Huntsman Corporation (HUN) Earnings Call Transcript & Summary

All right. The room is getting fuller. Well, welcome, everyone. Let's move on to our next speaker, is Peter Huntsman, CEO of Huntsman Corporation. This audience speaker needs no introduction, so we'll just launch into Q&A. How is that?

Very well, P.J. Very good to see you.

Great to see you. How was your Thanksgiving?

Well, it was a bit rough. We had -- we got 8 kids, all of whom are married, so that's 16, 17 grandkids. So it was about 40 people in a kitchen built for 8. So it's -- then we went out and did the annual sports event, cracked a rib on that one. So yes, I prefer to stand. It was a typical Huntsman Thanksgiving, one disaster.

You look too young for all this, right? So Peter, given that you have operations all over, you usually have a good sense of what's going on around the world. Maybe can we start the session, sort of quick State of the Union, what you're seeing overall based on what comments you made on third quarter, slowdown, inventory destocking. Just give us an update on what's going on around the globe, but little bit also on what you're seeing in China with all the news that is coming out here.

Yes, I think what's -- the fourth quarter is going to be -- I think it's going to be a tough quarter for virtually all the companies that are out there. And what I'd like to maybe just make a comment on too, what we've seen since -- I mean I assume that everybody heard our third quarter conference call, so I'd like to maybe start from that point on the last couple of weeks, which we -- what is it that we've seen. In North America, we continue to see the inventorying. If anything, the inventorying is at a greater accelerated pace than it was just a few weeks ago. And I don't think that there's an exact science. I think in our earnings call, we said that was kind of 50-50. The decrease that we're seeing in North America, half of that is around deinventorying and half of that is around just a slowing demand. Yes, look, there's not an exact science to that, but it's more just anecdotally, as you go out and speak to customers and so forth. I'd say that, that deinventory is accelerating in North America, which, on one hand, means it will be sooner to end. And on the other hand, it means it will probably be a more negative impact in the fourth quarter than that which we have anticipated. I think that we gave a range. We're at the low end of that range, which is about $110 million in the fourth quarter. I wouldn't be surprised if we went a few million below that, on the low end of that range. Europe, on the other hand, we've seen energy prices fall from their high in August. They -- at the time of our earnings call, I think that they were almost on par with North America, maybe just a couple of dollars higher. And since then, they've bounced back up to $25, $30, 20-ish, mid-$20s, low $20s in the U.K. I'd remind you that our largest consuming entity in Europe is our polyurethanes. 2/3 of our polyurethanes energy consumption in Europe is located in the U.K. We make our nitrobenzene, our aniline, we ship that across the channel to our plant in Rotterdam. So I think we've got something of a competitive advantage in Europe. We've got very good scale. We've got pretty good raw materials, economics relative to the rest of Europe, not relative, globally. Europe continues to be a basket case. I'm not sure if that -- it's any worse than what it was at the time of our call. But there just seems to be a great deal of uncertainty. I'm hearing more and more of our customer bases. Since the time of our call, I spent 2 weeks in Europe. We actually made our call from Amsterdam, had our last Board meeting there. I wanted our Board to get a real sense in talking to customers and partners and so forth. Visited Turkey and Northern Europe, Central Europe, Mediterranean area and met with a number of customers and so forth, over 250 customers during that time period. And I'm surprised at the number of customers that are looking at relocating in the next 12 to 18 months. Where can they -- where and how can they be competitive in this new environment of Europe? I'm seeing some chemical companies and some larger companies that are, in my opinion, in a complete state of denial as to how rough things are. And I'm seeing if you're a company in Europe that is energy intensive, producing carbon fiber, producing glass and so forth. Again, this is just my opinion. I'm sure CEOs can [ get ] up here and give 20 reasons why I'm wrong in this. You've got to be asking yourselves some pretty fundamental questions. How do I compete longer term? Especially since I can compete, my competitors are going to be having this massive energy, now regulatory labor advantage overseas, and it's just a cost of importation. So that's something, I think, to deal with. We announced in the third quarter call that we believe that a new normal in Europe is going to be probably a $5-ish higher gas price that will permanently be embedded in Europe going forward. If I look at that $5 per MMBtu, why do I do that? I look at the 2 biggest economies that I kind of think that we compete with on a global base. I look at Korea and Japan. I look at that over the course of the last decade. And there are spikes when you see abnormalities, but on average, Japan and Korea that have to buy gas on a global basis and have it imported, typically, pay about $5 per MMBtu higher than the rest of the industrialized world, right? They've got this -- if Europe has that, that's going to cause Huntsman about $45 million a year depending on our capacity utilization rates. That's why we announced in the third quarter earnings call that we are going to cut $40 million by the end of 2023. So a lot of them -- to be cutting in addition to the $240 million that we announced that we are going to be cutting by the end of this next year by 2023. We have moved that target up to $280 million, with the additional $40 million of that, all of that coming out of Europe. We simply have to collapse organizations. We've got to go through customer by customer, find out who are going to be the winners, who are going to be the longer term, who's going to be able to pay for research and technology, kind of research and technology to be done outside of Europe. Sorry, P.J., and it's more than just saying that we've got to suck in our gut and stop buying newspaper subscriptions for the next year or something. We've got to fundamentally restructure Europe because I think that Europe itself is fundamentally being restructured, and you're seeing a massive way of deindustrialization. The fundamental question I'd have is, does that ever go back to Europe? And I don't see that scenario playing out. Europeans are doing a horrible job when it comes to long-term energy security and competitiveness. And you simply can't rely an economy that size on a propulsion system and an energy system that Magellan used to circumnavigate the globe: wind. So as I look at Asia now, it's the greatest spring that I think exists, perhaps even more so than the Fed loosening monetary supply, which I don't think is going to be happening anytime soon. What could be happening very quickly in China or it could be going in other direction just as quickly, is the lifting of COVID restrictions. And when you think about that, the lifting of those restrictions, which have been in place now for upwards of the last 2 years. Yes, I know that publicly, we're seeing that the restrictions have been lifted in a place like Shanghai. But the restriction's like, [ it still stays ]. Anytime I go into my office, anytime I go into a restaurant, anytime I go into a commercial organization, parking lots, I've got my phone. I've got to scan it, and I've got to have a COVID test within the last 48 hours that shows I'm negative. And that's the restriction's like. If I go into a restaurant, I can get a call the next day saying that somebody was in that restaurant that tested positive at the same time I checked in and checked out of that restaurant. And also, I'm going to a quarantine center for the next couple of days. Does that stifle me from going into a restaurant, going out to a movie, going -- yes, of course, it does. They are going on vacation or anything. So the restrictions we can say they've been lifted, they haven't been lifted and so forth. China has got to determine how and where it handles that. So as I look around the world in those 3 areas, probably a few more storm clouds than I see rays of sunshine.

