Huntsman Corporation (HUN) Earnings Call Transcript & Summary

Hello, everyone. Thank you for tuning in. My name is Matthew DeYoe. I'm on the U.S. Chemicals team, working with Steve Byrne. This morning. We have the pleasure of hosting Huntsman. Today, we have company's CEO, Peter Huntsman; CFO, Sean Douglas; and Investor Relations lead, Ivan Marcuse. We're going to jump right into Q&A and fireside chat. So if you have any questions from the investor side, please feel free to submit them. And I, as the moderator, will pass through them and fire off to management as we go through.

Peter, I know one thing, and I've already gotten some inbound on it this morning. Maybe we get it out of the way. Perhaps you can address it now. Clearly some dire situations in Texas and along the U.S. Gulf Coast the past few weeks, with the freezing temperatures. How the people, importantly, and how the assets of Huntsman managed? Do you have any thoughts on costs or impact on your intent -- I know you were planning on building inventories during this quarter into the Rotterdam outage, I believe. And so how does this kind of impact the strategy of Huntsman as you had originally laid it out a couple of weeks ago?

Well, I have to say that I'm rather disappointed in the planning and so forth of particularly Sean Douglas. He's the CFO. He's got all the stacks of paper from them. But as recently as just a month ago, we did our budgeting, and he didn't even budget this freeze. I'm just astounded.

I've got the paper right here.

So we've -- I've got to tell you, overall, with our associates, thank you very much for asking, I think most of them have done very well. It came in this last week, and we had a 24-hour fundraising rally between our associates and some of our Board members and so forth. We raised -- in the 24-hour time frame, we raised $600,000 for local food banks in Montgomery and Harris County, Houston and the Woodlands area. And so we have a lot of employees that I know have damaged their homes and so forth. But here they are within a matter of days after the freeze are back to work. They raised $600,000 within a 24-hour period. So they're doing exceptionally well. I'm just immensely proud of them. And I look at the operations, they're -- I think that it's still kind of a moving target. But if I were to just look across the board right now, our biggest concern is third-party supply sources and logistics and so forth coming into our plants. We've had a couple of individual reactors and kettles and so forth within our system, sort of, sustained damage. I would suspect that probably by this weekend, certainly, everything will be back up. I don't see that as really being material to our bottom line. The supply disruptions that we have seen and that will probably linger for the next week or so, full economic impact of those disruptions are yet to be seen. But what we see today? Performance Products will probably take a hit in the first quarter of about $12 million; and our Polyurethanes business probably around $15 million, $16 million and probably not be able to build up as much inventory as we planned. But glad to say that for the most part, our Geismar facility, we didn't -- we never went on force majeure. So I think we are one of the few polyurethane producers that didn't go on force majeure. So on one hand, we have probably about a $25 million-ish sort of a hit because of the freeze. On the other hand, we are seeing quite strong pricing in the first quarter. And I think much of that pricing will probably overlap into the second quarter. Exactly how much of that will go into the second quarter, just simply too early to tell, but the pricing momentum and the demand momentum that I see as of the very early days of March would tell me that I'm probably more positive than not. When I look at the pricing, particularly in Asia, in polyurethane, I think it will offset all of the costs that I just went over with a freeze. So it's got to say that we kind of see there's around a $25 million to $30 million impact on the freeze. I think that there'll be a very, very close corresponding impact on pricing momentum that we have seen that is stronger; and in some cases, may have been brought on a little bit quicker by this freeze that we think and -- by the end of the first quarter. Now is that going to offset dollar-for-dollar in the quarter? I think it's going to be very close, but there might be a $1 million-or-so differing impact. But the pricing momentum, unlike the impact of the freeze should be over, I think, in the next couple of days, fully in the next week or so. The pricing momentum will probably continue into the second quarter, so the guidance that we gave for first quarter, during our conference call, with all the gives and the takes, everything, I would still stand with that guidance. And I think that we still feel very confident around that guidance.

Thank you for putting that all into context, Peter. I appreciate it. I know everybody is trying to kind of parse out what's happening and perhaps Harvey in Texas gave us a little bit of a clue for some of the other businesses, but this was obviously very broad as it relates to the impact.

