the raw materials, principally in butane. So, as I look across the board there, amines is used literally in thousands of venous applications. And in many of the major applications that deal with housing, that deal with construction materials, crop protection and energy, those would be the three largest areas just off the top of my head where we are seeing benefit.

In terms of sequential earnings, if you look at sort of our amines group and maleic anhydride, fourth quarter to first quarter we doubled profitability in amines and maleic. Again it was both in ethylenediamines, polyetheramines and some of our other specialty amines and in maleic anhydride, doubling sequentially. So that gives us the optimism, notwithstanding a tough quarter because of the turn around going into the year, that amines are going to carry us through.

Okay. Interesting. I just have a follow-up on Polyurethanes. On the MDI operating rates, is that business kind of hitting your qualitative for the rest of the year, is it predicated on seeing operating rates in the low 90s as we head into the back half?

I think we believe the operating rates are right at -- in the high 80%, probably in some regions of the world pushing that 90%. I think that throughout the year it's obviously going to tighten a little bit as the markets continue to expand in North America, expand in Asia and probably be flat to probably be contracting in Europe a bit. But I think globally, we will continue to see expansion of demand increase new capacity coming into the market. So, I would say by the end of the year you will be more firmly on the 90%, 91% capacity whereas today you are probably in the high 80s.

I think that as we look at the business improvement throughout the year, I think that is not going to be a pop as much it's going to be gradual improvement in pricing and in demand and executing a game plan that moves our MDI product further downstream into a greater number of variance. This is something that we don't talk about a great deal. But as you look at our recent expansion in the Rosenburg facility -- our Rotterdam plant in the Netherlands, we spent a lot of money to take MDI that we are producing and to push that product further downstream into variance. If you noticed this last year we saw demand growth in Russia, in Turkey, Eastern Europe, parts of Northern Europe. A lot of that growth is taking place because we are taking MDI, we're making a wider variety of grades with that MDI and we are selling it into a wider market. I believe that as we continue to push that, we are going to see a higher quality business develop from that. I hope longer term it says the cyclicality out of MDI.

Thanks very much, guys.

Next question is from the line of Laurence Alexander from Jefferies Capital.

Good morning.

Good morning, Laurence.

First of all, on MTBE you've said previously that you thought it might be a $19 million headwind year-over-year this year. Given feed stock dynamics, do you think that be (inaudible) and you could do better than that?

I would think as we look at the first quarter, we certainly didn't do as well in the first quarter as we did last year. But because of falling raw material prices, we didn't do as poorly as we had anticipated. So, I would hope that, from what we have seen thus far in MTBE, we are doing better than what we had anticipated. Now, I would just strike a note of caution in that part of MTBE's margin comes about because of the difference between North American gas and we are taking our raw materials in North America, which are largely based on a gas byproduct. Butane which we make into Isobutane which is a raw material for our PO/MTBE and also methanol, which obviously is a byproduct of methane. So we are taking a low cost natural gas pricing field and we are making a product that is competing with Brent Sea oil. As Brent Sea oil goes down throughout the year and natural gas prices, which they have recently increased during the first quarter, but it appears they are coming back down now. There is also that spread in there.

So, while I think that early in the year we are doing better than anticipated, I'm not trying to sound negative throughout the rest of the year. I guess what I'm saying is there a lot of variables on MTBE margins that I certainly wouldn't want to speculate. I think it will continue to be a great product for us and if we can do what we did last year minus that $90 million, maybe it's closer to $70 million now, I think we will have a very good year.

And secondly, on the growth CapEx, you are running at about $300 million annual growth CapEx run rate. How much of a tailwind will the projects that you are doing give you in 2014 and then as you look to 2015? Do you have any rough sense for that?

A lot of these projects, Laurence, are sort of, 18 months, two years, some of them even longer than that. When you think about expansion of MDI in the gulf coast of Texas, when you think about some of the projects in TIO2 giving us greater flexibility in ores, and shut down of Basel textile facility and increasing capacity in places like Thailand and India. Most of those projects come on in 2004 sometime. There is very few of those completed by the end of 2013. You should see some benefit -- a lot of benefit toward the end of 2014.

As you think about the 2015 benefit, do you have a rough bogey that you are aiming for as a floor?

