Indorama Ventures Public Company Limited (IVL) Earnings Call Transcript & Summary

Good afternoon, everybody. We welcome you all to Indorama Ventures Third Quarter Financial Results. Today joining us, Mr. Aloke Lohia, Group CEO of IVL; Mr. D.K. Agarwal, CEO of IVL; Mr. Sanjay Ahuja, CFO of IVL; Mr. Christopher Kenneally is Chief Operating Officer of Fibers business; Mr. Yash Lohia, he's our Chief Sustainability Officer; Ms. Aradhana Sharma is in the IR and Fibers and also joining our colleagues. So thank you very much. We hope you are all safe and fine. Can we move to the next slide, please. So opening disclaimer that this meeting is being recorded, and there are a few forward-looking statements, and they are based on our estimates and the market trends at this point in time. And so we have prepared a quick video and overview on the third quarter results. So we are going to play now. And after that, Mr. D.K. Agarwal will take us to the third quarter results. So can we have the video, please? [Presentation]

Okay. We can start now. Yes. Good morning, good afternoon. I hope all of you are keeping safe. You have the third quarter results through a video snapshot. So let me walk you through this presentation. As mentioned in the video, the third quarter, we reported EBITDA of $478 million and a core EBITDA of $437 million, and reported net profit of $6.5 billion and core net profit of $5.9 billion. Remember, most of our earnings are in dollar or foreign currency, a weaker baht helps in the net profit and 33 will have the weaker baht. If we look at the earnings per share, the reported annualized earnings per share is about THB 4.53 and core annualized EPS without the inventory gain and the other exceptional gain is THB 4.09, which shows the earning potential of the company. As we complete 9 months, we have a reported EBITDA of $1.5 billion, a year-on-year growth of 123%, and core EBITDA of $1.28 billion, a year-on-year growth of 50%. And in baht terms, the reported net profit is THB 20.9 billion and a core net profit of THB 16.4 billion. The key drivers in this year has been, of course, the robust demand across our portfolio. PET has turned out to be a very preferred polymer. As we talk today, the market is very tight, particularly everywhere, whether we talk United States or even Asia. So we're going with New Year, which have very low inventory in the pipeline. As I just talked in the video, there is a further market tightness in China dual-control policy, and we talked about one of the competitor who just completed the plant wouldn't start because there is a lower power allocation. So the operating rates in the combined PET is going down. There is a high crude oil price, which basically benefits because import parity goes up and that puts IVL in a very favorable position. Well, we did have a headwind. We had the spike in energy prices. As you might have heard in Europe, the energy prices went up sky rocketing. We had acetic acid prices shooting up. And you will be surprised that the total impact for this year is about $129 million versus 2020, so which got offset more than by our spread improvement. So this is not likely to remain because this disruption in the power, oil prices, as you saw, has started coming down. And in Europe, there is a backwardation. So as the spreads normalizes, we'll also see the cost getting normalized. To mitigate this additional cost, we have announced some surcharges in the fourth quarter '21, which includes basically in PTA and PET. So as I mentioned, the fourth quarter, which is normally a weak period, we are very excited about the results of fourth quarter as we stand by end of October, and we have a good visibility of next 2 months. The Project Olympus, which was announced in the Capital Market Day 2 years back, has been making very, very good progress. In 9 months, we have realized efficiency gain of nearly $201 million, and we are on track to deliver for 2021 at $287 million and $600 million plus, as we mentioned, by 2023. The key thing is that has it gone throughout the organization, and I'm very happy to report that the entire organization right up to the shop floor, this has gone and which is actually translating into the savings. With the strong cash flows, as you can see, although our operating cash flow was lower than the core EBITDA because of the inventory increases in terms of value, as the price went up, your working capital goes up. We are still deleveraging aggressively and which gives a good headroom for our growth strategy and M&A activities in our core business. And we'll talk about 2022 in the coming slides. So this gives you third quarter key takeaways. Then go to the next slide. This is an interesting slide. I think what is important is that when pandemic came in, how the world will shape. Probably 1 year back, if we were sitting, we won't be saying that crude oil will be $80 a barrel. I mean you can look at the brand, how it moved up. And actually, our revenue increased significantly because of the crude oil prices going up. So the brand went up and the people are speculating it to even go higher. We saw the PMI, global activity indicators. The natural gas prices have skyrocketed, which actually hurt us in third quarter and will also hurt in fourth quarter. But our spreads are pretty good there. If you see on the mobility on the right-hand side, mobility index, which shows, as you can see, the U coming back, so mobility is improving as the COVID situation hopefully goes into [ pre pandemic ] rather than pandemic, even Thailand has opened now. So we will see more mobility, means more consumer spending, and we'll have a better manufacturing activity. The biggest disruption today in the world, which has happened is in the freights. And you can see the Shanghai Freight Index, how it has gone up. What is exactly driving this high freight. The major factor is, of course, there was a shipping capacity constraint. But even if the shipping capacity gets built up, the cycle time of the ships have increased significantly. You might have read that in Los Angeles port, there is a 42 days waiting period. The third important is last mile delivery. There is not enough infrastructure to deliver the last mile. Means the shortage of containers, a shortage of drivers, so infrastructure. Now how does it benefit IVL? Because we have a regional footprint in Europe, America, Brazil, Mexico, India, we price a product based on import parity. Well, we source raw material locally in most of the continents. So the margins remain better and stronger. We don't think this is going to normalize very soon. And the -- as I said, the China dual-control policy, which came as a big surprise after September end, has actually reduced the limited operation of the polyster chain and has actually improved the integrated PET spreads. And we'll talk about this in the following slide. I think the -- another negative factor which has come into our business is in the mobility sector. You must have heard a lot about the shortage of semiconductors because the car production is getting limited due to semiconductors. And actually, the old cars' prices have gone up. And that affected our mobility business in terms of OEM demand in airbag side. So this is an important development, which has happened in these 9 months and particularly this quarter. Let's move to the next slide. Let us elaborate a little bit on China dual-control policy and how it impacts. As you know, China is the largest producer of many commodities in the world, and that holds good for polyester. China has basically as a part of their 14th five-year plan aimed to control the energy consumption to reduce the carbon intensity by 18%. So they suddenly realized in September 21 that they are not going to achieve it. They asked all the provinces that okay, you meet your targets. And actually, some provinces were hit very badly, which were manufacturing. Now how does it impact the polyester value chain. Just side by side this, you see 65% of the world's PET capacity is located in China. 71% of the polyester capacity is in China. MEG capacity is 39%. You must have read that coal prices skyrocketed. So what happened? MEG based, the coal-based MEG operating rate went down. So MEG had a spike actually to $900 in September. It corrected as the Chinese -- these coal prices came down. On the PET value chain, 37% of the PET is operated by China. Right-hand side gives you the integrated PET spreads. Now you can look at week by week here to show you the impact that as it happened, the integrated spreads went to 292. And this is what we are confident in the fourth quarter that how it will get benefited. Similarly, as you know, commenting on the fiber spreads, they are also marginally improved and integrated MEG spreads have also improved in nature. So these commodities, where there's a manufacturing presence, impacts the Chinese dual-control policy. The question remains is that going to remain from going forward. China has committed for their reduction of GHG intensity. You might have read aluminum reached 15-year high and why aluminum reached 15-year high because aluminum is more energy intensive, every aluminum smelter has a power plant by itself. So it reached 15-year high, and that's what we are seeing in the metal. So this is a very important message, which I wanted to give the impact of the China dual-control policy on the value chain. Next slide, this is just to show you the EBITDA. If you see the left-hand side, a journey from 11 -- last 10 years, our diversity in different verticals. As you can see, combined PET used to be 88% of our -- the EBITDA, and 13% was the fibers. As we went into IOD business, and we'll talk about that when we go to IOD. Now we have diversified 3 verticals, 3 segments and 65% and 20% in IOD and 15% is in the fiber. Bottom slide gives you the geographical footprint, which is very important. In Americas, it still contributes 42% of our EBITDA. Why I'm trying to emphasize here, these are disciplined market. These are deficit markets, 25% is Europe, while Asia becomes fragmented, which is 33% of the capacity -- of the 2021 capacity. So this gives you an idea that how much EBITDA is generated by what capacity in the lower slide and Western countries, where we benefit in terms of import parity. The right-hand side gives you average quarterly core EBITDA, 11% to 16% and '21 -- 9 months '21. Of course, 9 months, we have given strong results. And when you will see this graph in 12 months, you will see a further improvement in this. So it's a 12% CAGR and that has been achieved through an upgraded portfolio, Olympus program, the geographical diversity, product diversity, which we have in spite of in '21, we had a big hit of the energy cost, which I just mentioned to you. So this shows that we have improved performance through the diversified and resilient portfolio. Next slide. I think we talked about this building the future ready IVL organization. You might have -- we've just put on [indiscernible] announcement. We've added 2 new members in IMC. Chris is here. We have strengthened IMC by adding Chris and Alastair as the 2 CEOs. Similarly, at IMC also, we are rotating the positions. In addition to the CEO, I will take over as interim CFO. Sanjay is looking from CFO to interim [ CEO ], which gives him exposure on the business side. So that's just a leadership development, which is very important. And this we are doing not only at high level but also at lower level, at the middle level to create an organization, which builds the pipeline. We have been very successful in acquiring many assets around the world. We have integrated them very well. And the key strength behind this is retaining the people. That development, which we have done on the people, they lead our businesses and which is a very important part of it. So that was on the management. In Olympus, we talked that 9 months, we have created $201 million. As we stay in '21, we should have a good visibility of '23, I think we are on track for the $600 million plus. You will see in the following slides that how the downstream IOD business is doing fantastic, and Oxiteno actually acquisition is very timely. And particularly with their access to the bio-ethylene in Brazil. As you know, they make bio-ethylene, it gives a sustainable solution, which will be the need of the hour, an industry leader. We launched the Deja brand with a carbon neutrality. And as we prepared for the succession planning, we empowered those 15 business units under 3 segments and which has actually resulted into very good because there's a lot of decision-making [indiscernible] down and GBS also rolled down. And SAP HANA4, as you saw in the video, this is the largest SAP HANA4 rollout by a chemical company, such a complex, and we are launching the first phase, the release one in IOD business from U.S. and this will give a lot of analytical skill. So all of these initiatives are on track to build a future IVL organization, which is important as we grow our business further. Sustainability is very important. I think this is the key word today. We talked in the video, but with customers are looking for sustainability solutions. And IVL is committed and I'm very happy to announce that [indiscernible] awarded us the price for sustainability leadership, and that credit goes to our team of sustainability and the entire team, which is a recognition of the efforts being made by IVL. The recycled PET, we -- as you know, we committed 750,000. We are on a journey of $1.5 billion. We'll talk about this in future slides. We are seeing a lot of attraction, and this actually differentiates us as a supplier. We are reducing our energy intensity, GHG intensity by 10%. We are committed by 2025. We are making a lot of new projects, which is a good payback and we'll give solutions to our customers like Deja [ neutral ]. And we are working on circular economy. Actually, we are partnering with one of the large brand owners to find a holistic solution, how do we improve the collection and how to create a circular economy. And water intensity is getting reduced in 10%. The renewable electricity approach is not only having our own renewable electricity, but entering into a purchase agreement for those U.S. producers who make solar or renewable energy. [indiscernible], where we buy them at the fixed price. And the recycling, as I said, 750,000 tons of post-consumer. On the product category wise, we are working on very -- as on the right-hand side, you can see the ENKA tire cord made from the bio-based raw materials. That's what we are working on it. CiCLO is another additive, which is added to polyester fiber to make it biodegradable. So there are a lot of initiatives which are happening on the product side to give sustainable solutions to our customer. And that is what IVL is embarking on and is getting recognized by its efforts. Let me tell you that this will be a big differentiator of IVL in the future as whether by tire cord customers, whether by beverage customers, everybody is looking for solutions of sustainability. Coming to recycling, and I know this many times, these questions come. We committed 750,000 tons, which is actually 50 billion bottles recycling, $1.5 billion investment. You can see that 330,000 tons of capacity is acquired built. What are we doing here? We are actually creating solutions for our customers, buying the assets, making them to the scale, making them cost-efficient and there are pipelines worth 150 kt, which are in pipeline. And so 480 and 270 will be further to identify to make it 750 kt. Your question is always, are people willing to pay the price for this recycled PET? And on the right-hand side, the -- you can see that how the rPET prices command a premium over [indiscernible]. Today in Europe, it is EUR 1,850. In Americas, it's just $2,300. You'll see the gap between the 2 graphs in Asia. And we don't take actually what -- all these prices are linked to bale prices. So as the bale prices, so we have a sort of a granted margin and this margin is improving. So to make you explain this, that this is a very complementary business, a must business for us and which we are targeting 12% to 15% ROCE, as we mentioned about it. We are also pleased to announce that a new recycling technology in collaboration with the French EPR system, [indiscernible] class, the trees, which goes for the food packing. After many years of test and trial, we have developed a commercially feasible recycling solution for trees and this actually adds to the bottom line. So we are giving [ tree-to-tree ] solution for the food products and the packaging -- food packaging into high-quality products suitable for new [ product reproduction ]. This new recycling innovation will see over 50 million post-consumer PET diverted away from landfill and incineration. All these trees -- they are multilayer trees and some of them