I would say, just to be honest, I think the greater impact on our industry is short-term freeze, but longer term, there are some logistical issues out there, the shortage of cargo containers, shortage of shipping and the overall uplift in demand, I think a lot of that's GDP-driven, a lot of it's recovery-driven, and a lot of it's reinventory. I think the impact of that is probably going to have a much greater impact on the industry than the phrase longer-term.

That's actually a topic that I'd like to swing around to. Perhaps we can shelve it for a little bit later, but I do want to -- just something I didn't think many people appreciate it. I know I didn't quite appreciate. But I believe last year was your 20th year as a company CEO, if my math is correct, it might not be. But how do you...

Yes. I think you're right.

Sure. I don't know what date you were there. But I mean that's -- it's impressive and as I'm right, so how do you think about your growth in the role? And as you think about your position as CEO, how do you think about effectively executing on your vision and incentivizing your employees to kind of followthrough?

Well, as far as any accolades about the role, never let it be said that nepotism doesn't have its place. But at the same time, we've always tried to keep it just within the family. So as we think about the last 20 years, I think that one thing that I've learned in the last 20 years -- so 2 things, if I could boil down what are my observations in the last 20 years: First and foremost, business, I used to think was all about products, getting your product to the customer on time. Business is all about people. You get the right people. You surround yourself with the right people. I am an exceptionally good CEO because -- and this is very easy, I surround myself with people that are better than me. And so it's very easy for me to find people that are better than me. I've got 2 of them right here in the room. If I can surround myself with people better than me and -- I guess, as you get older, you also just see how reliant you become on others? How dependable and the value of good talent really is? And so I mean -- I guess, that's one simple observation. The other observation I'd have about Huntsman, in particular, is that if we don't change our direction, our cost structure and largely our portfolio, not our entire portfolio, but parts of our portfolio every 5 years, and I'm not on some solidness planned here, the 5-year economic models, but if we don't continuously change every 5 years, it's just arc of change. I think that if we go back into any time period, have we been -- if we have the exact company that we were 5 years ago today, we would be about 5x levered, probably more so. So I think we'd still have PIR-2 with us. We'd probably be 6x levered. We still have, again, great products, great people and everything, but we'd have a completely different balance sheet. That is on 5 years before that, our cost structure was totally different. 5 years before that, we were a polyolefins, aeromatics, olefins company. And so the real challenge today, as much as I like our portfolio, we've got to have a team today that's saying 5 years from now we're going to be looking back on today and say, "Wow, how did we survive?" We had all these holes in the portfolio. We didn't know it then. But we've got -- we've constantly got to be working. And so when people ask, you're done with your restructuring, do you have the portfolio where you want it? The days that I answer yes to this question is really the day that somebody else ought to be sitting in the seat. They can continuously reinvigorate, refresh and reexamine the portfolio because if you really get that comfortable with it, there's -- you're going to sink in this industry. It is a fast-moving industry, and we don't realize this, how quickly things change.

My next question was, do you have any idea about what inning we're in as it comes to the process of portfolio readjustment? So I think I'll shelve that one. It seems like constantly inning 4 or 5 is probably the best way to put it, but...

Yes, I think we're still in the first inning here, but I'm very much of a Buddhist when it comes to reincarnation on corporate strategy. So you just got to keep moving.

So if I believe, on your last conference call, you made a comment in regards to M&A that you think the company needs to get larger. One, I would say, what value do you see in the increased scale? Do you need M&A to get there? I know you're doing some inorganic work, say, for the splitter. And can you get to your ideal size or portfolio with the 4 business units you have?