Great. Well, you always are very straight from the gut, so we appreciate that. Let's talk about your MDI business, polyurethane volumes fell in 3Q. There is destocking, as you mentioned. Do you think we are done with the destocking in 4Q? Or is there more to go in the first half and then we come to the end of it?

I personally think that -- look, destocking for obvious reasons can't go on forever. And I think that the acceleration that you see, the bright side of the acceleration you see in the U.S., U.S. companies have a tendency, and I don't want to sound like the ugly American here but U.S. companies, I think, because there's more shareholder activism and pressure in the U.S. than there is anywhere else around the world, when we make a decision, we make a decision, when it comes time to destock, when it comes time to deinventory. So let's do it, let's do it now, let's get it over with, let's support it, and let's move on. And I think you're seeing that in North America. I'd be surprised if you see large-scale destocking taking place in the first quarter of next year. That's not to say that it's all going to be over. It's not to say that I think it rebounds in the first quarter. But I'm just not sure how much there is left to destock unless there's a massive economic upheaval that takes place in the early part, but of next year, in the first quarter of next year. A lot of companies, really public companies are wanting to show at the end of the year that we hit our cash flow numbers, and a big way to do that is obviously through working capital management. So I see a lot of that taking place in the fourth quarter.

Are we seeing competitors in MDI being a bit more disciplined? You saw Covestro shelving their plant, and nobody is going to really build a plant in Europe or even in China right now. So maybe the upside is that maybe there is not much capacity that comes online in the next few years.