are the monolayer trees, they go into the incineration. So this is a very exciting development, which we are doing, and it is highly profitable because the raw material cost becomes sort of a negative. There's a gate fee, which we get in. So our recycling journey is continuing. It is very important that IVL only doing or the industry itself is doing and see the PET is a very preferred polymer. And when aluminum becomes so expensive, PET is the most recyclable polymer, lowest carbon CO2 footprint, and this is a material of choice for our customers. So all the industry is working. We worked on the marine plastics. As you know, we launched with Coca-Cola. Our competitor, Alpek, is working with Coke on 100% plant-based PET. And Japanese companies, Suntory, which you might have heard, they also have Pepsi franchise in Thailand. They are also working on 100% plant-based resources. So industry as a whole through innovation is working very hard to make sustainable PET solutions. And I have no doubt as we went through this pandemic that PET is much more preferred polymer than any other polymer and stands out and will -- is a very exciting business which we are in and which we have a very strong position. So that covers, let us go into the financial results. So this is the 9 months $1.28 billion EBITDA, $854 million, 9-month '20. You can see the volume, it's 11.1% versus 10.4%. EBITDA per ton increased from 84 to 116. If you see quarter-by-quarter. So this quarter, we had $437 million, which is 70% year-on-year growth of third quarter '21 and negative 8% quarter-on-quarter versus third quarter. As you know, seasonally, second quarter is always stronger in terms of PET margins because there was disruption in Europe because of some of the [ FMs ] being announced. But now again, we are seeing in the fourth quarter, there is some [ FM ], margins are improving further. We also had a strong hit of the energy, which also reduced our EBITDA per ton in the third quarter, as I mentioned to you about the -- in the previous slides. But Project Olympus has delivered $201 million efficiency gain during 9 months of '21. And as we talk, there is a very positive market scenario today. Very strong demand, and you just saw the integrated PET margins moving up because of the China dual policy. Supply chain inventory is tight, high ocean freight remains and strong crude oil price. And strong crude oil price means better import parity because the duties are charged on the obsolete. So we are very excited about the fourth quarter as a combined of the IVL. And we'll talk about the remaining part in the different segments as we go into the next slides. Can you go one slide back. There was a reported EBITDA, right? Go back. Sorry. Now we also added a new slide here just to reflect you the reported EBITDA. The 9 months '25 is -- '21 is $1.5 billion versus $678 million. As you know, in 9 months '20, there was a collapse. There was inventory losses. We recorded -- and the better margins. And you can see combined PET is $1.082 billion, and the IOD is $215 million and $214 million. Reported EBITDA is $478 million for third quarter. As we just talked about it, the demand is good, the supply chain inventory, fourth quarter also because as the group went up further, we will have some inventory gains coming in the fourth quarter also. We feel confident that second half '21 will be similar to first half '21, and this confidence comes from robust demand and the entire value chain, good economic recovery in spite of high freight, high energy cost. As I mentioned to you, the energy is very expensive right now, but this will ease out in the coming 2022. As we see the forward curve, the second quarter of '22 onwards, this gets normalized. So any additional energy which we are incurring costs, this will also get mitigated by surcharges which we have. So fourth quarter and you can see in the third quarter, we already had that energy in the first 9 months, already the high energy cost, which we had. So this is just to add you the reported EBITDA versus the core EBITDA. Next slide. Now let's go to different businesses. In 9 months, combined PET gave $837 million. You can see sequentially, second quarter was $319 million. Third quarter is $258 million, which is 19% drop quarter-by-quarter. As I said, second quarter is normally seasonally strong. We also had a very good IPA margins, which went down in third quarter a little bit. But again, we are seeing fourth quarter coming back of the IPA margin. So -- and we had the impact of high energy and asset cost in the entire combined PET business. The outlook, as I mentioned, because of China dual-control policy, we are already seeing high integrated PET spread, and 2022 will have the advantage. As you know, when contracts were negotiated at the end of 2020 for 2021, so we did not get that advantage of -- on the contract customers, which is nearly a significant quantity, which is now getting renegotiated in the Western markets. And these are significant volumes to mind. This is about 2 million -- in excess of 2.1 million tons on PET. And as we go into the New Year, we have low pipe inventory and margin is strong in the fourth quarter. They may correct a little bit, but then energy cost will also get normalized. So you will have protected EBITDA per ton basis. So combined PET is at a very good inflection point with the interesting fourth quarter and '22 being a stronger year as we foresee. What is the strategy of PET? We acquired so many plants around the world. We created a 6 million ton global footprint. We have 24% market share today. We have integration. So we followed 3 model here: integration, cost efficiency and regional presence. Today, we have 80% PET integration and 100% MEG integration into North America. We are geographically good footprint. We have a first quarter in cost position. You cannot afford to have a lower -- and we keep debottlenecking the plants, so we have created a very strong leadership position and recycling capacity of 750,000 tons. In the middle, you can see this actually doesn't reflect the existing aluminum price, but PET becomes much preferred polymer for beverage producer because of the lower costs, lower GHG emission and 100% recyclability, and this is getting reflected here that aluminum can, how much expensive it is, glass model, how many, 1.7x and GHG, which is the future, I mean, which everybody is concentrating on GHG footprint today, aluminum can as much higher, 1.5x. So what will be our strategy in this business? We'll continue to invest in recycled, as you saw in the previous slide, in the developed world, but in developing world, we still have opportunity to expand into the businesses. We are also enlarging our footprint in the packaging business, as you know, which is a further downstream integration and keep our cost through Project Olympus. So this PET naturally, we can't grow in a very rapid manner because we have heard -- we hit antitrust issues, but we are very excited about this vertical, which includes IPA and NDC and the specialty polymer also. So this is the IOD business, which we talk in 3 verticals. Let me recollect it for you, so that you have a good understanding. When we say upstream, we talked this as a cracker, okay? I think cracker naturally, Lake Charles did not run. We have hot commissioned Lake Charles. And then as we speak, we are running -- presenting 50% capacity. We are ramping up, but the real benefit will start flowing into '22. So that's on the Lake Charles, which is the -- and the cracker margins were good. So you can see the -- even based on existing Port Neches, we made $30 million. The headwind was low MTBE margins because the butane prices remained high, and you will talk in the next slide, and MEG margin until third quarter was bad, but fourth quarter MEG went up because of coal-based MEG production went down. However, our MEG performance improved with the catalyst change in one of our MEG sites, which is the Clear Lake. I think the most interesting, which you see is the downstream, but how much profitability in downstream has increased. What does the downstream means here? Just for all the members here to understand, the downstream includes surfactants, linear alkyl benzene, [ ethanolamines ] and all these businesses and propylene oxide, propylene glycol and purified EO. Oxiteno plays in majority of those products, particularly in surfactant in the Latin American market. And also, they have oleochemicals and solvents and [ ethanolamines ]. So this will be a fantastic complementary business, will enhance our portfolio in the downstream. And as per our letters, they are doing very good. They are running at a run rate of $200 million, as per their published information for this year, and we expect this deal to close in the first quarter. So you can see that how the downstream business is continuously improving at $77 million and $101 million, and which is I mean percentage terms, it's 831% year-on-year and 21% quarter-on-quarter. What is going to be different in fourth quarter on '22? We talked about the cracker. So fourth quarter, we may not have a significant contribution as we had still just started it, but full benefit will come in '22. Of course, the insurance claim benefit will come on a receipt basis of the previous claim, which we have. We have seen the improved margin in MEG due to Chinese coal-based MEG production reduction, which we talked about linked to the Chinese coal prices and downstream remains very strong. The demand of LAB, [ ethanolamines ] and surfactants went quite strong. And this is also reflected in some of our competitor's chain. And so downstream will be a very attractive business, and you can see the core EBITDA margin stands out at 17%, which will continue to improve. So I'm very excited to present the IOD results for this third quarter. Next slide. This is an important slide to explain you a little bit about the MEG spreads and MTBE spread. Left-hand side talks about the U.S. integrated MEG spread where you can see Northeast Asia integrated MEG spreads and the shale gas advantage in the lighter blue. The dark blue gives you the MEG spread in the Northeast Asia. As the group goes up, the shale gas advantage comes up. And as you saw in third quarter, this was still at $500 per ton. And in October '21, we are at $617, and because also coal-based MEG operations went down because of high coal prices, and that is making the MEG margin stronger. So that's -- we think that MEG margins will be volatile, but still remains strong. MTBE, which is the octane booster. This graph shows you that per ton, what is the U.S. Gulf Coast MTBE spreads and that shaded line using the range in which it moves. You'll see in third quarter, we really got hit. It went out of the shaded area, and it was very low, and that is because of high butane price. And why high butane price? Because LPG in Europe was very high, LPG prices. So butane exports were happening, and that's what hit in the third quarter and the spreads were compressed. As I told you, I've talked to you about fourth quarter. Trend wise, it should go down. But actually, the way it is going that -- from third quarter, it is moving up and should hopefully goes into the shaded area back, which we are seeing in the fourth quarter, which normally remains weak because of blending into U.S. gasoline. So these 2 MEG spreads and MTBE spreads were issues for us in the third quarter, which we're seeing an improving trend coming in the fourth quarter. So that's to give you a background about these 2 products. Next slide. When the [indiscernible] is high, this is to give you an advantage that how the North America stands out, although the gas prices went up versus the other ethylene cost at $68 a barrel. It has an inherent advantage of 470. We could not enjoy that advantage completely because we are buying ethylene in the market because of the pending Lake Charles startup. Now with the Lake Charles startup, we'll be able to capture the complete value chain. And we will be one of the few integrated players in America, where the entire view will go up to surfactants, which gives a benefit. As we look at the capacity built up in America, today the ethylene operating rate, the new plants are not -- very few crackers are coming next year, and then it takes 5 years to build the crackers. So I think our -- this presence of Lake Charles and Dayton -- sorry, the Port Neches facility with full integration after downstream will give us a very inherent strength. And that right below graph shows you the MEG margins with respect to crude oil, which is directly related. So basically, once we are able to resume Lake Charles facility, whereas I said, this is operating at 50% and once it gets normalized, it will contribute to the '22 earnings, capturing the whole value chain. It is important IVL being a growth company, what's the playbook for IVL in this segment. Let me take you back in 2012, when we decided to acquire a glycol plant when the shale gas was just coming out. And this was a glycol upstream integration, the largest merchant player in purified EO, then we thought of upstream integrating with a cracker. Well, I must admit here that Lake Charles cracker didn't start the way it should have started and it took considerable time, but I think we are at the end of the tunnel. And I think now with the startup of this plant, we'll be able to capture value chain. We saw a lot of opportunity in this segment and made a bold acquisition of Huntsman asset, which gave us a downstream portfolio into EO derivatives, which we call as surfactants and very strategically located in Gulf U.S. Coast. And to strengthen our leadership, now we are going into Oxiteno where expansion downstream portfolio and adding scale and new geography. So this segment has grown nearly into $3.5 billion capital implied today. what do we have for future in this segment? I think there are a lot of opportunities for adjacency growth. Having created this platform in United States, we can talk of polypropylene. As you know, in our fiber business, we buy a lot of polypropylene. We can talk of alcohols. We can talk polyols, which goes into polyurethanes, which is a very growth business. We can talk about methanol as we buy. So many opportunities of future. We will continue to look into those opportunities organically and also acquisitions. And Oxiteno, as you saw the downstream results, gives us a clearer leadership in the American market. Today, as we are going for Oxiteno, we're already actually working on a 100-day plan as this deal gets closed. So the message of this slide is that there are growth opportunities. IVL is a very good company and it's very important to know what we are doing in this segment. This is the fiber. As you can see in 9 months of '21 is $186 million EBITDA. The third quarter is $49 million. This is a 25% year-on-year, but 25% down quarter-on-quarter. I think one of the major things which hit us is the, as you know, the polypropylene prices went up. We nearly suffered and the polyester prices went up. We had $34 million to $35 million lag loss because of polypropylene and polyester. So this $186 million would have been higher. But as we speak, fourth quarter, the polypropylene prices started coming down by $200 per ton only in October. So we will start this recovery of the lag impact as we go into the fourth quarter. The lifestyle demand wasn't very strong because of the COVID and also got hit because of high ocean freight. Now this is a negative impact here because we export a lot of products out from Indonesia and Thailand. So which hit us in our realization. Of course, in India, the old situation was going on, but now the Indian market is rebounding strongly, the industry consolidation happening in India. So we think there will be an exciting time in India. The mobility demand, as I talked to you, because of the cheap shortage will remain under weak and we don't see the semiconductor issue getting sorted very soon. So the OEM demand for airbag yarn will remain weak. And unfortunately, we also had some disruption in the production in our German plant in PHP due to fire, which also covered under insurance. But that also impacted the third quarter profitability and it will continue for next 3 to 4 quarters. But that insurance income will be accounted as loss -- including the loss of profit. The demand for medical remains robust, but the hygiene is getting normalizing because of the -- as you can see that the COVID eases out. But our Olympus program is absolutely on track. And we are -- we have a very strong playbook in these 3 business segments of fibers where we have strong leadership, and this is working on how to further grow the business in the fiber segment. Next slide. So I think that covers business side. I will hand over to Sanjay, and then I'll come back with our '21 key takeaways. Thank you.