Yes, we need M&A. We actually need M&A and internal. But we need M&A, I think, to be able to grow the pace that we want to grow. We have the balance sheet to do so. We need to use that smart, and we need to use that effectively. Just because we have the balance sheet for M&A doesn't necessarily mean we've got to be out using it. But we do need to be looking for good deals. Look, I think that -- again, I've mentioned earlier, a few minutes ago, we used to be close to a $13 billion, $14 billion company some 10 years ago. We've taken a lot of costs out of the company, but we still have an infrastructure, an IT-shared business platform infrastructure and so forth, that was supporting a larger company than what we are today. And a lot of that -- again, the vast majority of that we're either taking it out or we're in the process of taking it out. But I think that as you get larger, you have an opportunity to spread more of your fixed costs over a greater wider range of tonnage. Yes, as we get larger, we don't need to have 2 CFOs, we don't need to have Ivan continuing to expand as vast empire of Investor Relations. He's the one person working with them. As we get larger, I think that you can also get more cost-competitive. But let's not to say we need to get larger, just to get larger. I don't think that we need any more of stools on -- any more legs on the stool, if you will. I think that if you look at our present portfolio, I think we're just scratching the surface. Look where we are at MDI. I don't think that we necessarily need more MDI, we need better MDI, we need higher-margin MDI and we need to go further downstream. We need to be looking at additional opportunities as we have in the spray foam installation. Look at our maleic anhydride, we're the world's largest producer of maleic anhydride, and we take none of it downstream. We have no exposure into UPR and some of the derivatives of the maleic anhydride. And yet as you look at those derivatives, they complement and would fit very well in that niche of thermoplastics between our Advanced Materials, our Performance Products and our Polyurethanes. If you look at our means, moving further downstream into ultrapure amines and carbonates and so forth going to battery technology and the whole green revolution that's upon us. I think that, again, in the existing chains and the existing chemistries we have, there's plenty of room for continued downstream opportunity.

And that actually leaves me perfectly well into my next question. So you're moving to spray foam, was notable. I mean you made 2 very targeted deals. You built scale and you pulled down costs. And I think it's been effective. You're probably a little constricted there as further growth at least in the spray foam. So what is next for PU? Is the splitter your primary point of concern in finding markets to upgrade that product and put it into? Or are there other downstream markets may be similar to spray foam that can maybe use up your PMDI or whatever that you don't have a footprint in, that you're looking at?

Well, I think that if we look at the whole Huntsman building solutions, if you recognize not many -- it's not particularly focused on spray foam. It's not about insulation. It's about building solutions. So you look at roofing materials, as you look at adhesions, as you look at the sealants and coatings and so forth that are used in the construction industry, as you look at the insulation, we're just scratching the surface there. We're the largest polyurethane spray foam in the world, but we're still #3 when it comes to overall insulation. We only have a single-digit percentage of the market. And as you look at areas, as I mentioned earlier, the Green new deal, if you just look at what spray foam is capable of doing, it's the most effective insulant in the world. Its 40% of the energy -- 40-plus percent of energy used globally is around heating and cooling of buildings. It's not automobiles and so forth or industry. It's cooling buildings. We have the best R factor in the world, and we're just getting started on what we need to be doing. This industry is a solution provider for getting us to the next step where we need to be from a greening and from a CO2 reduction platform. Whether it's in spray foam or sealants or coatings, or lightweighting and battery technology, wind, solar, this industry is portal to all of those technologies. And it's absolutely absurd when people say that we need to be doing away with oil, we need to be doing away with the chemical industry because they're contributors. We're the solution provider, and we're just getting started in what this industry ought to be doing as a solution provider.

And you talked a little bit about the green new deal, at least you mentioned it. The Biden administration, at least, certainly seems more open to environmental regulation than the Trump administration. And so if you think about building codes and maybe perhaps that being a key to unlocking a faster penetration in spray foam insulation, are you seeing anything there? Have you seen any inklings of either incentives or credits or even full stop regulations to try and improve building codes and insulation values in homes?

Yes, we have. We have had meetings with some of the policymakers and people that will be forming this policy, both in the Senate and the House and in the White House. I've met with individuals as have certain of our associates and encouraged them to set the standards. They don't -- look, something like spray foam, you don't need tax incentives. The government doesn't need to be coming in and picking winners and losers. Set a standard. And let industry meet that standard. The technology is there today. If you're really serious about doing something effective, look at the tens of thousands of jobs that could be created by utilizing spray foam more effectively in the building codes. If you really wanted to look at onshoring, our -- the supply chain for battery technology, let's make sure that we're going to have an even playing field when it comes to trade around the world. We're not going to pick winners and losers and so forth, but we're going to set standards that industry ought to be meeting. And we've -- I hope that this company can have a very powerful voice in that area. I think that we have many products that would greatly benefit by a focus in this area. And it doesn't need to be the heavy hand of government. It needs to be the hand of government looking at where are the best opportunities, where are the best economic opportunities and where are the best solution providers. And people can sit here and say that in 2050, we're going to be a carbon economy, sort of coming up with some sort of cold fusion or making homes out of -- having us all go live in caves or something. A lots of stuff is just nonsense. We've got to get realistic about where we're going and how we're going to get there.

