| Revenue of $1.41B (-4.08% Y/Y) misses by $79.99M
Huntsman Corporation (NYSE:HUN) Q1 2025 Earnings Conference Call May 2, 2025 10:00 AM ET
Company Participants
Ivan Marcuse – Vice President, Investor Relations and Corporate Development
Peter Huntsman – Chairman of the Board, President and Chief Executive Officer
Phil Lister – Executive Vice President and Chief Financial Officer
Peter Huntsman
Ivan, thank you very much. Just over two months ago at our last earnings call, I started my comments by explaining why we did not give yearly guidance, but rather focused on quarterly guidance. And that was just before the first week of April when Liberation Day liberated the New York Stock Exchange to some $3 trillion of value. Before reciprocal tariffs, 90-day pauses, and 500-plus percent tariff rates were put on most goods flowing between the world’s two largest and interdependent economic systems, along with varying degrees of tariffs on just about every trade flow in the world.
Today, I’m not sure if we can tell you what’s going to be happening between now and the end of the week in either the macro economy or our own petrochemical industry. I would assume that most CEOs who have already reported their numbers, if they were to report again today, would be changing their outlook. I want to see if we can take and make some sense as far as what we’re seeing as far as what is happening today and some of the longer-term implications for Huntsman that we see as of today. Much of what we’re seeing in our supply chains is a literal disconnect between orders and downstream demand.
We see build rates for cars drop low single digit percentages, and by the time the supply chains move through OEMs and down to us, we are seeing double-digit drops in some order patents. It is not unlike what happens when someone taps the brakes on a fast-moving freeway, and the car behind them applies greater pressure. Three or four cars further back, cars are literally skidding to a halt. Now, I do not see vehicle production, housing materials, airplanes, and power grid components dropping by double-digit margins. However, I am seeing in the past few weeks, suppliers panic, and in a world of great and changing uncertainties, lowering inventories, preserving working capital, and stopping supply chains, especially those moving overseas. Will these conditions remain permanent? I think that is very highly unlikely.
I would see a scenario not unlike 2020, when supply chains and inventories froze, and the world stood in a state of paralysis as consumers, manufacturers, and suppliers tried to make sense of the short-term. I see much, if not all, of the short-term supply and demand issues driven largely by the unknown and uncertain conditions likely being resolved in the next few months. As trade deals get done, alternate supply lines and sources emerge, and the dust from Liberation Day finally settles.
Other aspects of this will be longer lasting. North American MDI tariffs is a good example. This past year, nearly 400,000 tons were imported into the United States and the Americas market, with about 75% of that coming from China. This represents between 20% and 25% of the total domestic demand for the entire year. Just in the month of January of this year, more than twice the amount of MDI that was imported a year ago was imported into the United States. By the end of the quarter, in March, imports had dropped by 60% into the Americas and greater than 75% from China.
And it appears that this drop will continue into the second quarter as only one kiloton of MDI from China came into the Americas in the first week of April. These tariffs seemingly are longer term in nature, and I believe may have a greater impact on the Americas. Huntsman produces virtually all of our Americas material in North America. We’re in an ideal location to benefit from this. More specifically, during the latter part of the first quarter of this year, as shipments from China were canceled, there seemed to be an oversupply of MDI on the Asian markets. Chinese MDI prices fell as did raw materials.
However, in the past week, these prices have stabilized and have actually recovered by 10%. Again, as we are well situated in our Chinese business, as all of our MDI supply is domestically produced with an excellent team of local associates that operate this business. Again, how long will this last? No one knows. But orders seem to slowly be coming about in China and the Americas markets. Europe, on the other hand, is still trying to figure out if they have or even want an industrial policy. More to come on that one, no doubt.
I do not see the impact of tariffs having a material impact, a direct material impact on our performance products and advanced material divisions. I can’t clearly see what impact this will have on our customers end markets such as power and aerospace. But things seem to be moving towards a slightly more confident place than they were just a week ago. This past quarter, I told you that I thought we were seeing the bottom of MDI prices or better put margins, or better put, margins, as we had seen announced price increases across the US, EU, and China. I continue to believe this, though there may be a bit of choppiness in the numbers.