Thank you, Mr. Agarwal, and good afternoon, everyone. I'll cover the Q3 financial highlights in the coming slides. Our production and sales volume have grown quarter-on-quarter and year-on-year. If you remember, I had mentioned in the second quarter meeting that our volume forecast for third quarter was higher. And despite the blips which we had for PET Brazil as well as PHP Germany, we have reported higher volumes. And Q4, sitting here, I can tell you that our volumes would be higher than Q4 with most of the capacities operating. Rising absolute prices, which is attributable to the crude price going up, have resulted in the revenue increase of 9% quarter-on-quarter and 50% year-on-year. Core EBITDA was $437 million, which is 70% increase over the $256 million achieved in last quarter. I mean, quarter 3, 2020. Reported EBITDA of $478 million in Q3 '21 compares to $240 million of last year, which is a 100% increase. Reported EBITDA of $478 million is, however, lower by 13% of the previous quarter number of $552 million, as you may remember that we had recorded a onetime gain of around $40 million tax credits in Brazil in Q2. So around half of the 13% differential came through those tax credits. Increase in absolute prices does imply higher investment in working capital. Selling prices going up by $60 per ton in this quarter as compared to last quarter, as well as $300 per ton year-on-year, which has resulted in a lower operating cash flow. So our operating cash flow for this quarter is $290 million. And YTD, it is around $833 million. We have invested around $375 million in additional working capital due to increase in overall prices. There is also some increase due to higher inventories as we consciously have built up some inventory in this year. However, the cash cycle continues to be at [ 227 ] days, as was for last quarter, and has been maintained over the year. We reported an EBIT EPS of THB 1.13 compared to THB 1.45 in 2Q '21 and THB 0.03 in 3Q '21. If you move to the next slide, which is our YTD numbers. Our sales volume has grown 6% year-on-year to 11.1 million tons. The revenue has increased to $10.7 billion, which is 36% year-on-year as selling prices over this period has increased by $210 per ton. Core and reported EBITDA increased significantly compared to corresponding period last year for reasons explained earlier by Mr. Agarwal. Our core EBITDA for YTD Q3 '21 was $1.281 billion as against $854 million YTD Q3 '20. And reported EBITDA for this year-to-date Q3 '21 was $1.52 billion as against $679 million achieved in YTD Q3 '20, which is registering a growth of 100.3% year-on-year. Reported EPS of THB 3.62, which compares to THB 0.07 achieved in the last year same period. Operating cash flow of $833 million for YTD Q3 '21 is lower by 16% due to significant investment in working capital with the increase in prices. If I go to the next slide, this is a slide which I presented in the last quarter also. But with the acquisition of Spindletop in early 2020 and the challenges which we faced due to COVID-19 and one-off events, like hurricane, lightning strike, et cetera, we saw some moderate results in 2020. A strong rebound in our operational and financial performance, along with the moderate CapEx has resulted in significant reduction in the net debt to equity. And this is despite the investment we made in working capital, which kept the net debt level higher than what we had expected. Our rating agency has recently affirmed -- reaffirmed our AA- rating with the outlook change from negative to stable outlook. This rating affirmation was post the announcement of our Oxiteno acquisition, which is seen as positive by TRIS. Interest cost is at around 2.92% in Q3 '21 with an overall cost of debt at 3.08%, which is an improvement of approximately 5 to 10 basis points over the last year. We will continue to maintain strong liquidity in the form of cash and unutilized lines. Presently, our unutilized lines are at least 2x current portion of our long-term loan. Free cash flow generation for year 2021 is well on track to meet the $400 million, which we had mentioned earlier. I would think that it would beat what we had mentioned earlier. Net debt has been reduced by $324 million, which includes repayment of certain long-term loans. We remain committed to ESG and our sustainability-linked financing is about 20% of our net debt with the recent issuance of the THB 10 billion sustainability-linked debentures, which we did last month. It is our commitment to the financial markets on achieving our ESG targets and at the same time, reducing our cost of debt. The response to this issuance was very encouraging with the book build at around 3x of the proposed issuance and we did use the green shoe option. Now with the Oxiteno acquisition, we should go up on our net debt to equity at around 1.35x level. But with the strong earnings outlook for 2022, we expect to wind down to same levels as at the end of 2021 -- estimate 2021 or even lower than that. So the strong cash flow visibility helps us to work on our growth strategy. If we go to the next slide, which is on Project Olympus. The 15 business verticals under the 3 business segments are demonstrating commitment and determination in the contribution to Project Olympus, achieving $63 million in efficiency gains this quarter and a run rate of $201 million in the 9 months of 2021. Project Olympus will recalibrate our cost structure, and we look forward to this total of $610 million of efficiency unlocked by 2023. As I have mentioned earlier, this program touches all segments across regions. It delivers across business levers like Strategic Footprint, Operational Excellence, Commercial Excellence, Procurement and Organize for Performance. Alongside transformative projects execution, Project Olympus has institutionalized and harmonized our approach towards identifying, screening, resourcing and subsequently tracking the milestones for each large or small initiative at each site. In addition to the fibers, which have been contributing to this program so far -- which has been contributing to maximum to this program so far, our IOD business has implemented several projects during this quarter and have given an incremental $35 million in Q3. This is a slide which is reflecting our business outlook versus the IVL Capital Market Day in January 2021. As you can see, our current estimate for 2021 is turning out to be around 25% better than what we had reflected in the numbers for our Capital Market Day. This is on the back of higher margins in CPET, higher inventory gains, higher shale gas advantage and a better downstream performance. There were headwinds, as explained earlier, which came due to lower MTBE margins, which is due to higher feedstock costs, the lag losses in fiber segments and some capacity being offline for some time. Now 2022, upsides on this, we will get Oxiteno earnings for 9 months. We will have the eye wall cracker performance for full year, we will have volume loss normalization, which is Brazil volume loss, the MEG catalyst turnaround, which we had taken polar vertex loss, which we had. We also had a reversal of negative lag -- we should have a reversal of negative lag impact on the fibers, which we faced this year as well as the strong combined PET spread outlook. So with this, I hand over back to Mr. Agarwal.