I think there's discipline that's demonstrated on a long term. There's discipline that's demonstrated on the short term. Longer term, I think you'd have to be examined if you were to go to a Board of Directors, your shareholders today, say we're going to invest $1.5 billion on a project, we will see a $0.01 coming out of that for the next 8-plus years, potentially 9. Let's face it, by the time I restart -- I start up the facility, I'd move all that product into the market and I am able to get an equilibrium for this new capacity. So we're -- you're probably looking at 9 to 10 years out, even if you can start up 7 to 8 years out. Permitting a loan now takes 4 to 5 years. We saw recently what [ Lyondell ] came into North America, spent millions of dollars, years of effort, never even got anything off the ground. So longer term, yes, that -- I'm not sure that's discipline as much as it is just common sense. Anybody's shareholders would be saying, buying your stock today, don't go spend something you're not going to see a return on for the next decade. Short term, I don't -- I'm not impressed with the discipline that I see, the discipline to be able to put through surcharges, pricing, just being able to pass through the volatility and mitigate that volatility. I see some companies who -- I'm not saying it's wrong or right, it's not something I think we ought to be pursuing that are putting volume over value, putting volume over price discipline and so forth. And I'm rather surprised to see the lack of discipline in those sort of areas.

One of the things that, Peter, you talked about is uplifting value of the molecules that you make. Talked about MDI splitter that's coming on soon. All the acquisitions you did in Advanced Materials, you have CVC and Icynene-Lapolla and Gabriel and all those. Just can you comment on how much that uplifting have you done so far? And how would you rank yourself or give you a scorecard on those acquisitions?

I think in the acquisition side of it, so we put money into 2 big areas. And I actually have been -- and I don't say this because I'm going to give myself away. Just look at the results, on CVC and Gabriel with Advanced Materials. I'm glad that we have Scott right here, who's the Divisional President of our Advanced Materials group. If anybody has any tough questions from that, of course, he is the guy to talk to. Kristina Henshaw is also here replacing Ivan Marcuse, who's home supposedly sick. So as I think through Advanced Materials, those have been fully integrated. We have accomplished the cost objectives there, and we told the market that what we wanted to do was to be able to get that Advanced Materials back up to a record earnings level before the recovery of the aerospace industry. And I think that's what we've accomplished. Now we're seeing the impact of the inventory. We're seeing the impact of a slower economy. But as we look at the overall profile earnings, margins and so forth in Advanced Materials, it continues to be one of the strongest performances of our business. We're going to continue to very aggressively be looking for further M&A opportunities there. We're not going to recklessly invest in that area. But yes, as we see things there, I think that they've proven that they can do. The other big investment was Project Patriot. We put splitting capacity in North America. We're taking our own polymeric supply of MDI and moving that further downstream. That's causing -- it's allowing us to take our existing polymeric customers and forcing prices and better contract terms to be had there. And it's also, as we look at going further downstream, allowing us to increase margins there. Again, look at the results of the MDI business, particularly pre the last quarter or so. And I think relative to our competition, relative to where we said we would be at our Investor Day presentations and so forth, we're at or exceeding those expectations. I think in normalized markets, we are not seeing global cataclysmic economic environments. We're going to continue to see an improvement in that business.

Great. And I think 2 areas that are turning maybe positive in 2023. One I think is automotive. IHS is saying auto builds could be up, they used to say 4%, I think they've lowered it to 3% now. And aerospace. You're already selling a lot more into autos with EVs over ICE. Can you just talk about those 2 end markets and what do you expect for 2023?