In terms of returns, all of these projects have greater than 20% unleveraged IRRs, probably averaged closer to 25% unleveraged IRRs, if that gives you any sense of terms of EBITDA capacity.

Perfect. Okay. Thank you.

Next question is from the line of -- sorry, bear with me, Hassan Ahmed from Alembic Global.

Good morning, Peter. I should start calling myself Harry or something. Listen, quick question around the polyurethane side of things. Obviously, as I take a look at some of the data that's out there, industry consultant data, they are talking about some incremental capacity coming online over the next couple of years. But as I look at who is bringing online that capacity, you have some new entrants like Seddek or possibly you could even call Sadara a new entrant. What is your view in terms of the timeliness of the arrival of this capacity?

It's tough to speculate, Hassan. Because there just isn't a lot of information in the industry. Typically you will start to see -- a year or two before people bring capacity on -- you will start to see product that is going into the market. Now, how does a new plant have product that goes into the market? Sometimes if we have new capacity coming on in Asia, for instance, before we started having production in Asia, we went to Asian producers and purchased product for resale. We started exporting product from the US and you started feeding the Asian market so that when you came up with a plant, you weren't just starting from zero. I'm not seeing a lot of those preliminary signs that you would typically see if somebody is coming on in the next year or so.

I would also just note, that in a lot of these large projects where you see an MDI plant that is built with a number of other facilities around it -- and that would include some of the these projects going on in China and some going on in the Middle East. Typically -- and I would go back to the comments earlier, around the Rotterdam facility, our facility, our MDI plant in Rotterdam can't run unless everybody around it is running in unison. This is not like a polypropelene plant where if my propylene unit is not working, I can buy propylene and just keep running the plant. In the cases of a Middle East facility or a Chinese facility that's not part of a larger chemical complex, you have to build the entire complex out before you start up the MDI plant.

As I look at the projections -- so, some of these large facilities coming on in China or the Middle East and it shows them coming on in the next 12 to 18 months, I'm simply not seeing the market behavior that would tell me that is coming into the market. Nor am I -- again, this is just anecdotal -- nor am I seeing the construction of the other facilities that are coming into the marketplace on a timely enough basis for some of these facilities to come in the market. Now, will they be built? Absolutely. But I think when you look at the timing of these things coming into the market, if you push some of these projects 12 to 18 months back -- and may I remind you, when a new MDI plant starts up, it typically takes 6 to 9 months just to get that plant up and running in producing at capacity. If you start pushing some of these larger facilities out 9, 12, 18 months you really see capacity utilization rates really don't dip much below 90% in 2016, 2017.

Now forgive me. I know I've said a lot here. A lot of people are judging our Company and it's future performance on what will be happening literally three years from now -- three to four years from now. I just don't think there is enough visibility in the market at this point, to say that all of that capacity is coming on, on a timely basis, it's all going hit the market exactly the same time, and thus depress prices as some people have speculated.

Got it. Appreciate that. A follow-up, if I may, on the TIO2 side of things. You've talked about exploring options and you don't want to discuss that on the call, but if you were to sell the TIO2 business or any other business for that matter, in terms of priorities to use any cash proceeds, would a debt pay down be front and center or high up there?

Well, immediately, our priority and I'm speaking on behalf of the Board, so I'm going to be careful here. But I would say that the immediate priority would be the strengthen in our balance sheet and so forth. But you've also got a genetic mutation that exists perhaps within the Huntsman family that I don't think that you are going to see the business shrink for very long. So, I think that if we were to all of a sudden have a large cash infusion because we were able to sell or spend or merge or do something with some asset, I think that we would also have an eye out for opportunities to create further shareholder value.

That's not to say that we want to go out and re-lever very our balance sheet, or anything like that, but I think it is to say that as we look over the next couple of years, we want to maintain a strong balance sheet, maintain cash, but at the same time, I think that we are anxious to see what opportunities are out there.

Got it. Thanks so much, Peter.

Thank you.

Next question is from the line of Frank Mitsch from Wells Fargo Securities.

Hi, this is Sabina Chatterjee, in for Frank. Peter, just bigger picture here, and sort of touching on your previous answer. If I look back to the guidance you gave during the Q4 report, there actually isn't much that is different, relative to what you shared today. Maybe despite the forced majeure impact. I realize it's only ten weeks later but could you comment on what, if anything, has materially changed maybe by end market or region on what is underlying your outlook?