The MDI markets may well be seeing better margin expansion from falling raw material prices than from rising MDI prices. However, volumes will be of greatest importance. The present market uncertainties do not provide us or our customers confidence for longer-term inventory build and volume increase. We continue to be frustrated by the lack of a clear and realistic energy in European-wide industrial policy, which is needed to encourage investment by us and others in Europe. We will continue to aggressively look at our cost and organizational structure and calibrate that to a shrinking industrial base as we see more companies struggling under the burden of high energy costs, taxes, and regulation.
In short, we will not be waiting for the market to turn in our favor. We’ll continue to take the steps necessary to have a value-creating business in Europe. We also continue to look for opportunities around the world that may provide a chance to increase our product footprint. While we are careful to protect our balance sheet, we will continue to assess our assets and explore possible opportunities in the marketplace to create shareholder value faster than just waiting for a market recovery. In short, we are focused on capitalizing on the short-term changes in volatility, aligning our costs to longer-term market realities, and exploring various options to enhance our portfolio and create greater shareholder value. With that, Operator, we’ll open the line up for any questions.
Patrick Cunningham
Hi, good morning. The trade uncertainty is clearly overwhelming everything. But, one of the goals is to increase U.S. manufacturing. And maybe you’ll get some tailwinds for housing and infrastructure. How do you view the growth potential longer term if the policies work as intended? And how might you further reposition your asset footprint if we live in this protectionist world?
Peter Huntsman
Well, I’m not sure that as we look at our asset footprint, I continue to see kind of some vague question marks around Europe. But if you, okay, I’m probably oversimplifying things. If you kind of look at a more protectionist view in China and a more protectionist view in America, I mean, China certainly started five, six years ago increasing their industrial capacity, domesticating their industrial capacity and so forth and becoming less reliant on imports, largely doing what the U.S. is today. The vast majority of what we sell, the vast majority of where we make money is in domestically produced product, both in North America and in Asia. So I don’t see us having to change our footprint, if you will, manufacturing or otherwise to try to calibrate around where things seemingly are going. Now, again, that may have an impact on our downstream demand on some of our products and so forth.
But I think that we’re in a pretty good position ourselves. You did mention the construction markets. And I would think that the single biggest issue, probably certainly longer term, even more so than tariffs and tariffs, you will recalibrate. And we’ll be able to work our way through tariffs. The single biggest impact that we see between now and the end of the year on our earnings would be an improvement in the pickup in the North American residential and commercial construction.
Patrick Cunningham
Understood. Very helpful. And could you provide an update on the spray foam business? Has this business seen a similar disconnect in downstream demand versus your orders? And do you expect any sort of further pressure on this market just given, home builders are under pressure at this point?
Peter Huntsman
Yes, the bottom line is, if you think about the spray foam business, that’s going to both be a new homes, which is slowed and home remodeling, putting taking out a second mortgage or whatever and add a higher interest rate and remodeling your home. That industry is obviously slowed as well. So, yes, we would see that impact in both areas.
Phil Lister
And, Patrick, you’ll have seen that we announced the closure of our Boisbriand, Canada facility for spray. We’re consolidating everything down in Arlington and in Texas. And that’s just right sizing our footprint to ensure we’ve got the cost base right.
Jeff Zekauskas
Thanks very much. Can you talk about pricing and MDI in North America? It seems that the major producers went out with meaningful price increases. What happened and what continues to happen?
Peter Huntsman
Well, look, we are still out there pushing price increases and so forth. I’m not going to speak on behalf of our competitors. I’ll let them speak for themselves and whatever decisions they’re trying to make. Jeff, the objective of our price increases was to expand margins. And if we can do that by maintaining a price and being able to take advantage of falling raw material prices, we’ll certainly do that. I would say that I think that we are in a worse position today than we were two months ago.