Yes. I think in 2023, if anything, we'll see perhaps what are the number of cars built around the world, sold, built around the world right now about 75 million per year. And as you look at the amount of Advanced Materials products, now polyurethanes, the amount of polyurethane that goes into an EV versus an ICE, about the same: seating, installation, dashboard, comfort and so forth. I look at Advanced Materials, 4x the tonnage that goes into an EV versus an ICE. Why is that? Engine casings, the electronics, semiconductors, the amount of electricity that's moving around the car. The structure of the car itself is changing. And that's something that's going to benefit Performance Products. Likewise, you'll see a multiple greater in an ICE vehicle because of the materials that will be going to the carbonates and so forth, that will be going into the EV battery itself. So with those 2 divisions, even if we stay in a plateau, you should see a rise in the automotive demand for Performance Products, particularly in the latter part of 2023. When we come out with our carbonates project, we'll be the first EV battery-grade carbonates material producer in North America, which will help people with the rebate and so forth, with the Inflation Reduction Act rebate and so forth will be coming down the pike. So much of your battery components have to come from North America in order to qualify for that. And as we think about aerospace, yes, that will continue to gradually improve. We think that by the end of 2024, you'll probably be back to the build rate, margin rates and so forth that you have seen pre-COVID. But that's not something that neither you turn it off nor do you also going to say we're going to produce 30% more wide-body jets, right? The order pattern, as you think about fuel conservation with higher energy prices and the demand for travel, I think aerospace is going to continue to do well. The third area I would think we'll do well in 2023 is energy conservation, insulation, insulated materials and so forth, we're going to continue to do -- to see modest -- gradual modest growth in 2023.

Great. You talked about investments in polyurethane catalyst and differentiated chemicals. Again, you mentioned a little bit about that semi's insulation. How much are these investments? And when do you expect results? Or when should we expect that in your numbers?

We probably have said those investments will be around $75 million to $100 million, and those will be around 3 areas. All those projects should be on by the end of 2023. And those are the 3 big projects. We're going to be in polyurethane catalysts, in foam production, which will be a European-based production, which I'm not sure today if we have to build that project, if we do it in Texas or in Petfurdo, Hungary. It's not a terribly energy-intensive process. And I think that the growth that you're going to see in insulation and so forth, longer term, that will prove to be the right location. The other 2 projects will be built in North America. One is a semiconductor, an amines, ultrapure amines. It cleans amines anywhere in the world that will be able to be used in the production of semiconductor chips and also the carbonates for the EV. Both those projects will start up very quickly in a virtual sold-out position.

And then next question is on Performance Products. So your maleic anhydride business has held up well in North America. Ethyleneamines has done better than expected. Can you just talk about what has helped the Performance Products margins and growth?

I think 2 areas. The first area is our focus on downstream applications, pricing discipline and so forth. I think we've done a better job in focusing on niches in that business. Again, mind you, 2 years ago, we were one of the largest amines. And that was all part of our intermediates chemicals that were sold to Indorama. We are focused far more on volume. When you're moving 1 billion pounds of ethylene oxide through your system, you're focused on volumes more so than value. We sold off that businesses, we -- focus rapidly shifted to value over volume, pricing discipline. We got out of a lot of the larger commodity-oriented segments because we, frankly, just weren't producing the volumes anymore after having sold the business. And I would say there's also been a structural change, both in maleic anhydride use, but 5 competitors in North America in the merchant market today. I believe you have 2. The other 3 are now integrated into UPR producers and so forth and we're no longer in that merchant segment. Same with the number of the amine products as well. Some of them have shut down through lack of competitiveness. I wouldn't be surprised to see more consolidation in that industry, particularly what's happening right now with European competitiveness. So again, I think there's an industry structural issue, and there's also a pricing discipline that worked in our favor.

You have TEROL polyols that take recycled PET bottles. I think you take something like 1.5 billion bottles a year. With the awareness and ESG and decarbonization impact, are you seeing more impact or more demand for that product? And any expansion plans in either Taiwan or in the U.S.?

We are seeing -- again, that will be a product that where we see insulation grow, we'll see the TEROL polyol opportunity for growth strangely enough. That may be a product that grows in Europe, with a number of the subsidies and so forth that are growing in Europe around installation. Just in the last 24 hours, a multibillion-pound subsidy in the U.K. around home insulation and so forth. But this year, we'll be taking close to the equivalency of 2 billion PET bottles recycling those. One of the few real plastics recycling, where you're taking the plastics and you're upcycling, not just recycling but you're adding value to it. And yes, I think it's going to play into an ESG story. But the ESG right now, a lot of that is just -- there's a lot of murkiness in the whole ESG and how that's going to be implemented. This whole idea around carbon neutrality in 2035, 2040, 2050. I hate to say it aloud, but it's just nonsense at this point. I mean unless we come up with a technology, unless we become wide-scale nuclear, you're not going to replace natural gas with wind. And wind will play a very important role in renewable energy and so forth. But the idea that somehow it takes over coal and gas production is just -- we're an entire generation of technology away from something like that ever happening.