Hopefully, I would think, I mean, TEROL, in particular, is an interesting dynamic, particularly for the ESG angle. But I can imagine that maybe provides you a little bit more credibility when you start talking about the steps the company is taking to address some of the sustainability and the environmental matters. But if I think about like the last cycle for polyurethanes more holistically, the business would often see mid single-digit volume growth. I remember quarters where it was even maybe more robust. So can we get back to those levels? And what do you think is the right organic growth figure for Huntsman kind of moving past? At least maybe first in PU and then holistically for the company, as we move past the 2021 bounce back and start looking at to a more normal growth rate?

Well, let's focus on polyurethanes because that's over half of our business -- moving to 60% of our business. I mean looking at polyurethanes, I think that the industry is finally recognizing the value of MDI, and that we've got a lot of capacity that's already out there. When you look out over the next 5 to 7 years, Matthew, there really are no large world-scale facilities going on. And I challenge anybody on this call, go back 10 or 15 years in MDI and look at any given point if a 5-year forecast of new capacity coming on. And in any 5-year, 7-year segment that you go back in the last 15, 20 years, there's this wave of new capacities that are constantly coming into this industry. This is about the first time, as I sit here, as I look out, we've got no greenfield capacity expansion in North America. We're already sold out virtually in North America. We're very much similar picture to that in Europe. And you've got a project or 2 coming on in China. I think, they're probably going to be needed, coming on over the next 3 to 5 years. But when you look at Huntsman, it's -- my question is really not how do you get more MDI tonnage? I think we need to take the MDI that we already have, and we need to be taking the bottom end of that MDI. We need to be lifting up the margin on that. We need to be bottom slicing our least profitable business, and we need to be converting that and moving out further into higher-margin applications. And when you look at that, I think that between the cost initiatives that we've already set out and you look at the pricing discipline, I think that you're already starting to see move into the industry. polyurethanes MDI, in particular, ought to be a high-teen sort of pushing you a 20% sort of EBITDA business, I think, it ought to be able to get there in the next 2 years or so. As you look at other facets of our business, we've set out some very clear objectives around our Advanced Materials. We see that in the next 2 years or so getting back up into the $215 million to $225 million sort of range. And that is before you look at aerospace -- a recovery in aerospace. When we see recovery in aerospace, that's going to be more of a $275 million-plus sort of a number and growing from there. And that's a business that ought to be growing at better than GDP. Aerospace is as it is today, let's remember that over the last 20 years, that's been a -- it's been a great contributor to us and it will be a great contributor to us going forward. But we're going to go, it's probably going to be -- we said a year ago that it's probably going to be 3 years or so until we see a full recovery in aerospace. And I hope I'm wrong there. I hope it's 2 years, but we're already a year into that. So we should start seeing this year, 2021, we should start seeing at least some of the green shoots of recovery taking place in aerospace and a more fulsome recovery in 2022. When you look at our Textile Effects, I think that you see a more fulsome, again, recovery coming out when you see the retail outlets reopen. There'll be a huge -- even more so than ever, a very large demand on environmental and sustainable sort of wardrobe and textiles and clothing. I think that Huntsman fills a very important niche in that. And as I look at our Performance Products. Think about this, our Performance Products, but for a hurricane that hit us in 2020, our 2020 numbers would have been just about the same, maybe even a little bit better than 2019. And so as we look at the strength of our means, our maleic anhydride businesses, and the opportunity, I think that we have to downstream some of those businesses, and to further focus on the pricing margin on those businesses, that likewise ought to be a good solid participant. So my point is, bring all that together, and I think certainly by the end of next year, if market conditions continue about where they are today, demand and so forth, we often see this company easily in a mid sort of an EBITDA margin by the end of next year.