Yes, thank you Sanjay. We'll move to the next slide. I think important is to understand what is in the store for 2022. As you saw '21 good results, as Sanjay mentioned, we also lost a lot of volume due to COVID, impact due to Brazil fire. And as we speak, the Brazilian plant has started back, which impacted and next is going to run full. So we'll have a good volume gain coming in the combined PET. And demand is expected to remain robust. As you saw, the pipeline inventory is tight, margins are holding on, although we will have impact of the energy, which actually will get normalized from second quarter as the backwardation of natural gas and coal is showing. We talked about the 2022 contracts because nearly a significant portion of the Western contracts, particularly in U.S. and Europe, we did not get the benefit in '21 because they were negotiated in '20. And now as we speak, we are negotiating those contracts, and we'll certainly give a good upside. All these factors makes us exciting about the combined PET results for '22 with the only headwind of the energy. The demand is pretty strong. We have seen -- and the recycled PET demand is also strong as we complete many projects of the recycled PET by end of the year. If we come to IOD, we talked that as we had commissioned the Lake Charles, which was really significantly delayed, the full benefit will come in the next year. Downstream margins will remain healthy. MEG margins are improving with result of Chinese dual policy as well as you saw the margins, and the COVID, this impact of polar vortex, which disrupted the production of IOD in the first quarter will get normalized. We talked about the catalyst change in Lake Charles, so that will -- sorry, in the Clear Lake, which will get normalized. So we have volume gain as well as margin improvement. And MTBE, as we just saw is not reflected presently as the market conditions should improve. In the fiber, got significantly impacted because of the lifestyle demand, which is now getting normalized as the pipeline is again empty here, and we saw the impact of Chinese dual policy. Mobility should remain under pressure because still we don't see a visibility on semiconductor shortage, and the OEM demand will remain weak, and this fire situation has impacted our production for about 10,000 tons of capacity in Germany. And the negative lag which happened due to polypropylene will get reversed as the polypropylene prices, which became skyrocketed in '21, and we were selling based on the previous because of the lag, which will get revert. So all the 3 segments show a very positive trend for '22 as we speak. And as I talked about the organization, we continue to build the organization for future ready and to prepare for the next phase of the growth in these verticals -- So I think that I will -- now we can take the questions, kindly mute. I think, Vikash -- I hand over to Vikash to organize them. Thank you.