When it comes to those prices being implemented due solely because of the lack of volume, the lack of demand that we’re seeing in the market. Conversely, I would expect that as you see tariffs fully in effect in North America, perhaps even in China, and as you see volumes recover to a more normalized area, you’ll see an opportunity for those price increases to be more meaningfully implemented across the board.
Jeff Zekauskas
And then for Phil, I think inventories went up $100 million roughly sequentially. Is that mostly because your demand was less than you expected and you need to move your operating rates down? And do you have any estimates for whether working capital will be a benefit or a use this year?
Phil Lister
Yes, Jeff, it came in about where we expected. As a reminder, we’ve got a number of turnarounds around the world, particularly the large one that we had in Rotterdam, where we have to build for that. We’ve got some more minor ones during the second quarter in Geismer in Shaoxing, China, as well as the turnaround at our Conroe, Texas facility. So I expected us to build those numbers will come down in the second quarter. And you’re right. There’s some calibration there towards a lower or let’s call it an uncertain demand environment.
But we’ll have our inventories back down at the end of the second quarter for the full year. I think we articulated we still expect to have an improvement on our cash conversion cycle. We improved on that last year and we’ll expect a further improvement on that for this year in terms of whether it be a source or a use. Selfishly, I hope there’s a use. I hope there’s a booming economy by the fourth quarter and fourth quarter activity is much higher in the fourth quarter this year versus the fourth quarter last year. But our focus, honestly, is on what we can control and ensuring our cash conversion cycle is appropriately managed.
Josh Spector
Hi, good morning. I want to ask two things first on the trade balances for MDI. I mean, at least on the data that we have through February, it looks like there’s been a tick up in Germany imports into the US. So as China backs out, do you see a scenario where Europe fills in that gap or do US assets move up much more to fill that? I don’t know if that’s internal transfers of a competitor or something else going on or something with the market.
And then second, just with your US pricing, where you have spread pass-throughs or benzene pass-throughs, how do those contracts renegotiate? What’s your ability to increase those spreads separate from the price increases? Thanks.
Peter Huntsman
Yes, on the first part of that question, yes, I would think that if somebody is bringing in product from Europe today, I can’t imagine why they would be doing that. I mean, as I look at our own manufacturing costs, we’re in excess of $100 a ton higher cost in Europe. And then on top of that, you have to pay what I think it’s a 6% to 8% duty or tariff. And then on top of that, you have to pay working capital, you have to pay transportation. So you’re talking there probably of a $400 to $500 a ton difference between Europe and the US. So if somebody is shipping product in from Europe into the US for economic benefit, I find that really tough to understand why somebody would be doing that. But short of an operating upset, you’ve got contractual obligations that you have to meet on a take or pay or something.
So, no, I do not see Europe backfilling Asian material that otherwise would be coming to the US. It has not been competitive to do that for at least the last three or four years. And I don’t foresee in the future, given the energy costs and so forth in Europe, freight costs and tariffs and so forth, I don’t see how that could possibly make sense on a longer term basis.
Yes, our pass-through pricing reminds you that just under about 50% of our overall North American volume is on some form or another of pass-through. So I think it’s kind of — I’m not going to say it’s standard in the industry, but there’s some segments that have longer term commitments to customers and so forth where they favor that and others that do not. Typically those contracts, I’m not going to speak to all of them because they all vary contract to contract, but typically you have anywhere from a three, six months, what I would call a pit stop, where you can pull off from the contracts and you can readjust the portion of that contract that is not related to raw materials.
I would call that would be a margin expansion. Or you can just choose to get out of the contract altogether. But, again, that’s going to vary customer to customer, term to term. But you typically, every couple of months, you’ll have a pit stop. So, again, if you see a dollar drop in benzene that happened, let’s hypothetically say today, I would say that you probably have anywhere from a 30- to 45-day time period of where your existing inventory is going to have to be worked through the system. You’ve got benzene that if that price were to drop today.
You’ve got benzene that you bought yesterday, benzene that’s on the water in shipment to your plants. You’ve got benzene in the form of nitrobenzene, crude MDI, finished inventory. All that’s priced at that more expensive inventory. So, the impact of that dollar cheaper benzene as of today is not going to be felt for some time. And then when it is, you’ll instantaneously feel it on that 50%. And, again, that’s a much higher percentage than what you see in Europe or in Asia in the U.S. market.