You covered a lot there. And part of which I want to expand upon -- there's a couple of things I want to expand upon. But maybe first, I mean, MDI and Performance Products are performing particularly well. I think your guide in particular for Performance Products in 1Q is noticeably strong. But the topic often kind of switches to investors with "Well, they're over earning, and they're talking about over earning." But I think what's underappreciated perhaps is the degree of room that's left in Advanced Materials, in textiles even versus 2017, 2018. I know Aerospace, as you mentioned, just maybe a couple of years away. And that's, I believe, particularly your aerospace is more wide-body planes than narrow-body, if I'm correct, and I think your 3- to 4-year is pretty consistent with what our Aero analyst thinks for recovery in that market. But in AM, [ X ] maybe Aero, and if we look at Textiles, like how long does it take to get back to the 2017, 2018 EBITDA levels for these legacy businesses, noting that you're also layering in some businesses in AM, considering you've done some deals and you've sold some businesses? How does that net out?

I think it's safe to say that we see by the -- certainly, as we look at by the middle of this year, our non-aero business in Advanced Materials, we ought to have seen a fulsome recovery of that. Our real objective in 2021, the real opportunity in 2021 with Advanced Materials is going to be the integration of the Gabriel, the CDC acquisitions and getting the synergies, the near-term and the longer-term synergies out of that as quickly as possible, and seeing the commercial opportunities we see globally. Both of those acquisitions were predominantly North American-based acquisitions. We see a real opportunity taking that globally as well as the organic commercial opportunity that we see here in North America. So I think that, again, we see an opportunity to expand internationally with these acquisitions. We've got a number of domestic opportunities, organic opportunities, if you will, that we need to execute on. And number three, is the cost-cutting in Advanced Materials. And I think, again, when we see all that kind of coming together and being completed over the course of the next year or so, that really ought to be putting the business kind of back up to where it was in that $225 million sort of a level. And then we see Aerospace being additive to that over the course of probably 20 -- latter part of 2022 going into 2023.

Okay. And that's probably how you get into that $240 million number, I believe, that you laid out in the Gabriel slide deck or maybe even higher than that, but -- so I think if you...

When we see the return of Aero, plus the cost cutting, plus the full integration commercial opportunities and so forth, I would be very disappointed if we weren't north of $250 million.

Okay. And Textiles, I know a smaller part of the business, but significantly impacted by COVID and even just trade headwinds before that, if I think about the last 2 years and how that's impacted the business. What should we set our sights on for here? You mentioned the greening of the Textile business and how -- if you look about the statistics on textiles and how terrible it is for the environment as an industry, it seems like there's a lot of green space there. So COVID vaccines rollout, economy unwinds, what's the outlook for Textiles over the next 2, 3 years with that ramp rate? Can you engage really quickly? Or do you expect it to be a slow grind higher?

I think that there'll be -- there'll probably be a 2 phase. And I'm certainly not an expert in textiles. But I think pre-COVID, we were seeing an industry -- probably 2 years ago, we're seeing an industry that went through more than 4 seasons. I mean I know we've only got 4 seasons in the year. But it seems like the idea of most textile producers and retailers is the more seasons, the more changing, the more fashions that you have, the more people are going to buy because humans, by and large, are narcissist, and we've always got to have the latest fashion. So the more seasons, the more buying, the more buying, the better off we all do. I think that what you're going to see are 2 things: First, you're going to see a recovery in textiles that will come about, I think, not 100% though come about a large part of that recovery be later, the second half of this year -- summer and second half of this year as retail stores start opening. Now we do live in a bifurcated economy. I'm looking at my window here and I see the Marriott a quarter-mile away, that still hardly has probably 15% capacity. Look at the airlines and so forth -- you look at other areas of GDP in the United States economy, and they're doing exceptionally well. Automotive and so forth sold out; housing, what have you. So we'll continue to see that. We're also seeing geographically a difference in this economy. I mean Texas is going to a no mask, no mandate, let's just get back to normal starting, well, a week from today. And my friends and family members that live in New York, still, I'm not sure there's a whole lot of difference between Manhattan and Ryker's Island. But anyways, my opinion as a Texan, so if you think about this, I mean, I potentially look at things through the perspective of a Texan probably more than I should. But as you think about that retail recovery, when are people going to be going back in the malls? And when are people going to be buying fashion again? And I think you'll see a large part of that textile effects happen at that point. And then you'll see a secondary recovery, I think, that will be slower to recover, Matthew, and that is around the consolidation that is taking place in the retail textile industry. A lot of these companies have gone out of business. A lot of very prominent names aren't here anymore. But they're going through restructuring, they're going to go through consolidation and so forth. And I think instead of about 5, 6 seasons a year, you're probably going to go down to 2 or 3 seasons a year. You just simply can't afford that much inventory. You can't afford that much inventory in the supply chain. And most everything we wear comes from China, Bangladesh or India, little bit in Pakistan, and is transported around the world. It's processed around the world and it's distributed and sold around the world. And that supply chain, I think, from an efficiency point of view, the fewer seasons, the fewer players. And so I think there's going to be changes on the retail side of textiles, the fashion that they actually sell, and there may well be consolidation in the textile chemicals into this whole thing as well. So I think that, again, you're going to see that recovery in the second half of this year, but you're going to see a longer-term recovery take place probably throughout 2022 as well.