So in the limited time we have, I am going to shift to sort of financial and strategy. You're selling your textiles business, I think, was 7.6x trailing EBITDA, which is a great multiple. Congratulations on that. The deal with SK. You have a balance sheet now that's really strong. I think there's -- 1x levered, close to 0.5 turn leverage. So would you be buying back more shares? Or do you see an opportunity here in your M&A funnel that you talked about? Maybe valuations are down and you can buy something. Can you just prioritize that use of cash for us?

That's -- it's a great question, P.J. I mean as I look at the downside right now, my biggest concern is this deinventorying in the fourth quarter. It's a temporary issue. Longer term, though, we've got a great balance sheet. We've got a great M&A opportunity, I believe. TE will be finishing the year on a total annualized basis, pushing 40% free cash flow-to-EBITDA. As we look at all these, we have a very strong balance sheet. And our objective -- we'll be finishing this year and fulfilling the commitment we made on Investor Day of $1 billion with the share buybacks this year. And as we look at next year, I think that we've got to -- we want to continue to assess that as the Board of Directors. We can get a little bit more visibility into the first quarter. We get a little more visibility into 2023. I can say on behalf of the Board, our objective is to be among the best in our chemicals sector of returning cash to shareholders. Now that will be done through a dividend and it will be done through share buybacks. And through that calibration, we've got the balance sheet to be able to do that. We've got the balance sheet also to be able to look at M&A opportunities. And I hope that the M&A opportunities that are before us get better because there's just, a, there's not a lot out there right now, but I think that there will be some coming on the market this next year.

And is that in Advanced Materials or Performance Products? Or what areas are you looking at?

I think at the top of that will certainly be Advanced Materials. Performance Products where there is chemistry that allows us to do that. There just isn't a whole lot. I mean if we want to go out today and buy an amines producer that's in carbonates in North America, there are not . That's doing ultrapure for the semiconductors, there are not. That has the capacity to supply us our needs that we have in polyurethanes catalysts, there are none that are even in existence today, let alone for us to go buy. So some of these is going to have to be capital investment. In the area of polyurethanes, I don't see us putting money into grassroots projects, certainly not on our own. If it's in conjunction with a larger player or a part of a project like we'd have in China, I think we'd have to consider that but certainly not on our own doing something like that. But there's some downstream polyurethane MDI areas we can uplift value. We'll look at that, but I think that our highest priority right now would be the continuation of what we're seeing in Advanced Materials.

Great. With 10 minutes left, let's take questions from the audience.

So your comment right up front, Europe being a basket case. So these guys in the last week or 2 have come out with a series of announcements by controlling gas prices, subsidizing the consumer, and I'm sure you're sort of aware of all that. Germany, I think, came out the other day, basically saying they're going to figure out how to control electricity prices and tax the utility, et cetera. You think none of this sort of helps. I mean you stick with your...

I think it's an excellent question. Everybody's got a different opinion. I'm not a big fan of -- it's not that I'm anti-government or anything. I'm just not a big fan of government subsidies and so forth. Because I think for a short term, for a quarter or 2, for a year, they can be fine, but I look at everything from MTBE, oxygenate mandates, any time you have ethanol mandates, any of the time you do these large projects that are supposed to go on indefinitely, they just -- there's a reason why government just sucks when it comes to making -- creating value. And so as I look at a lot of these things, so look at what's on the plate right now on energy prices for this EU cap, go back to August when the EU was paying over $100 per MMBtu in gas. These are Armageddon-type energy values, right? Take that scenario, put it in August. Would that have done anything to the gas price in August? The answer is no, that wouldn't have. It has to remain at these elevated levels, what, 21 days or something like that. The whole problem with what we're seeing isn't necessarily high prices. It's volatility. Well, if the price of gas went to $40 and stuck at $40, fine. Let's calibrate our manufacturing, let's calibrate pricing. We can do that. But when it goes to $60, $20, $60, $20, $100 down to $20 in the last couple of weeks, last 2 quarters, this is just out of nonsense. And so what they've actually put in place does not even begin to address that volatility. And that's the biggest issue that Europe is having to deal with, is that they do not control -- they do not have an energy policy around supplying their needs on a sustainable basis that's going to take that volatility out. So yes, short term, they might mitigate people's concern around heating for this winter. I think next winter is probably going to be a bigger concern in Europe than this winter. But it can make people feel better. But on the other hand, if you're getting your utility bill subsidized, you're also going to be less prone to go out and spend money on insulation and conservation, which is really what Europe ought to be focused on right now. They need more spray foam in their homes right now, right? They need more polyurethane products in their homes right now, right? That's what they need if they really want to save on energy, not the government coming in and helping them pay a power bill and disincentivizing him to save.

