Huntsman Corporation (HUN) Q4 2010 Earnings Report, Transcript and Summary

Good day, ladies and gentlemen, and welcome to the Fourth Quarter 2010 Huntsman Corporation Earnings Conference Call. My name is Alicia, and I'll be your operator for today. [Operator Instructions] I would now like to turn the conference over to your host for today, Mr. Kurt Ogden, Vice President, Investor Relations. Please proceed.

Thank you, Alicia, and good morning, everyone. Welcome to Huntsman's Fourth Quarter 2010 Earnings Call. Joining us on the call today are Jon Huntsman, our Chairman and Founder; Peter Huntsman, President and CEO; and Kimo Esplin, Executive Vice President and CFO. This morning, before the market opened, we released our earnings for the fourth quarter and full year 2010 via press release and posted it on our website, huntsman.com. We also posted a set of slides on our website, which we intend to use on the call this morning in the discussion of our results. During this call, we may make statements about our projections or expectations for the future. All such statements are forward-looking statements. And while they reflect our current expectations, they involve risks and uncertainties and are not guarantees of future performance. You should review our filings with the Securities and Exchange Commission for more information regarding the factors that could cause actual results to differ materially from these projections or expectations. We do not plan on publicly updating or revising any forward-looking statements during the quarter. In addition, we may also refer to non-GAAP financial measures. You can find reconciliations to the most directly comparable GAAP financial measures in our earnings release posted on our website at huntsman.com. As we refer to earnings, we will be referring to adjusted EBITDA, which is EBITDA adjusted to exclude the: impact of discontinued operations, restructuring, impairment and plant-closing costs; income and expense associated with the terminated merger and related litigation; the sale of accounts receivables; acquisition-related expenses; unallocated foreign exchange gains and losses; certain legal and contract settlement costs; losses from early extinguishment of debt; and losses and gains on disposition and acquisitions of businesses and assets. We focus on adjusted EBITDA from a management standpoint as we believe it is the best measure of the underlying performance of operations, and we have received feedback from many of you in the investment community that this is how you prefer to look at our business. A reconciliation of EBITDA, adjusted EBITDA, and adjusted net income or loss can be found in the appendix of our slides and in our fourth quarter earnings release. Let's turn to Slide 2. In our earnings release this morning, we reported fourth quarter 2010 revenue of $2,412,000,000. Adjusted EBITDA of $219 million and adjusted earnings per share of $0.24 per diluted share. Our adjusted EBITDA was $219 million in the fourth quarter 2010 compared to $174 million in the prior year and $273 million in the prior quarter. The improvement in earnings compared to the prior year was primarily due to increased demand and higher contribution margins. Earnings compared to the third quarter were seasonally lower. However, we are very encouraged by the improvement in pricing. Peter and Kimo will provide greater insight into the improvements within our business. I will now turn the call over to Peter Huntsman, our President and CEO.