Okay. You mentioned logistics briefly, and I wanted to talk about polyurethanes a little bit more from a supply-demand perspective, near-term and then also medium term. So prices are up, right? I think everybody was surprised with how quickly we switched from the world is going to end, liquidate inventories, build cash to run full out. We're going full bore on the economy, and it's created a pretty big whipsaw to logistics infrastructure to demand and to capacity. We're seeing a lot of outages. So what do you make of this cyclical tightness that we're seeing in the market right now? I know you said you expect things to normalize price-wise. But what we need to read on how this is all playing out? And when we think you can see inventories rebalance and purchasing patterns go back to normal a bit?

And you're talking polyurethanes?

Yes, Yes, yes.

Yes. And Matthew, I'm a bit of a contrary, and I probably rely too much on a gut feel. I personally think that MDI is tighter than what industry gurus and analysts tell you. I don't think that there's as much capacity out there as people tell you. If there was, I don't think we'd be going through a lot of these price spikes and so forth. MDI doesn't travel well. It discolors. Often grains have to be shipped under cryogenic stores or pressure. And you look at an economy besides the United States, you look at the capacities here in the United States, we've been running at over 100% capacity, meaning we need to bring, importing in, crude MDI and processes in North America. And you look as far out as you want to look, it takes us 7-plus years to build a plan, assuming you can get environmental permits and so forth. You recently saw a player trying to build a new grassroots facility here in North America, and after 2 years of trying, they finally gave up just because of the permitting couldn't get done in a very friendly locale of chemical players. So as you look at MDI, in general, I think that it's probably tighter and you're seeing that whip sign in pricing is evident of that. We see a handful of plants that are 400,000 to 600,000 metric ton lines. You get a single contaminate in that line, and you have a 600,000 ton line go down or 400,000 ton line go down, and it literally will affect and reverberate on a global basis. That's indication of a fairly tight market. And if polyurethane continues to grow at that 5% or 6% growth rate, which has been that or better than in the last 20 years, I think that it will be -- continue to grow kind of GDP rates globally, and then it will probably grow 2 or 3 points higher than that just because of all the product replacement. Look what we're doing in spray foam. That high quality, R factor, wonderful polyurethane foam, replacing all that cheap pink garbage that people put in their attics. And so not that I'm biased in selling one way or the other, we're displacing mineral fiber with MDI. That was an application people really didn't thought of a couple of years ago. And we're just getting started. So when you think about MDI growing at GDP rate, and then there's another 2% or 3% on that because we're replacing other products, whether it's rubber, whether it's mineral fibers and so forth. Yes, I think polyurethane is going to continue to grow. And again, as I said earlier, I don't necessarily want more MDI. It's just too damn expensive to build the stuff, and it takes too long. I don't want more MDI as much as I want better MDI, better margins, better downstream, better integration. And that's -- we're going to have to go through some painful changes here in the next 2 or 3 years of having to cut some of our customers in order to supply our downstream business, which is going to be our priority. That's where we make the greatest return for our investors.