At 50%, you would feel that instantaneously. And then the other 50%, you would see that probably over a three to six, maybe in a very few contracts as much as long as a nine-month sort of a term contract in that. So, that last 50% would be tailing off there. So, again, I’d like to be able to say you see a dollar drop today, you’re going to see the benefit today. Conversely, when prices go up, we’re not going to fully see the impact of that taking effect. And when prices go up, people are panicking and so forth. We usually, it gives us that amount of time inversely to be able to respond to the markets and to be able to calibrate our production, our costs, and so forth. So, it works in the opposite when prices are going up.
Aleksey Yefremov
Thanks. Good morning, everyone. Peter, to continue with this line of questioning, can Chinese exporters shift to moving MDI to Canada and Mexico? And would your customers be able to shift their consumption to those two countries?
Peter Huntsman
Well, not if they become the 51st and 52nd state, Aleksey. Okay, I’m just kidding. No, that’s, look, there’s obviously going to be — there would be an advantage, I assume. Each of those countries have their own independent trade tariffs and so forth that are going to be put into place. There have been some recent rather public MDI consumers that have taken MDI finished product in the form of building materials and other products. I don’t want to get customer or company specific that have brought that over the border and have been fined and under investigation for trying to avert duties that way. So, again, when you look at what you produce in Canada, you’re going to have to be consuming that in Canada as well.
If you bring a finished product into the United States on, I guess, every single application but on most of the applications, you’re going to have to be paying a duty on that proportion of MDI.
Michael Sison
Hey, good morning. Peter, some of the consultants see a pretty good increase in MDI margins sequentially in 2Q versus 1Q driven by pricing. What are your thoughts in terms of industry profitability heading into 2Q?
Peter Huntsman
Well, again, if I take a snapshot of today, as I said earlier in my comments, it’s around volume. Again, as I look at pricing, Europe where prices is kind of matching raw materials. As I look at the U.S., I think that we have an opportunity to expand margin if we’re able to maintain our price or slightly increase our price, hopefully get it up even further, and take advantage of falling raw material prices. Asia, again, I’ve talked about the falloff that we saw going into the second quarter. It’s been a whopping eight days now that we’ve celebrated the price has either not been falling or gradually been coming up. So I’ll continue to take that one day at a time, but I want to emphasize that we’re eight days into either a dead cat bounce or –sorry, I might just have sent a bunch of cat lovers out, dead cat bounce, or it might be something the product it was destined for North America that was being put on ships early in the first quarter.
It was taken off ships and put back into the Chinese market. That product has been adequately absorbed into the Chinese market, and the Chinese markets are now better balanced. So we kind of look at a price going from $18,500 per ton down to about $14,200, today sitting at like $15,200. Again, that’s a lot of volatility, but that price is to where we were a month ago or so. It’s been pretty stable for the last couple of months, and it’s been fairly healthy given where we are in the other parts of the world. So I think Asia continues to be, it’ll be interesting to see what happens here over the next couple of weeks on pricing.
John Roberts
Thanks, Peter. Are you seeing uniform weakness across composite wood versus automotive versus insulation, or is there some differentiation there? And then, secondly, during 2020, a lot of the small spray foam customers got stimulus, at least to keep them going. Do you think they survive this kind of correction right now?
Peter Huntsman
Yes, I’ve got no idea as to what our competition will be doing in spray foam. I’ve not heard nor seen any talk, legislation, or anything around any sort of stimulus that would be directed towards a particular segment of any of our customer bases. So I’d kind of be surprised to see that. Yes, and as we look at the difference between OSB, insulation, automotive, I think that there’s just a general trend right now of uncertainty, and that uncertainty right now just has people bringing down inventories, bringing down orders on the short-term, preserving capital, strengthening their balance sheet, doing those kind of emergency steps that you see in moments in times of uncertainty until there’s greater certainty. So I’m not sure that it’s all necessarily tied industry to industry as much as it is just the general sentiment of the industry.