And since they're rolling it down [indiscernible]. So given that you do have large growth in investments, you sort of outlined that they're going to be -- you're going to move lower down the cost curve basically.

Well, we're going to be lower on the cost curve. I think we are. I think that we are. But I -- look, I've got to be slightly biased when I say, I don't know what their internal numbers are. I mean I've heard some of our competitors saying that they -- some of their smaller facilities, they claim to be some of the most competitive sites in Europe and so forth. I just know that if I were operating our volume, which is one of the biggest single site facilities in Europe, with German natural gas, German energy and longer term, forget the subsidies, I'm not very competitive with what I've got right now coming from the U.K. and what I've got. So look, I can't speak. I don't see the internal numbers on competitors. But I know when I put my site at their locations, I look at local gas and local electricity. I'd rather have our plant in Rotterdam than I think anybody else's. But look, they're -- we're all in a quagmire because we're all having to deal with, with an incredibly poorly managed energy policy of the EU. This has been years in the coming, right? 6 months before Putin invaded Ukraine, we saw $40, $50 gas that fall before Putin invaded. We saw $40, $50 gas in Europe. This wasn't all just around a dictator's foray into a stupid and idiotic war.

Yes. Let's get you a microphone. Rob?

Peter, related question to the issues of Europe. You mentioned earlier that you expect the 10 year, around a 40% free cash flow conversion. I'm just wondering, they're going to be, I assume cash costs involved in restructuring the European business. What do you think happens to that conversion ratio over the next year or 2 years? Can you maintain or improve the conversion given the cash costs of getting your European business restructured in a way that could be competitive longer term?

I think we're going to be using some of the costs. If you look at it on a quarterly basis, you're going to see some lumpiness in there. If you look at that on a yearly basis and by the end of the year, when we expect to have the benefits coming in by the end of 2023, we'll obviously be paying some of the upfront cost of that restructuring, getting the benefit a few quarters later. But I think when you look at that on a total year basis, it may not even be on a calendar year basis, I think when you start to pay versus when you get your return. The quicker you can do this, the better. The better it is across the board, better it is for the people that are affected and they need to know what's going on. They need to know where their destiny is, let's get on with things. I think that, yes, that 40% is going to be something that we're very much focused on.

Is '23 the largest component of the whatever program you're implementing in your...?

On the restructuring, yes, it is 2023. Virtually all of that is in 2023. As we look at the newly announced $40 million and we look at the completion of the 240 that we announced this last year, so 280 in totality. Virtually all that will be done by the end of 2023, at the very beginning of 2024.

What is the dollar amount of that spend? And then secondly, in terms of your spray foam business, can you just sort of compare and contrast insulation for energy saving versus homebuilding market weakness? I mean does one overcome the other? And assuming that business is more stable and your upstream polyurethane stuff, but it's probably lagging a bit in terms of taking in further weakness.

Restructuring figure, I -- usually, it's about $1 of restructuring to $1 savings. European base is probably going to be a little bit higher than that, maybe $1.10 and $1.20 to $1 that's being -- I don't want to say it's exactly a $1 to the $1. That's typically about what you expect when it's -- a lot of that's going to be just labor elimination, unfortunately, what we'll be seeing in Europe. Now there will be some offsets. We're going to be selling some real estate and so forth in Europe that we'll be offsetting some of those restructuring costs. So I'm giving you the net costs without any offsets coming in, if we sell some real estate somewhere and take a benefit from that.