Kurt, thank you very much, and thank you all for taking the time to join us this morning. Let's turn to Slide #3. Adjusted EBITDA for our Polyurethanes division in the fourth quarter of 2010 was $99 million. I want to be absolutely clear on the following points. MDI [methylene diphenyl diisocyanate] urethanes earned earnings improved on both a year-over-year and sequential basis. Earnings for our Propylene Oxide MTBE [methyl tertiary butyl ether] business, however, declined compared to the prior year when we saw record MTBE margins. We also experienced slower propylene oxide MTBE demand during the fourth quarter compared to the previous quarter as we saw a typical seasonal slowdown. PO/MTBE earnings are now at a more normalized run rate of approximately $100 million a year. We've been successful increasing our average selling price for MDI and related system solutions. Our MDI Urethanes margins increased on both a year-over-year and sequential basis. We expect further price increases in the near term, which are necessary to offset the increase in raw material costs we are currently seeing. We continue to see a strong recovery in global demand for MDI. Last year, the MDI industry grew by over 18% after dropping 4% in 2009. This marked the second best year for growth in over 20 years. In fact, during that same time period, MDI has grown every year but two, averaging an approximate compounded annual growth rate of 7% over 20 years. During the fourth quarter, our growth rates were similar to industry trends. Historically, demand for our products in the fourth quarter is less than the third, and this year was no exception. However, demand improved nicely compared to the prior year. The most significant improvement in year-over-year demand was in Asia. We also saw improved demand in Americas and in Europe. On a year-over-year basis, demand in all regions improved most noticeably within the insulation sector. Approximately 1/3 of our MDI urethanes revenues generated by sales related to insulation applications. We estimate that approximately 2/3 of our insulation-related sales are used in commercial applications and the other 1/3 is used in residential applications. Demand within the automotive sector was particularly strong in Asia and Europe, whereas adhesives and elastomer demand was strong in Asia and the Americas. Despite little to no improvement in housing starts, volumes for our composite wood products sector increased 19% in the Americas as substitution continues to drive stronger demand. We estimate that the MDI industry operated at approximately 90% in the fourth quarter after taking into consideration estimated idle capacity. Our operating rates were slightly better than industry rates. We restarted our remaining idle capacity in the fourth quarter. We will be selling this additional 150,000 tons into the market as market conditions warrant. Our 2010 MDI EBITDA results were nearly $70 million better than the previous year. Additionally, with growing demand and little new capacity entering the markets in Europe and North America, we expect this product to continue to improve in the coming years. Let's turn to Slide #4. In the fourth quarter, our Performance Products division earned $89 million of adjusted EBITDA. We earned $367 million for all of 2010, an all-time record for this division. We recently announced that Stu Monteith has been appointed President of this division following the resignation of Daniele Ferrari, who left to pursue other business opportunities. Stu joined Huntsman in 1994, and his valued leadership has been vital in building the Specialties Business group of this division. We've reorganized this division so that the entire business is more market facing. Our Specialties group is comprised of amines, maleic anhydride, carbonates and industrial surfactants, and accounts for approximately 65% of the Performance Products division's earnings. Our Intermediates group includes household surfactants and linear alkylbenzene, or LAB, and makes up the remaining 35% of earnings. Compared to last year, fourth quarter earnings improved in large part due to higher margins across all products and stronger demand in agrochemical applications as well as industrial fuel and lube applications. We also saw meaningful improvements in demand and margins in maleic anhydride. Over the course of the next few years, we will bring to market additional amines and maleic anhydride capacity through joint venture projects and de-bottlenecking opportunities. While our Performance Products division sells product all over the world, approximately 2/3 of our production is located along the U.S. Gulf Coast giving us a unique cost advantage compared to many of our global competitors, where over 60% of our raw materials and manufacturing cost are natural gas liquids. Turning to Slide #5. Adjusted EBITDA in our Advanced Materials division was $17 million in the fourth quarter. While our sales were about flat with the previous quarter, our costs were up sharper than our pricing. For 2010, we earned over $140 million of adjusted EBITDA, more than double the results of the previous year. This division is comprised of Formulated Systems and Specialty Components businesses, which represents approximately 90% of our earnings. The other 10% come from base liquid resins, which are lower margin and more commoditized. Compared to the prior year, revenues improved within Formulated Systems and Specialty Components as a result of improved demand for electrical engineering and wind energy products. These markets, in addition to our coatings, adhesives and aerospace, should continue to expand throughout 2011. We are aggressively increasing prices and expect to see margins increase this quarter. Let's turn to Slide #6. Our Textile Effects division reported an adjusted EBITDA loss of $1 million in the fourth quarter. As part of a business improvement plan, we have focused on driving growth in specialty products. In 2010, we exited certain high-volume, low-margin commodity products. Excluding the impact of this bottom-slicing, our year-over-year sales increased 5%. Our current business portfolio is now more profitable on a per-unit basis than it was in 2009. In 2010, retail market conditions improved somewhat in developed economies but remained fragile. U.S. retail sales improved during the holiday season and toward the end of the year, which was a positive sign as we head into 2011. We've increased our market share in 2010. In 2011, we will market new products, which are more environmentally friendly for the textile mills we serve and help them reduce their utility costs. New products will also provide the end consumer more fade resistance, longer-lasting colors and greater technical performance from the textile products they purchase. While this division still has a ways to go until we are satisfied with its earnings, we believe we're on the right path. Our EBITDA in 2010 was $25 million better than 2008 and over $70 million better than 2009. Let's turn to Slide #7. Our Pigments division earned $71 million of adjusted EBITDA for the fourth quarter and represents an improvement compared to the prior year's adjusted EBITDA of $22 million and the prior quarter of $66 million. The supply-demand balance for quality pigments is very tight and expected to continue. We estimate the industry is currently operating close to full capacity as evidenced by producer inventory levels remaining at less than 40 days inventory on hand for a sustained period, which we have not seen for many years. We've successfully raised our average selling price, which increased on a local currency basis, 17% compared to the prior year and 5% compared to the prior quarter. Effective January 1, we announced a global price increase of $200 a ton and are in the process of implementing this increase. Last week, we announced price increases in Asia-Pacific, Africa, Latin America and the Middle East for $200 a ton effective March 1. This morning, we announced EUR 175 per ton increase in Europe effective April 1. These price increases will help offset expected raw material price increases. In the fourth quarter 2008, we launched a multiyear internal program, named Transform, within our Pigments division. This program is focused on improving our manufacturing efficiency and overall cost structures as well as commercializing new product innovation and diversifying our end market exposure. We have realized annual savings of more than $70 million from the program thus far. Our recently announced agreement in principle to use spent acid at our Calais, France, facility to produce magnesium sulfate fertilizer as a means of commercializing co-product as a component of Transform. Upon completion of this Calais project, we expect to improve in excess of $20 million our adjusted EBITDA in this division. Before sharing some concluding thoughts, I'd like to turn a few minutes over to Kimo Esplin, our Chief Financial Officer.