Thank you, [indiscernible], Sanjay. [Operator Instructions]

First off, thank you for the insightful presentation. I have 2 questions for D. K. Number one, that you have mentioned several times about high energy cost. Is lower EBITDA, PET EBITDA, how much is that coming from energy? And how much is that from the fire in Brazil? And the [indiscernible], would it be able to offset all of those? And the second one is the -- on the IOD EBITDA margin. Has it been an impact by the high energy costs? Or is it not energy intensive like PET and PTA. And the last question is on MEG. What could derail your thesis about MEG margin recovery, which seems to be based on sales guide advantage and high oil price?

Very good. So Komsun, first question was on the high energy. Vikash, you want to take that, you had calculated how much of the high energy cost per ton, which has impacted our business per ton basis.

Yes. For this third quarter, the energy cost high is about $20 million, which impacted our performance, which is about $5 per ton. So that's the impact for this quarter. And for the annual, the 2021, the full year impact is expected to be about $120 million. So that's the impact due to higher energy prices, yes.

So Komsun, the total impact this year is $128 million, $129 million. But there's a surcharge, which has been announced, which will recover more or -- most of these prices, of high prices. We are seeing this price is high in Europe. The highest price of energy is in Europe, and that is 2 reasons. One is the gas supply from Russia and also the overall demand being stronger. We in the PTA and PET, both margins, our competitors have also announced, so it will recover more than that. But this will get normalized. I did mention a few times about this. I wanted to emphasize that this is in spite of high energy costs, which we suffered in '21, which will get normalized in '22. Brazil fire did impact our production. It's a loss of profit is nearly about $32 million, which is also insured, which will get after deductible, about $25 million, we're still losing it on the cash basis. Of course, this will -- the full benefit will start coming from November onwards. As of now, the plant has restarted. IOD EBITDA margin was very marginally impacted. MTBE is energy intensive, but the gas price in U.S. was not that significantly increased. Again, it's backwardated, but MTBE did have impact because of high energy consumption. When you talked about the MEG margins theory, can we go to the MEG slide, today, the olefin margins, per ton of ethylene are also high. You're right, the MEG is driven by oil price and because of the shale gas advantage. But also due to the coal, this is the graph which shows you that as the coal prices went up, how the coal-based MEG operating rate has come down. And this is actually in October, now hitting at $35, $36. So it's a combination of the 2 that coal-based MEG operations have gone down. And because of high crude oil price, naphtha is high and the shale gas advantage. So it will be total cost, total integrated margin. Can you go to the -- on the other integrated margin slide that we are showing the Asia and shale gas advantage, which we covered in the -- yes. So here, you can see on the right-hand side that what is the spread at $626 which is average U.S. integrated MEG spread or ethylene, which is a combination of the 2. And the previous slide, there's another slide, if you can go, where we are showing the MEG margin. Yes. Here, you can see it. So here gives you 19, 20 quarter-by-quarter. So the dark blue gives you the MEG spread, which has also improved. Northeast Asia integrated MEG spread from 287 because of lower production of MEG. 211 is a shale gas advantage which is -- and which will continue to improve. Although the gas price, as you know, in the fourth quarter was high, so ethane was also high. So you don't see that shale gas advantage building up that much, but it was more the MEG margin, which went up. So it's a combination of the 2. Of course, it will depend on the absolute oil price, which is expected to remain high as per all the 4 pundits who are talking about mobility increase as well as the number of rigs as they increase. Today, still in U.S., only 520 rigs are operating against the pre-COVID situation of 730. So as the rigs come up, there will be more NGLs coming up. So then you will have ethane price also coming down. So that is our theory on the MEG spreads. I hope it answered you.

Yes. I have follow-up questions on that. What you just told us. Number 1 is the -- when we look at the TTF forward curve, it will come off quite significant after Q1 next year. If that happened, are you going to retrieve your surcharge? And the second one is the -- are you expecting dual-policy -- dual cut policy of China to go on even after the winter end in January next year?

Very good You are right, very right that the backward TTF curve is there. I think we have got a slide for you. You're absolutely right. We will remove those surcharges naturally because there won't be energy cost. But our margins, as you just saw, the margins will still remain high because China -- so the Inventory is very tight in the system, whether you talk U.S., you talk Europe, you talk Asia, entire system is very tight. But yes, we will remove the surcharge, your first question. The second question -- sorry, I missed that. You talked about -- forgot to write that. You asked about?

Yes, are you expecting the China dual-control policy to continue?

I had many consultant calls on this. And I asked them [indiscernible]. There are 2 theories. Some people are saying that because of Olympics, they are doing it. But I think China has committed to their dual-policy. They want to bring the GHG emission down. It's a trade-off between GDP growth, but they will focus on the products which are less energy intensive. And I don't have a right answer for you whether it will continue or it will not continue. I, myself -- but it can give you, here this chart, which is a very interesting chart. The left-hand side shows the PET utilization rate and inventory for a number of days, which PET has. So you can see the graph is coming down. The operating rate has come down, where many plants cannot run. And you'll see the number of days inventory of PET is held. So that's why the margins are improving. On the right-hand side is the dark blue, shows over limit. That these provinces, which are very heavy on the polyester, they have been asked to reduce. Actually, even my tire cord plant was asked to reduce the operating rate in China. So that's where the polyester operating rate is there. But your question is whether it will continue into '22, there are number of theories. It will be in the future. But I think China serious about their GHG footprint.

[indiscernible] you're next, can you please ask your question.

Okay. I have 3 questions. Let's start with the ethane cracker. When will you actually start operation again because after a long delay, I'm a bit confused that -- what actually will be the time that you do start the operation. And also, you talk about the benefit of the ethylene price, that's really high today. What would you expect the EBITDA contribution under a current situation for the ethane cracker next year? That's the first question. Let me go on to the second and third, okay? Then the second question, I would like to ask about the acquisition of the Oxiteno. Would that be on track? And then if you complete by the first quarter how the financial impact Oxiteno will be to the IOD group, considering that this year, that's been the top and your existing previous IOD have been quite doing very well in the third quarter. And the third one, I want to ask about the sustainability of the margins of downstream IOD that have been doing very well in the third quarter, like surfactant, ethanolamine, PO, PT, things like that. What exactly the driver that both the margin of these products? And would that be sustain into the fourth quarter in 2022?