Yes, and this leads me to my next question. So we're about halfway through. What if I think about like the 2017 to 2020 real polyurethanes capacity expansion cycle. How do you think the industry -- I mean it seems like the industry has managed the new volumes pretty well. There have been some cycles here and there. But what's your outlook on where this business and industry goes, if we're already kind of tighter than you think and we're kind of at the end of new green brownfield expansions globally?

Well, I think that you -- there's -- the industry, I think is always relied on this Boston learning curve. I'm not sure what that really means, other than it sounds like there are a lot of people in Boston that need to learn something. But with Boston learning curve, you're always going to be able to get an incremental 2%, 2.5% capacity out of your volume given debottleneck opportunities, efficiency, lean operations and so forth. And that's probably going to continue. There'll be some minor debottlenecks, line increases, line improvements and so forth that will be coming into the market. But when -- again, when you look at the market on these large single line grassroots expansions, you just typically don't see that. And you don't -- this isn't, Matthew, something that people all of a sudden just announced that they've completed. This is a multiyear process just to get permitting, whether you're in China, whether you're in North America or Europe, this is something that you see coming on. So I think that there'll be MDI there to satisfy the market. But I think that the market is going to also have to justify higher prices and to get reinvestment economics. As well and -- as well like as MDI is today, I still don't think that from a grassroots basis, for a Board of Directors to say, we're going to take $1 billion, we're going to put it on the table and bet it for something that's going to happen 7 or 8 years from now, and a product that over the last couple of years has been cyclical at best. I think you got to have higher margins to justify grassroots that sort of long-term investments. You've got to have a stronger return on the business than what we've seen over the last couple of years. So as happy we've been with things at their tops, I still think that there's probably some economic efficiencies that maybe they had.

And so you made a point earlier that you can't really ship MDI very well around the world, at least it's expensive to do so. And I think about your largest component exposure, it's still China. You talked about cutting out the bottom portion of your customer base. And I'm assuming that's primarily going to be U.S., Europe, where you already maybe full out. But if you think about the downstream market in China, are they ready for higher quality MDI products? Or is this something where you'll probably end up just keeping a larger components? Or can you ship that component MDI around the world to use downstream in other applications?

Yes. An excellent question because what you can ship quite readily is crude MDI, right? And that component MDI can ship quite easily as well. It's when you start getting up into the pure MDI, into the higher grades of MDI, where you have to start shipping that under pressure and it discolors and so forth after time. And those are the products. If you have a massive MDI plant and a massive splitter, in China, for instance, can you -- so you satisfy all the downstream applications around the world by efficient shipping. Answer is probably, no. Just because it doesn't ship that well. Now you can ship crude MDI and you can have splitters and so forth. And so what we -- when we're complete with our North American splitting capacity, early part of next year, we'll have more splitting capacity than we need in all 3 regions of the world. And our problem will not be splitting, i.e., downstream derivative capacity a problem, and I really don't think it's a problem, but we'll be sourcing crude MDI. And Huntsman may be partnering with people or venturing with people to produce some of that crude MDI or offtakes that crude MDI. You won't see us going on building our own MDI -- crude MDI facility. Again, we want to read out what we can out of our own facilities. But I think our focus is going to be more about splitting and working downstream. So as we look at that, China will be an important source of that crude MDI. As we take it out of China, we can move it to the U.S., we can move to the Europe as we need it. Though I'd rather probably rather just swap it or trade it locally in those regions.

Okay. Switching gears a little bit. One of the primary points of investor pushback that we get is cash flow generation more recently. And if I think about your 2018 Investor Day, cash flow and free cash flow was like a hallmark of the topic of conversation. Between 2016 and that 2019 range, you averaged almost 100 -- $800 million in free cash flow, like $1.1 billion to $1.2 billion in EBITDA. So as we get back to that $1 billion, we start looking at that $1 billion time frame again for EBITDA, how come the free cash flow is maybe meaningfully lower? And what is needed? You talked about M&A, for example, but what else is maybe needed to improve your free cash flow conversion?