Thanks, Peter. Let's turn to Slide 8. In the fourth quarter 2010, our adjusted EBITDA increased to $219 million from $174 million in the prior year. The primary reason for the year-over-year increase in adjusted EBITDA was an increase in general demand and corresponding higher sales volume. This chart shows that volumes accounted for $85 million of the improvement in earnings. Margins also improved as increased average selling prices more than compensated for the increase in raw material costs. Compared to the third quarter 2010, our fourth quarter adjusted EBITDA decreased $54 million or 20%. A 20% fourth quarter sequential decrease is consistent with the historical seasonality of our business in a normal year. Further, in a normal year, approximately 20% of our annual earnings will be generated in the fourth quarter. This year, our fourth quarter represents approximately 25% of our 2010 annual earnings, which underscores the positive momentum within our business. Our 2010 fourth quarter adjusted EBITDA was greater than any fourth quarter in our history given our current business portfolio. We are particularly pleased with the sequential improvement in average selling prices in our largest businesses. Please turn to Slide 9. Our year-over-year sales revenue for the fourth quarter increased 17% as a result of higher average selling prices and improved recovery in global demand. We saw the most dramatic sales growth in the Asia-Pacific region, which improved 40%. Our largest regions, Europe and U.S. and Canada, improved 15% and 10%, respectively. Approximately 80% of our revenue comes from three divisions: Polyurethanes, Performance Products and Pigments, which recorded revenue increases of 12%, 23% and 33%, respectively. In total, our average selling prices increased 8% in local currency terms and our sales volumes improved 11%. Sales compared to the prior quarter increased slightly. Although total volumes decreased 6% consistent with expected seasonality, this was more than offset by higher total average local currency selling prices of 5%. It is worth noting that revenues from our MDI Urethanes business increased 2%, driven by MDI average selling prices rising 6%. This is an important trend as we look at the expanding margins of this key business line. On to Slide 10. We have recently indicated that we think our business, with the current asset base, will generate adjusted EBITDA of $1,325,000,000 within the next two to three years. To frame this number, our 2010 full year adjusted EBITDA was $872 million. We think that in a cyclical peak, adjusted EBITDA could approach $2 billion. As our earnings increase over the next few years, we expect to generate meaningful free cash flow. We expect to further reduce our indebtedness with this additional cash by approximately $500 million. Delevering our balance sheet is a priority of management and of our board. Turning to Slide 11. At the end of the year, we had approximately $1.4 billion of cash and unused borrowing capacity. We continue to take advantage of attractive debt markets in an effort to improve our debt maturity profile. In November, we issued $180 million senior subordinated notes due 2021 at an effective yield of 7¼% and redeemed the remaining $188 million of 7 7/8% senior subordinated notes due 2014. In January 2011, we completed the redemption of $100 million of 7 3/8% senior subordinated notes to 2015 with available cash. Pro forma for our January 2011 early redemption of $100 million senior subordinated notes, we had approximately $1.3 billion of liquidity, consisting of $870 million in cash and $461 million of unused borrowing capacity. In 2010, our net capital expenditures were $202 million. In 2011, we expect to spend approximately $350 million in capital expenditures. In 2010, our adjusted effective tax rate was 25%. We expect our long-term effective rate to be between 30% and 35%. The lower 2010 rate was due to valuation allowances in countries, such as the U.K., Italy and South Africa, where we are enjoying pretax income with very low effective tax rates. These are countries where we have meaningful Pigments operations. I'll turn it back over to Peter for some concluding remarks.