Very good questions, all. So let me first address on ethane cracker. We actually started October to shut down for addressing some heat exchanger issues. Now we have restarted back after addressing all those issues. It is presently operating at 50% capacity. We expect this to operate at full capacity barring any other incidence for the next year. The contribution of the margin, because this will replace the purchase ethylene from market, which we have. This will depend on the clean crack margins. Today, first 9 months, ethylene crack margins were very high. But depending on ethylene crack margins, this can contribute an EBITDA, is very difficult to say, depending on the ethylene, from $100 million to $120 million. It depends on the crack margin. But this is our very big focus right now, as you know about ethylene. But it will depend on the crack margin. But as I mentioned, in '22, the only -- there's 1 or 2 crackers coming. Demand is strong, '23 onwards, the number of crackers are less. So the utilization rate of crackers will increase. So even if '22, the crack margins remain low, '23 it will come back. And of course, it will depend on the shale gas advantage. The second question was acquisition of Oxiteno. This is subject to competition authority approval. We are expecting the Brazilian tax authority in this antitrust approval by February, March. Now it is -- whether it's a period under which they have to give the approval. We are only considering 9 months. This graph shows you what is the quarterly performance of this one. And you can see the last third quarter, it is $63 million. If you ask me next year, how much it will contribute, even if I say 3 quarters, I will give a range of -- based on this, 115, 118. Let me tell you the downstream is strong and your next question is very good. So that is the Oxiteno question about what it will contribute in 9 months. And they are in the surfactants. Brazil has 14% duty production. They are in all oleochemical, they are in ethanolamine. Your next question was sustainability of downstream profitability of IOD. Can we go to the IOD slide, please? You have a very good question. Today, it is not only the margin, but volume also. We have today operating our surfactant plant at a very high capacity. Demand for surfactant is very good. As the oil prices are moving up, we produce products for oil, we produce products for personal and home care and agriculture, all these demands are strong, which is also reflected in the Oxiteno's performance. LAB today, industry utilization rate is 91%. To make it sure that LAB used for solid detergents, Thai Oil also has a plant here in Thailand. And LAB demand is very strong as we are renegotiating the contract and no new plants are coming in the next 2 years, except for small debottling. Ethanolamines have DEA, MEA, TEA, there also, again, the industry utilization rate is high. So demand is good. You talked about propylene oxide and propylene glycol. Propylene oxide goes into polyols. Polyols goes into polyurethane. If you look at the Covestro's results, Covestro, you can go in a listed company, the demand for polyurethane is also very strong. And as we are acquiring our -- this Oxiteno, they have a plant in Pasadena, where we will use also propylene oxide for our captive consumption. So PO is very tight in the market. Today, actually, I'm on FM, I'm not lifted the FM, because I'm just able to give what quantity customers are looking for. And propylene glycol -- so downstream sustainability for '22, '23 looks pretty good as there has been less investment. You might have seen Stepan just announced an investment. Stepan is our competitor for a smaller capacity at $250 million, if I'm not wrong, they're also in the surfactant field. So it will give you an idea. So this downstream is, we believe is sustainable in the -- with our integration, what we have. I think the black is what happens to MTBE margin, to be fair with you. And MTBE margins, we are surprised that they remain low, and it should come back as retail price comes down. I hope that answered your concern.

Mayank can you can ask the question.

Sir, firstly, thank you for this detailed presentation, pretty useful. A few questions from my end. One was if I can just ask, firstly, Mr. Lohia, I think you have had some very good utilization rates in certain plants and Mr. D. K. was talking about on surfactants, but you're still struggling on like these onetime shutdowns in Brazil, Germany and then even the cracker not coming yet on stream. So is there anything on the operational side that you can talk about, considering you have been focusing on this for some quarters now? And also with this new change in management, is the KPIs on the management linking to this at all now going forward? Or anything that you can share light on?

So let me answer the second question first. That will probably hopefully give you a glimpse on what I'm thinking. So the strengthening of the management team at IMC, basically brings all the skills, including engineering skills as Alastair brings to the table and the innovation skills that Chris brings to the table. So I think we have a much more comprehensive C-suite now at IMC. So I welcome them. I'm glad they are there, and we'll get a much better and deeper deliberations at IMC. IMC rule is not day-to-day operations. But we have the people in IMC or the COOs of the 3 segments who can keep us in touch with ground reality. But IMC basically is setting the company for its journey going forward. And obviously, there are challenges, there is change, and therefore, there is a change management approach that we are evolving at the moment. We've been on the journey for 3 years. And I hope you recognize that over the 3 years, we have strengthened our platform. We just spoke about IOD at great length. We have strengthened our systems and standardization through S/4HANA. I believe it's the largest implementation of S/4HANA the chemical industry ever. We have put enabling functions in place. And as we scale up that brings us competitive advantages. And then coming to the people side, I mean, -- we all know people are the backbone of the company. And in our case, we are very fortunate to have this strong backbone. On the KPI side, I think my team takes the ownership of the results. Takes the ownership of the delivery. So there are KPIs, of course. We have introduced LTI, also long-term incentives recently. We've just announced them. We're not making it public, but as far as KPIs are concerned, it's a balance. But I don't think my management team is that much driven by financial incentives. They're more driven by the opportunity and by the ownership that they take. As you would notice, today's entire presentation is done by D. K. and his team. I'm now listening in. I'm actually learning from what I'm hearing from my management team. On the reliability side, yes. This is something that I'm going to bring to the IMC soon. What I'm going to do is, I'm going to put a PM. I'm going to put a project management team. We don't have that. We have IVEX, Indorama Venture Excellence team, but that is more like Lean Six Sigma. But I need now a project management team. We have our global CTOs. I think there is a different role for the project management team. So we are very proud of our Brazil restart. It went through a cadence. From day 1, there was a road map on how many days it will take for what activity to bring it back on stream. And I'm very proud that cadence has worked. There was a daily reporting around it, what was happening. So there was a full determination that we have to bring back this facility on time and safely. That has given me some -- not some -- it's giving me a lot of confidence that if we had PM in place, then going forward, we are going to have continued turnarounds. We are going to have brownfield investments. We're going to have greenfield investments. We are going to have recovery from incidents. So this project management team, if I can strengthen and prepare the project management team and differentiate that from my CTO, I think that will make a difference. So this is just something very new. It's not announced. It is not formed in IVL, but that's the way I'm looking forward. Thank you.

Sir, the second question was more related to -- in terms of the overall, I think this quarter's numbers, if I think D.K. can answer this. If you can just give us a sense of how much was the impact of lower IPA margins on the earnings this quarter? And how are you kind of thinking about IPS spread? Obviously, they have improved in fourth quarter, but more for 2022, how you're thinking about it? And I think the second question, D. K., was for in terms of now that you are closer to year-end, what is the range of increases in ASPs you are kind of thinking for your contracted volumes for next year now. If you can just give us a range or some idea around that.

So while D.K. bothers on the question and answers, I'd like to make a brief observation on what I heard from D. K. I want to finish between spreads and margin. In my mind, I want to think of margin as EBITDA margin per ton, which quarter-on-quarter is lower this quarter and spreads -- as spreads between the selling ASP and the feedstock price. So just to give you a helicopter view on that of mine personal, I think the spreads had been strong in 2021. And as D.K. was saying, due to -- in the integrated PET segment, we do see that the current tailwinds will allow us to prove our spreads going into 2022. So overall, I think the spreads have some protection, but the spot side of the spreads, which have been high in 2021 should normalize. I mean that's -- that is normal to be expected. But on the margin, which is my EBITDA per ton, I think this team will be able to deliver similar or better results. I won't say better, let's say similar results because the contracted margins -- the contracted spreads will go up. The spot spreads may come down. But the cost, both the variable cost in chemicals and in utilities should also come off. So that may offset the spot spreads coming down. So net-net on EBITDA per ton, I would think I should be able to hold management accountable if they can deliver same EBITDA per ton. Then we'll gain is on absolute EBITDA because of the volume increases in 2022. And I think during the presentation, D.K. has explained where are all the volume gains that I expected. D.K., go ahead to Mayank's questions, please.

Thank you, Mr. Lohia. Coming to the -- as Mr. Lohia mentioned, I don't think we have a doubt that core EBITDA per ton this year, next year will be lower than this year. And why this confidence comes in, let me tell you Mayank a few things. As Mr. Lohia mentioned, spot may come down. There is a $0.04 per pound increase in the PTA margin in U.S. from 1st January next year. And [indiscernible] we are the producers.

The question is on IPA, yes.