[indiscernible]

Yes. In 2023, you're probably looking at certainly this $60 million to $75 million. Let's now look at Kristina. She's shaking her head, yes, but she's much smarter than I am. So as you think about home insulation, so I think in the U.S. probably over half of that 60%, 65% of that is going to be insulation, probably closer to 70%. It's going to be insulation in new home build. It's easier to insulate, spray foam a home that's being a newly built home than it is an existing home. About 1/3 of that business is going to be going into an existing home and insulating that existing home. The new home will be coming down. The retrofit homes and the DIY sort of additions and retrofits of homes and additions, remodeling of homes will be coming up. I do not believe that it will necessarily be offsetting each other. However, I will note that as we look at the fourth quarter, the downstream home insulation spray foam business within our PU business is one of the few downstream derivatives that's actually doing better than forecast. So I think we're probably seeing a bit more energy awareness in North America than I would have expected.

By the way, for everyone's knowledge, he is my European counterpart, follows European companies.

Oh, I'm sorry about that European [indiscernible]

I get it. It's okay. Your comments on MDI earlier on, you were saying that the people are going after volume over value. Why do you think that discipline lacks in MDI versus some of the other companies we're seeing that there has been capacity shutdowns and curtailments? And where do you think the industry utilizations are at the moment for MDI?

Yes. Industry utilization, I've got -- I really have no idea. I think I would assume that it's probably in the 70 percentile. But I would say that a lot of companies like us are also trying to deinventory. We're preserving working capital and trying to change that as quickly as possible as well. So I would just -- I am not going to jump into this. But if you look at what could possibly really skew things in December, I don't think it's really going to impact the bottom line. But if started to skew things, there would be a rail strike in North America. And if you look at that, I think most of the supply chains in North America right now are running on fumes. Also when you see a rail closure, you're going to see a lot of bad things happen across the board, particularly for the larger bulk commodity businesses. Yes. I -- look, some people have technologies. If I have an MDI plant and I'm producing a lot more polymeric and I don't have the splitting capacity to take products into a wider variety of customers downstream, I might be incentivized to sell more volume because I've got more polymeric, more commoditized product. So I'm going to be more aggressive in trying to fill my plant out from that sense. If I've got long-term contracts on take-or-pays on benzene, that might be a reason. I have no idea why people would be focused on volume over value. But like I've said, I don't claim to be in the heads of any of the -- our competitors. But I do know that when we've come out, I think, with some pretty bold initiatives around pricing, surcharges and what, I'll just say, I don't see the same sort of discipline. I'm not being critical. I'm just saying companies will have their own reasons for doing what they do. They'll have their own priorities. They'll have their own obligations. They have to -- their shareholders and so forth, that's [indiscernible] with what I'm doing. So I don't want to say one is right or wrong. I'm just saying from our perspective, we're not seeing the same.

And you made the comment around the inventory destocking being quite quick or rapid in the U.S. What's your feel from a Chinese perspective?

What's the feeling?

Feeling from the inventory levels in China?

I think the inventories are getting weak globally. I [ shouldn't say ] getting weak, I should say are quite thin globally. I will say that as I speak to U.S.-based customers and manufacturers, the American Chemistry Council and so forth, it feels like there's almost more proactive steps that are taking place in the U.S. quicker because of what's going on in Europe and China than there are with companies in either of those respective locations. Again, I don't want to sound like the ugly American saying that. I think it's not necessary because we're any better. I think it's -- we have a lot more shareholder pressure to some degree than other places around the world, and there's more of a -- this will eventually work itself out in the next year or so. Let's just give it time. We'll survive the storm sort of thing. Whereas in the U.S., the question is often, you're in the storm, what are you doing right now to mitigate the effects of the storm? And so I -- but I think even in spite of that, people are not holding inventory right now. Even if they think raw materials are going to come down in the early part of next year, the risk factor exceeds any comfort somebody might be feeling in lower costs of raw materials. And nobody is -- I don't know any company or segment right now that's stockpiling on the idea that raw material prices are coming down.

Any final question? We have time for one more question. None, Peter.

Okay, thank you very much.

Thank you very much.

Very good questions. Thank you.