Thank you, Kimo. I'd like to take this opportunity to emphasize our commitment to the Asia-Pacific region. This strategically important region currently accounts for approximately a quarter of our revenue and even greater percentage of our company's growth, providing a unique footprint within the chemicals sector. We are focused on providing greater resources to this region in order to accelerate our growth. Today, we're announcing that Tony Hankins has been appointed the new role of CEO Asia-Pacific. He will continue to serve as President of our Polyurethanes division, and relocate the divisional headquarters from The Woodlands, Texas, to Hong Kong. Tony and his Polyurethanes team will join Paul Hume and the Textile Effects division that are also based in Asia, giving us two out of our five divisions headquartered in Asia. We believe this will further enhance our enviable position in Asia and strengthen our long-term position in this growing market. This past year, our adjusted EBITDA improved by nearly $350 million or 65% compared to the previous year. This past quarter was the strongest fourth quarter we've ever achieved with the current business portfolio that we have. While I harbor some concerns about potential raw material volatility and a continued sluggish U.S. housing market, I'm far more optimistic about what I see for 2011. Global capacity additions in our industry do not seem excessive, and pricing continues to be strong in many of our divisions. This past November, we announced our expectation to achieve an adjusted EBITDA of $1.325 billion within the next two to three years. Given current improving global economic trends, I continue to be very confident that we can achieve these earnings. With new capacity coming on in many of our products' lines, strengthening MDI and TiO2 markets, a continued recovery in North America and Europe and continued strong growth in Asia, we feel that we are in a very favorable condition to continue to create shareholder value. With that, I'll turn the call back over to Kurt.

Thanks, Peter. Alicia, that concludes our prepared remarks. Would you explain the procedure for Q&A, and then open the line for questions?

[Operator Instructions] Your first question comes from the line of Andy Cash from UBS.

Was there any impact among your coordinates' [ph] (00:28:05) cracker due to the Enterprise incident? And how might that have affected your Performance Products in the quarter?

That's a very good question, Andy. We did see a decrease in the pressure in the raw material lines that services facility from the Mont Belvieu area. For those of you unfamiliar with this, the Enterprise Products company is one of the largest companies for storing and transporting NGL raw materials into the petrochemical industry. They suffered a fire and a loss of pressure in some of their pipeline systems in the U.S. Gulf Coast. I believe this is about a week or two ago. We did suffer a slowdown for about a day and a half period. I should also note that during the early part of February, during a two-week freeze in the U.S. Gulf Coast area, that we suffered some outages as well due to the freezing conditions here in the U.S. Gulf Coast. And that will be affecting our Performance Products division, probably -- I don't have an exact number on this, probably in the tune of $5 million to $7 million in the first quarter.