I'm coming to the IPA question secondly. So I'm addressing the second question. And the contracted volume you asked what we are negotiating is very difficult right now to tell you what exactly increase, but there will be a good increase. So that's why it gives us a confidence that core EBITDA per ton will be better than this year and volumes will be stronger. On the IPA side, Vikash, do you have the exact numbers because IPA third quarter, how much was the impact, was the...

Yes. So it's a part of our specialty chemicals, which was $46 million in second quarter is about $25 million this quarter. So there is some impact also coming from the high energy prices in this year and some PIA.

And that is improving by $100. So give and take, there will be improvement of $7 million to $8 million. That's what we are thinking in the fourth quarter. But as the margin is further improving, because [indiscernible] went and dumped the product, so that was the reason. But as we had a good benefit in the second quarter because of the improvement to the margin. But I think the second question, which I told you, Mr. Lohia explained that why we feel that EBITDA per ton confidence and the volume loss was quite significant due to supply chain disruption of PTA and COVID and the Brazil impact also. So that volume gain will also give us the upside. So that visibility we can give you right now with some improvement, which I told you about the PTA margin in U.S. by $0.04 and also in Europe, which are getting renegotiated.

Got it. Very clear, sir. And thank you for your explanation, Mr. Lohia. I think the last question that I had was to Sanjay on the balance sheet side. Sanjay, I think you have been holding your inventory -- cash conversion days at 27 days, pretty steady for the past couple of quarters now. Do you think there is not much more that you can do now on this one? Or this is like the new normal of 27 days and it cannot fall further. And I think the second question related to debt was like when you look at now Oxiteno's acquisition, what level of -- are you thinking about any deleveraging next year? Or it will be a flattish debt levels for you next year?

Yes, sorry, Mayank, on the first question, the 27 days is what we have maintained, actually, we had come to 26 days at the end of last year, and it went to 27 at the beginning of this year. So we maintained -- I believe we are based on our numbers, I expect 1 day to optimize at the end of this year. But it's going to be in that range only between 26 to 28 days. There is a little bit of inventory increase, as I mentioned. But at the end of 2020, we were running at very lean inventories. So I wouldn't continue to focus on it, but I would commit to something between 26, 28 days only. And in terms of your second question, the -- as you can see from here, we go up on the net debt to equity from 1.2 to 1.35 at the time of Oxiteno acquisition, which is expected to close in the first quarter of '22, but we should be able to deleverage back to around 1.1 level. So there is a free cash flow expected by the end of 2022, once this acquisition is completed. So the expected EBITDA from Oxiteno of 9 months, plus our strong results should give us a free cash flow overall by the end of 2022. So there is a free cash flow expected. Maybe I can give you the numbers off-line, exact numbers, what is the expectation.

So the free cash flow is quite dependent on the price of oil. And currently, this year, we have deployed more capital into the working capital because of the price of oil. The oil has risen 150% this year compared to last year. So though we have very good operating cash flows, preworking capital deployment. And therefore, next year, what the capital deployment would be. A major impact -- as we have explained our earnings, we believe would be better based on all the factors that D.K. explained. How much of the cash flow gets deployed or released on working capital would also impact our debt equity.

[indiscernible] Thanks for your patience. Can you please ask your question.

I actually have 2 questions. First is on the contract renegotiation in the West. I believe I've seen somewhere, I've seen in the news that some buyers are asking for spot exposure in state of the contract pricing, which is linked to the formula, which I don't think that it's reflecting the actual cost currently? Maybe you can share with us like what you hear and whether this will benefit you in some way? And second, it's on the -- it's in the MD&A. There's a session that you mentioned about PTA margin increase of around like $88 a ton in 2022 in America. Can you give us a little bit of color there on like some background about it?

You are a very keen reader of our MD&A and even the news that -- congrats for that. So you are right. In Europe -- between spot and the contract there, is a gap of EUR 250 per ton, okay? So people are negotiating whether they should sign EUR 250 today or they should keep on the spot basis. But the spot is determined by import parity and the spot is determined by what you call it the market tightness. So today, spot is much, much higher. So that is the deliberation, because remember, the preform makers, they want to pass on this -- the cost to their customers. So -- but in nutshell, I can tell you that whether it goes into ROCE linked or contracts. Even if they go to the spot linked or the ICIS linked, some are going for 50-50 blend, still the negotiations are going on. But in Europe, it will -- and U.S.A., it will significantly benefit. And I hope we can surprise you with our first quarter results, and we'll keep you updated as the things go. But we are still negotiating the thing. PTI margin of $88 per ton in yours, who took over the BP's assets in U.S. is -- announced with effect from 1st January. That is a formula price. So that will just get passed on. So there is no if and but about it because our contracts are linked to it, and we make about 1.5 million tons, 1.4 million tons of PTA in America. And that is because our contracts are linked, and similarly, the PET also gets transferred. So hopefully, that gives you a picture. We are the only 2 producers -- merchant producer in U.S.A. Alpek does produce, but he is not in a merchant in U.S.A. And this is the formula price announcement. And the PET prices are linked to the PTA price formula. Hopefully, that answered you, [indiscernible].

Yupapan, you're next, can ask your question?

Thank you for the presentation. I just have like a follow-up question on the third quarter results. I believe that actually indicated PET EBITDA should have been much better. So I would like to know what is the impact from the fire incident in Brazil? And what is the higher impact from the higher energy costs? Because I think like the drop shouldn't be this much given that we see improvement in the west PET margin. And secondly, is regarding your h-Wh. est PET spread for next year? Have you locked in the new contract already? And how much that increased compared to this year? And the last question is that regarding MTBE. I see that the third quarter MTBE spread is similar to last year level, but the loss in the MTBE EBITDA is much lower. Why is that? So that's all my question.

Very good. On the per ton basis, on the EBITDA margin, the drop is from $119 to $96, that's $23. As we just talked about, IPA itself is $10 into it. The variable cost -- Vikash, can you give the number? What was the variable cost impact per ton, you have given the $20 million impact on the chemicals, which is roughly $10, right?

Can I just say [ indiscernible] the specific question on Brazil is around -- how much did we lose because of Brazil, I believe it was over $20 million. And on the energy costs, again, in CPETs specifically, it's around $15 million.

Sanjay, you're talking about the Brazil volume loss, right?

Yes, because question was specifically to Brazil as well as the energy cost in CPET. Vikash, you want to add something?

No, this is correct. So most of the energy impact is in CPET and Brazil also, yes. So around $30 million plus impact, yes.

So there are 3 components: Brazil fire, variable cost and the European margins slightly lower. That was the 3 major components, yes. But an IPA margin. So $20 million, as you just saw the impact of the IPA.

This is Aloke here. Let me add to that -- So quarter 3 is typically lower than quarter 2. So when we compare quarter-to-quarter, it is understandable that quarter 3 would be slightly lower than quarter 2. This year has been atypical, that means this year has been different. This year, we have seen quarter 2 was amazing. I mean nice that quarter 2 was such an amazing quarter. It was an exceptional quarter. So when we look year-on-year on quarter 3, we do have significant improvements. Over quarter 2, it's natural that quarter 3 would be weaker. And quarter 4 would be even further weaker. But this year, again, like I said, it's turning out to the exceptional year or different year where we expect quarter 4 to be on par or better than quarter 3. That's one. And I'm talking about not CPET but across IVL. That's one point that quarter-on-quarter, there would be some impact on our combined PET business, especially. How much is the impact? Half the impact is because of the spread coming down and half of the impact is because of energy costs going up. So the impact is $23 of which approximately $10 is because of variable cost increase and $10 is because of decrease of the spread, just to give you a summary. So for us, I wouldn't -- I would want to argue, but I don't agree that the quarter 3 results are worse than expected. Quarter 3 is typically a weaker quarter than second quarter. I would think that quarter 3 results for us this year are above our expectation and they are better than our budget.