Salvator Tiano
Yes, thank you. Good morning. So firstly on MDI, I wanted to ask how are you so far in Q1 or in Q2 managing your MDI system, your upstream MDI plans given the reduced demand, and specifically on Geismar, I remember a little bit over a year ago you broke on line or you restarted the smaller of the units there. So is this something that you may have to stop using again or you stop producing in Q1?
Peter Huntsman
No, I would say that if anything, we’re hoping to see greater capacity utilization. We brought line one down in Q1 in part because obviously of low margins and in part because we believe that there was a lot of uncompetitive material being imported into the United States, and that was having into the Americas market and that was having an impact on it. So with tariffs that are in place, with the change of imports and so forth that we’re seeing, if anything, I see that demand ought to be picking up for domestically produced MDI. Our downstream system houses in the U.S., I would remind you that we don’t have too many in the U.S. We produce polyols, and that’s a raw material that’s going into our spray foam and our other polyols business.
That continues to be a great business for us. We’re consolidating. I would say that our HBS business is a separate business. We look at it internally, but we try to run it as competitively as we can and integrate with the rest of our business. In some regards, I would look at that as a downstream systems business as well, and we’re obviously consolidating that operation, making sure that our costs are aligned with the market realities. In Europe, we’ve announced the closure of our Deggendorf, Germany, and the reduction of some of our other sites and facilities around Europe, and we’ll continue to look at our overall footprint there.
So, yes, we’ll continue to look at our costs. We’ll continue to look at the overall structural demand and profitability of our entire chain. But this year, I think that even if we remain in somewhat sluggish economic environment, that the opportunity to increase domestically produced MDI in North America will likely improve through the year.
Matthew Blair
Sounds good. And then I think the prepared comments mentioned that your construction volumes for your overall business were down 6% quarter-over-quarter in Q1, which seems like an unusual, counter-seasonal move. Was that weakness coming more from commercial or more from the residential side?
Peter Huntsman
I believe that was mostly from the residential side of the business. And I would think that a lot of that, again, had to do more with the buying patterns rather than the demand patterns on the construction side.
Phil Lister
Yes. Normally, you do actually expect a slight decline when you move from Q4 to Q1. We look at it relatively simply. In Q4, you have December as a low month, whereas in Q1, you have January and February as low months, particularly with Chinese New Year. So that’s the way to kind of think about that sequential movement when it comes to construction globally.
Hassan Ahmed
Good morning, Peter and Phil. Apologies if someone has asked this question previously. My line was cutting in and out. I just wanted to revisit some of the commentary around MDI. Specifically, you talked about 20% to 25% of U.S. MDI demand being met via exports from China. I mean, look, I completely understand that it’s highly unpredictable what the future of these tariffs will be. But I mean when I sit there and think about the impact of tariffs and above and beyond that, more specifically for MDI, the whole anti-dumping investigation that’s going on, I think it’s obviously fair to assume that that Chinese product, in a tariff world and an anti-dumping world, there will be duties on that product.
Am I missing something? Because it just seems beyond some of these very near-term trends of loading up on sort of Chinese exports into the U.S. market and sort of the issues caused by that in the near term. I mean, beyond the near term, the setup actually seems highly favorable if you’re producing product in the U.S. Am I thinking about this the right way?
Peter Huntsman
Hassan, very good question. Thank you very much. I think that you are. So a couple of things. I don’t want to go down a rabbit hole here, but I want to make sure that we kind of clarify what’s long term and kind of what’s short term. First of all, when we talk about a 20% to 25% supply going to the market, that’s for the Americas. That’s for North, South, United States. It’s for the Americas, right? When you talk about the United States, that number would even be higher than that 20%. So when you think about tariffs and where they are, think about where we were at the beginning of the year, which was what I would call the 301 tariffs. These were tariffs that were put in place in the first Trump administration. They were maintained through the Biden administration. The reason I bring that up is I would consider these to be longer term tariffs.