So a temporary impact there. Second question I had...

I should note, Andy, that all of our facilities are up and running. We didn't sustain any long term or permanent damage during the...

The other question and last question I have relates to your long-term projections for Polyurethanes. If I just looked at a 9% adjusted EBITDA, based on 2010 Polyurethanes business, and then you've got your upper teens EBITDA margin projection with $550 million in EBITDA, I'm assuming that most of this business should be growing in the next few years. That would imply that at $550 million, if you took a 17% EBITDA margin that would imply sales would actually decline. So I'm a little bit -- I don't know maybe your sales projections are really much higher, and it's a very, very conservative number. But maybe you could walk us through, expecting to improve the mix by reducing some of the low-margin businesses? I'm just a little bit...

You're talking about the $550 million number was from the November presentation we gave to Citi, that was talking about a two- to three-year horizon forecast.

That's right on Chart #10, page -- Slide #10.

Yes, and I think that -- as good we look at that, Andy, I would agree. As we look at those businesses, and we look at the impact of higher raw materials and some of the market conditions over the course of next two to three years, personally, I would hope that we would do better than that. I don't disagree with your analysis there.

I would caution you that, that really is a function of where you think benzene and other raw material prices are. So I think you got to be careful around -- on the top line, right? You're right, and we have kind of 9%, 10% EBITDA margin. And historically, that's averages in the mid to high teens. We're suggesting it's going to go back to the mid and high teens, but the top line is really going to be, again, a function accrued.

If you're expecting that business to grow, do you see -- and it's going to be tight, supply and demand are going to be tight. What’s your thinking on potential grassroots MDI facility in the Far East?

We continue to work with the Chinese authorities with the environmental and operating permits, and we would hope to cross, what I would say will be, some crucial decision-making points later on, perhaps, in the middle of this year. But again, that largely is in the hands of the Chinese government. But we have announced our intention to expand, rather significantly, our Caojing facility just outside of Shanghai. And I would say that of the 150,000 tons that we are starting up in North America, we'll be moving that to the global markets that need it the most, and most of the tonnage, I imagine, will end up in Asia until we're able to expand capacity there. We are, today, with our capacity in Asia, we are sold out.

Your next question comes from the line of Robert Koort from Goldman Sachs.

Peter, a couple of questions around the TiO2 side. Obviously, you guys have put in some more prices. It looks like you exited the year with darn near 20% year-on-year pricing. Can you give us some indication of how much of that price will get offset by higher ore costs into '11? And then it seems like the legacy contracts in the industry had caps and collars on how much raw material inflation you might be subject to, and some of those ore suppliers suggesting those caps and collars are rotating off or not coming up again or not going to be renewed. So can you give us a sense of what that -- if we start throwing in some volumes in some of these price hikes, you can get pretty excited, but I suspect some of that will be offset?

I think, Bob, you're absolutely right. As I said in my call, we are increasing these on anticipation of coming price hikes. And we, like most producers, have contracts that will lock in ore prices for some period of time or we'll allow them only to increase by certain percentage. And you're right, as those contracts are renewed, I would imagine as we look at the trend of the negotiations that are taking place, those safeguards that we've seen in the past will most likely be coming off. Somewhat similar to a lot of our TiO2 pricing where you used to see 90-, 120-day sort of protection terms in the market. Those are becoming much tighter as well in the industry. It continues to tighten up. As you look at the overall ore supply in our industry, I haven't much concern around the supply of ore at the present capacity, the present utilization rate, but I do have some concerns as I look out over the next three to four years. If you think that this industry is growing at 3% or 4% and if you were to see some sort of a return in housing and automotive in North America, particularly housing to perhaps 1 million units, I don't want to talk like an alarmist here, but I do think that TiO2 and the supply of ore into TiO2, it used to just be a given that if you build the TiO2 capacity that the ore will always be there. And I'm not saying that the ore will not be there, I'm just saying that it may not be as plentiful as we've seen it in years past. And that may even be a limiting factor in the coming years on new grassroots expansion that come into this industry. As we look at our own ore situation for this next year, we're forecasting an increase of about 20% on ore prices. And I would just give you a cautionary note there, Bob, that when we talk about that 20% in ore prices, we're also seeing acidic prices increasing, coke prices. Energy prices continued to be strong in Europe and Asia. Caustic prices are going up. So it's not just ore but a lot of the raw material in TiO2 is going up as well now. I had a call from an analyst or two this last quarter saying that I sounded a little pessimistic about TiO2. I remain very bullish on TiO2, and I think it's going to be a great market for some years to come. But my only point in saying that last quarter and reiterating it this quarter is that, yes, we do have pricing momentum in this industry. We've also got raw material pressures in this industry as well, and it's yet to be seen just how much of that will counter how much, one, the raw materials have countered the market pricing.