I'm not sure there is a great deal that has changed. I think from where we were a few months ago, I think that, perhaps, there are greater storm clouds over Europe than what I would have thought a month or two ago. But having said that, I think that what we are seeing in the United States economy, and frankly, what we continue to see in Asia, I'm not saying that Asia -- China is just on fire but our business in Asia just feels like it's better than a lot of what I'm reading, people talking about a slow down and so forth. We continue in the areas of our amines, our downstream differentiated chemicals and so forth, building materials, automotive. Not just in China but Southeast Asia as well. We continue -- even in textiles and in some of the Advanced Materials applications, we continue to see strong markets in Asia.

I think that I would probably see a little bit larger storm clouds in Europe but I think North America, I think Asia, I think even parts of Latin America are better than where they were a few months ago. And as I look at raw material costing, I think that raw material prices are probably going to be in downward pressure, if I look at Brent and so forth, I think that oils have taken a drop in the last month or so. Which means that our raw materials may be falling which means, I think we have an opportunity, perhaps, in the short term hopefully to expand some margins. So, I think you take all that give and take and it sounds like it's the same forecast but I guess -- since I spoke last we had an additional $10 million hit that I wasn't expecting, we weren't expecting on Performance Products. As I said this morning, I think we can make up the $10 million throughout the year in higher margins.

Actually my follow-up was on raws. It actually looks like benzene is likely to increase further and obviously now gas has climbed considerably in the past few months. What is supporting -- you mentioned the Brent. Can you give us more detail on our outlook for raws, maybe potential impact and how if any way, contracts could provide you insulation?

We -- I think with raw materials we look at our largest raw materials on benzene. Benzene prices fell from the fourth quarter on average coming down. In the first quarter we saw prices in the fourth quarter equally we are about $4.75 and the first quarter $5. In the second quarter, we will see them come down just a little bit, because, mind you, there is about a 60 to 90 day delay in when we buy benzene to when we process that benzene. I think benzene with crude oil prices coming down and so forth, I know it seems like it's ticking up right now today but I think longer term, benzene prices ought to stabilize or perhaps come down just a little bit. Natural gas prices typically this time of year we have had an extremely late winter in North America and Europe. I think natural gas prices probably will be under some downward pressure with crude prices coming down with winter finally ending here. Again -- that is -- I'm an optimist when it comes to these sort of things.

Thank you.

Thank you.

Nancy, this is Kurt. I believe we are at the top of the hour. Why don't we take one more question from the queue before we conclude the call?

Sure. Thank you, Kurt. The next question is from the line of Jeff Zekauskas from JPMorgan.

Hi. Good morning. Thanks for squeezing me in. Your -- the expense that you are excluding for your amortization of pension and post-retirement losses was $19 million in first quarter of 2013 versus, I think, $11 million in the first quarter of '2012. Why is it so large versus last year's loss? Your pension liability went up but it didn't go up -- but it didn't double? Does this mean that the amounts that you plan to exclude in the coming three quarters are much less than $19 million or is $19 million the run rate? Where does that stand?

Sure. Thanks, Jeff. So, the change in the discount rate for the actuarial assumptions increased the obligation, Jeff, by just about $600 million.

Right.

And, you amortize that over 15 years roughly, it's an increase of $40 million over 2012.

Right.

So, the difference between the $19 million the $10 million from last year, is what we will show in the remaining quarters of this year. So, roughly $40 million for the year or $10 million increase each quarter. Does that make sense?

Yes. It does, thank you. And then secondly, just listening to your commentary about MTBE, basically did you think that the adverse change year-over-year -- did you used to think that it was $90 million now you think it's $60 million? Is that basically what happened either because of lower butane prices or because of some other factors?

Yes. If I take a snapshot right now today, that is what I believe. I believe in the first quarter, instead of seeing a deficit of $60 million, we saw something substantially less than that because of lower butane prices that we were able to take advantage of. And C factors were slightly higher. But again, as I look going forward, I think that there is -- I continue to be optimistic about MTBE but I would say that our expectations in comparison to the last year, it's probably going to be a smaller gap than the $90 million that we talked about earlier.

Okay. Thank you very much.

Thanks, Jeff.

Thank you for your questions, Jeff. Ladies and gentlemen, that's all the time we have for questions today. Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Have a good day. Thank you.