These are about 31.5% tariffs that were in place. In addition to that, I’ll then put kind of a second bucket of what I would call the Trump tariffs. Those are the tariffs that were put in place over the course of the last 30 to 60 days. Now, I may be a little bit off on these tariffs because they seemingly have changed back and forth a little bit, but those today are around 145%. The reason I put those in a second bucket is they came rather suddenly. And all of a sudden, you might see Xi Jinping and Trump emerge from a trade summit or something like that and say they’re gone. I’m not expecting that to happen, but again, they came suddenly. They can leave just as suddenly. And so I would say that’s a Trump tariff around 145%, added to the 31%.
It gets you just over the 175%. There’s also an anti-dumping case. It’s quite separate and apart from what I would call the Trump tariff, and this is around the ITC in the Commerce Department. And as I think about those cases, in March of this year, the ITC ruled that there was a reasonable indication that there had been an impact on domestic industry supply balances, profitability, so on and so forth, from Chinese imports. The Commerce Department is now conducting a preliminary investigation, and that’s supposed to be done by around the middle of September of this year. Assuming that they ruled favorably in that investigation, that will then go to Commerce and ITC, the International Trade Commission, will conduct a final investigation to determine the dumping, the amount.
That will probably be adjudicated sometime, final decision, sometime around February with a final ruling put into place in March of next year. That could be anywhere from 300% to 500%. The reason I put that in a third bucket is that’s quite apart from any sentiment that the President may or may not have or any negotiations that he has with somebody. That’s an ITC and a Commerce Department ruling, and if that’s put into effect, those go for a period of five years before they are revisited. So you kind of have, again, the pre-Trump tariffs, 31%, the Trump arbitrary, I don’t want to say arbitrage, I’m sure a lot of logic and thought went into it. The Trump arbitrary tariffs of 145% that I would say could come and go. And then there’s this anti-dumping case that could be anywhere from 300% to 500%.
Again, that could be put into place and could be put into place on a long-term basis for multiple years. So, yes, I think that to answer your question, I’m not going to sit here and say that I claim to know the impact of all that because it’s all happening as we speak. But I think you’d have to be pretty naive to think that if those were all implemented or if any two of those three were implemented, that would not have an impact on the North American marketplace.
And I think that my comments earlier about having to shut down part of our production, when you reopen that production, demand comes back. You’re hiring more people. You’re spending more domestically. You’re producing more domestically. You’re paying higher taxes domestically. And you see the impact of that. So, yes, that is all playing out in real time, Hassan, and I greatly apologize for a long-winded answer.
Hassan Ahmed
No worries at all. And as a quick follow-up, obviously, uncertainty in, I mean, if I were a Chinese polyurethane producer facing these headwinds, I guess, I would probably be thinking about maybe some rationalization. And adding to those woes, I mean, of course, China sort of imports around 40% to 50% of their LPG needs, propane in particular, from the U.S., right. And obviously, on the surface, it seems that those are going to be tariffed as well. And if you take a look at the last couple of years, China has more than doubled its PDH capacity, right.
So, all of a sudden, in that tariff world, I’d like to think that maybe there’ll be some shuttering of those PDH units because they’ll become highly uneconomic, right, which in theory will impact propylene supply, and which in theory could impact PO and polyurethane economics. So, I mean, again, is that the right way of thinking about it? And are you seeing any indications of rationalization on the back of all of these headwinds?
Peter Huntsman
Yes, it’s an excellent point, Hassan, and very well thought through. I think that as you look at these, they’re each going to be treated differently. I look at the NGOs that are being imported into China from the U.S., and to what degree those are tariffed coming or going into China. I noticed this last week that China dropped its tariff on ethane, a vital raw material for gas cracking into ethylene and polyethylene. So, yes, you’re already starting to see backwards movement in certain areas and certain products that are being freed up, if you will. But there will be a great deal of, I think, of change coming in the next quarter or two.
I don’t think it’s going to play out in the next couple of years. I think it’s going to play out in the next quarter or two. And what exactly international producers decide to do is purely up in the air.