Right. I think -- thanks that is pretty clear, $23, $10 because of the margin and $10 because of the variable costs. Your second question was about the negotiation of the contract. As I mentioned, the PTA, [$88.04] on 1.5 million tons. That's all frozen because that is how it works based on the announcement. The other negotiations are going on with the customers, some contracts have been locked in. Major contracts are still under negotiation, but we are expecting good increase. But as Mr. Lohia mentioned that spot component will be lower. But summary is that EBITDA per ton in spite of higher energy costs, we expect to be better than this year. That should give you a good idea. And hopefully, when we give you first quarter -- fourth quarter results, we'll give you much more visibility and then the Capital Market Day when we have much more firm numbers. But we are very confident about '22 results. The other, you talked about MTBE. One thing, you're right, that third quarter industry margins in '20 were also lower, and that was because the oil was very, very low, as you know. But EBITDA has been better. And the reason is that, one, what we have done is that we have started selling the MTBE at much better premium markets, and the -- which is not linked to the certain other formulas, so which we have done a little bit of market mix changes. That has helped, and also on the butane buying. So it's a combination of the 2 actions which we have taken on the MTBE, but third quarter has not been good margin because of the high retained prices. And this gives you the forward curve of the butane, which he was trying to show you the forward curve of the butane.

So let me add to what D.K. mentioned on MTBE. Last year and this year are 2 different worlds. Last year, we got hit because of low crude oil prices. MTBE, as you know, is an addition -- additive to the fuel. And if fuel prices are lower, we get impacted. So last year was not because of the raw material. This year is totally different. We have high crude oil prices, so price of acute price of MTBE has reflected that. But what we have got hit, is because of -- you can call it the energy crisis. So the raw material prices have really shot up. So the profitability improvement is only a reflection that the absolute prices, ASP, let's say, has gone up, but the cost has gone up as well, offsetting the gains from the actual players.

Yes. I think just to add, just like what we call black swan event that the energy crisis, LPG prices in the world are very high, and that is pushing the butane. And that is reflected in the forward beaten prices, as you can see, as energy situation normalizes. Good. I think we have asked -- answered all the questions.

Sumedh, you're next.

My questions are 3 actually. So firstly, on IOD business, could you please help us understand on a first principle basis -- how do the margins work? And especially for the downstream business? So are they contracted? Do they roll over annually? Or are they on spot basis? So could you please help us understand that, that would be useful to know. Secondly, on PET business, obviously, a very good quarter coming because of this China issue. But do you expect that once the issue is behind us, coming into first quarter, second quarter, when it is typically a seasonally better quarter, we should see worse margins simply because of the pent-up supply that will get released in that particular period. So that's the second question. And thirdly, I just wanted to get clarification on the energy cost impact you guys mentioned. Did I hear correctly that it is $120 million for this year, and it was $20 million for third quarter. So which means is it going to be $100 million for fourth quarter? I'm not sure whether I get that correctly. So it will be good to know.

I'll address the last question first. $120 million is with reference to '21 versus '20, okay? And what, $20 million, what Vikash mentioned is with reference to third quarter versus the second quarter. So this is a little bit 2 different numbers. The $120 million is with reference to 2020 energy costs versus 2021 energy costs. So this is -- these results in spite of this high energy costs, which we have passed on and which will further pass on in terms of surcharges.

Just -- can I get the clarification here. So $120 million you said that is on a full year basis, right? And if it is $20 million for 3Q, what was the impact in the first half? Would you be able to tell us?

Vikash, you will have of the numbers. I think it is around $30 million or something, right?

We share with you. The full year is here, yes. So first half we share with you here.

This is quarter-on-quarter, 22, 15, 3 and 4 in different verticals and year-on-year is 49 and 2021 full year versus 2020 is 128 which hopefully gives you the segment-wise, is it clear?

Okay, very clear. Yes, very clear. Thank you so much.

So we keep ready for all the questions. Okay. Second question was IOD, which you talked about how the margins work in downstream and a very good question. So it's not only the margins, but also the volumes, which we have ramped up. That is number one. There are contracts also, there are spot also. I won't be able to give you an [indiscernible] because it depends on the each product category, like LAB is roughly 40% contracts, 60% spot, ethanolamine -- so again, here also as we are renegotiating the contract for next year, there will be some upside on this. So this 101 million is a combination of the 2. And this is basically in all. And propylene glycol is totally on price announcement basis. So propylene glycol is very tight. So like today, when polypropylene price is going down, we are announcing an increase of the price $0.05 above. And of course, there is some disruption in the supply of the Dallas plant, so that's a combination of both. So I won't be able to give you exact percentage because it's a blend of this, but quite a bit is based on spot and then contracts depending on each product category. But this strength is coming due to 2 factors. One, is the demand being stronger and asset utilization rate worldwide is very high in linear alkylbenzene, ethanolamine, surfactants. And this is in other companies. And then we are also doing innovation pipeline, which new products, which we are bringing in, which also heads up to the contribution margin per ton. So it's a combination of all this and the strength we continue to look after. The PET business, you talked about pent-up supply coming in. Now that's an interesting question. Actually, look, the PET ones inside China and another outside China. Outside China plants were all operating, except for [indiscernible] supply disruptions or the events of FM, which happened with Alpek and all that. So the system is very tight. Only China is the producer of PET, which exports about 3.2 million tons of China. And the operating rates in China, you can see here. So even if China is safe, for example, this dual-policy is not there, China is able to ramp up. There'll be only 200,000, 300,000 tons additional, they can sell and export. But then you get hit with the logistic constraint where you need more containers to ship it. So it's a very delicate balance between the tools. So I don't see a pent-up supply coming from China in a big way because of these issues and also the operating rate is already very high. And please mind that operating rate, we have to separate between seasonal peak, as you can see, April, May, June, graph won't give you exactly, but you can see there's 87%, 88% operating rate in China, because in summer, the demand is much more stronger. So I don't see a pent-up supply coming in for whatever reason.

Let me add, Sumedh, Happy New Year. Happy Diwali. Let me add some color to this discussion. So on the pent-up supply, once you've lost the capacity, you've lost the capacity, so you cannot think of it as pent-up demand. Demand was something where you had restricted your purchases, and you have made up your purchases now, as travel opens up and vaccination has taken place. So like D.K. said, on the pent-up supply, we are not concerned. especially since the pipeline is quite bad at the moment. So I think the producers would have some time to fill in the pipeline and therefore, have some pricing control. The second point on where the future is going on spreads, I think will also be dictated by the reshoring. Over the last 2 years, in all businesses now, there is serious discussion about reshoring. And that is where ideal beliefs that we would be advantaged because we have already reshored our production. And not only reshored in PT terms, but it's also integrated regionally. So that's the second point for me. On Downstream margins in IOD, it is a work that we are doing now, especially now with the announced acquisition of Oxiteno. We are putting up a playbook, comparing Oxiteno's downstream business to our Huntsman, what we bought from Spindletop 1.5 years ago. So we have got lots of experts involved now today. We have one group of experts working on this comparison of IOD downstream spreads and Oxiteno. Since in our diligence, we had the Oxiteno downstream spreads, we are making our own data on an apple-to-apple basis. That data would be given to a clean team and that clean team then can help us to make the 100-day plan. Based on what we learned from both the apple-to-apple data on where we have opportunities and synergies. That data -- a clean team means we will not have access to that data pre-close. But post-close, we will be able to quickly align between Oxiteno and IOD, and take our executive decisions going forward. The second expert team is working on the North American assets. Between Oxiteno and IVL, IOD, we have 8 assets in downstream. So how to fill these 8 assets, how to not have -- how do you call it, overlaps of production between the 8 assets. So in terms of which markets, which asset serves and which customers geographically. So we see there is room for us to improve the output from the 8 assets compared to the present 5 assets, I think we have in IOD and 3 assets in Oxiteno in North America. So there are a lot of opportunities out here. I think a lot of work is going on. And this time, the work is going on in different mannerism than in the past. We are taking PMI much more seriously and getting ready that on day 1 of closure, we would have a playbook in hand, what they call a 100-day plan, aligned quickly between Oxiteno team and IOD team and then take advantage of that. When we announced the Oxiteno acquisition, we had announced certain synergies. We believe we would be able to improve on those synergies. So Oxiteno reserves themselves are better than the budget for 2021, which is very gratifying, especially because Oxiteno's raw material is linked to West European ethylene, which is linked to naphtha, which is linked to oil. So as the price of ethylene has gone up, Oxiteno has been able to demonstrate good results, both that means they've been able to protect the spread and they've increased the volume. And the same thing goes for IVL. So there are a lot of positives that I see, and I think the teams are working on a much more cooperative way on how to go forward. We're not taking things for assumption -- without assuming things will happen. We're making sure it will happen this time. Thank you.

Thank you. We don't have more questions, and we are on time to go about 2 hours. So any last questions? Thank you very much, and stay safe. And if you have any questions, please do contact us. Thank you.