Well, look, free cash flow conversion is going to be something of a lumpy. I'll ask my colleagues here if they want to add anything. I think it's going to be something of a lumpy path. Let's remember, this year, for instance, we have some high onetime expenditures dealing with project Patriot, which is a splitter that's going into Geismar. And we also, frankly, see some opportunities this year going to next year where we see an opportunity to produce some products that will be going into ultraclean products going to the semiconductor, the chip industry and the battery industry, where we think we'll be one of the few, if not the only North American supplier, that can do some of these projects. If we get long-term take-or-pay contracts, we'll build the capacity and we'll be doing that. And that's solid, really good organic growth here. But -- so as you look -- as we kind of complete our restructuring cost this year and project Patriot this year, if you were to strip those onetime costs out, you probably would be looking somewhere of a free cash flow this year of around the 35%. And I think that's where we really ought to be thinking on average [ competition ] with the exception of onetime large, onetime capital projects that we'll call out. We ought to be looking at that sort of a percentage, about a 35% free cash flow to EBITDA sort of ratio. Now we're also going to be looking at as a company. For instance, we announced the sale of our office building in Switzerland. We've had some onetime sale of some projects and so forth. We've raised $30 million, $40 million, $50 million. And again, those are onetime events. People shouldn't expect it every year. But we also would like to think that if we're going to have a onetime event, we're going to gain $50 million. How do we best deploy that $50 million? And so we might do it with some onetime projects as well. So my point is, it's somewhat of a lumpy number. But I think 35% on a pro forma basis is probably about where we ought to be shooting. Sean?

No, I think that's right. Matt, just going back to your numbers there, we normalize things that have happened. Let's just take from 2016 to 2020, we have been consistent around the 40% free cash flow number. Some of the numbers that you've looked at, we had a 1 year -- 2016, I'll go back to that one, where we had a massive onetime working capital gain and benefit because of a shift change we had here at Huntsman and how we manage working capital, which brought a whole bunch of extra cash in. We had a year where we had some income tax benefits that came in on the one-off, and we had some VAT benefits in another year. We called those out. We normalized them on our chart, so that you could see that over time it's been [indiscernible]. So we're hitting where we've been hitting. And Peter covered the, what I'd call one-offs right now, that plays a little bit low for 2021. But we're confident about this free cash flow. We've done a good job delivering on a pretty steady number.

And I guess, lastly here, I think talking about the conversation on cash flow, CapEx, similarly, you sold a -- your entire PO/MTBE business, your surfactants business. You've added a lot as well. In the net with the splitter spending and everything like that, CapEx is flat to up over those few years. As we think about -- obviously, things changed, and Peter, you talked about this new potential clean project. Should CapEx be -- on a post-splitter basis, should CapEx be lower than it was back in the 2017, 2018 range when you had the more asset-intensive business? Or do you expect CapEx to maybe be flatter around this range? Or is there a higher number that we should think about going forward?

Well, I think that when we look on a range of kind of our sustenance capital, the guidance we've given on that is around $125 million, $150-ish million sort of range. So think about $150 million is kind of what I think we need to be spending to keep, what I would call, a license to operate valid and that is you're doing all of your mandatory, you're doing your safety and your environmental projects that you really have to do either by law or just because you want to avoid problems in your operations. And then beyond that, I'd like to think that we have anywhere from $50 million to $100 million a year of opportunities that we see are going to be anywhere from 25% to 50% IRR sort of project. Hopefully closer to that 40% sort of a number. And I think anything above and beyond that, I would truly think is, we're going to probably call that out to the market. So I think anything much -- I think about -- our core CapEx of around $150 million, maybe another $75 million on top, that's around $225 million, $250-ish million is kind of what I would think would be our normalized CapEx. And that's got a fair degree of discretionary capital in there as well. And then again, there'll be times like we do a project Patriot or some of these onetime opportunities, and we'll call those out as they come.

All right. Thank you for that. I'm happy we could touch on that in the last few minutes. But we have gone a little bit over time, and so I will end it there. Thank you for joining us. Hopefully, maybe next year, it's not virtually, and we can be in Florida or wherever. But thank you again for the time.

Anything. You get us on a plane and you get us out of here, we'll be happy to go there.

Sounds good.

Thank you for your time.