Bob, let me just give you a couple of numbers. Ore represents just a little less than half of our direct costs in TiO2. And Peter said 20%, so the other half is probably going to go up close to 20%. So think about total direct costs, not only just ore moving up, approaching 20%.

And on a related raw material note, can you talk a little bit about Advanced Materials? The 5% margin there in the fourth quarter seemed to -- it seemed that maybe that it's a misnomer to say it's Advanced Materials if you can only deliver a 5% margin. So what's the outlook there? I know you got BPA and epi [epichlorohydrin] that are probably not going to help things, but are you going to see a marked improvement in margins as you go through '11? Or is there a lead lag issue with raws or, you mentioned, the fixed costs? Give us some direction on what the path is in Advanced Material.

That's a good question, Bob. And I think, as we look at the business, I'd just remind you that over 2010, over 2009, we more than doubled our EBITDA during that time period. And we look from the fourth quarter '09 to fourth quarter '10, we were up revenues of 16% and our volume's up about 7%. And even sequentially, coming off of a very strong third quarter into fourth quarter, our revenues and our volumes were down about 1% to 3%. So as we look at our fourth quarter, a lot of our indirect costs -- we did get hit with some currency. We got hit with some year-end expenses, some year-end billings on promotions and ads and so forth that should have been billed to us probably over the year. And as you look at our indirect, we're actually up fourth quarter of last year to fourth quarter of this year, up about $8 million. But, say, what I do about our indirect costs and so forth, we are very aggressively out moving prices up in this business. And I believe that this business ought to be in a midteens to upper teens sort of an EBITDA business. And if I look at our fourth quarter, I'm very pleased with what I see across the board. I'm pleased with a lot of the revenues and the volumes of our Advanced Materials. I believe that we ought to and we should be doing better, certainly, in this upcoming quarter when we look at our Advanced Material.

For the year, it was 11% EBITDA margin, and you'll see that again in 2011 or even a little better. I will just point out that our Swiss-based businesses, that would be Textile Effects and Advanced Materials, does have some Swiss-y pressure from a currency standpoint that has really appreciated well ahead of the Euro. And we're reducing costs to the extent we can there.

Your next question comes from the line of Laurence Alexander from Jefferies. Laurence Alexander - Jefferies & Company, Inc.: As you look at 2011 planned outages or maintenance shutdowns compared to 2010, are there any swing factors that we should be aware of that would complicate year-over-year comps?

As I look at our major facilities that we have in our MDI, in our Polyurethanes, we certainly don't see anything that would be material in our urethanes earnings and in our Performance Products. I don't see anything that would be material to the bottom line from 2010 going into 2011.

In the fourth quarter, we do take down some of our ethylene oxide and ethylene glycol units for about a month. And they will impact us a little bit. But generally, our big MDI units are taken down every year anyway, so the comparables aren't unusual. Laurence Alexander - Jefferies & Company, Inc.: And secondly, now that you're speaking more in terms of fairly optimistic on the mid-cycle number, on the near-term horizon and highlighting sort of peakish EBITDA target. How is that affecting your perspective on M&A, particularly the need to either add additional legs to the platform or to strengthen the positions you have?

Very good question. I think that we'll be looking at this, certainly, on a deal-by-deal basis, if you will. I believe that as you look at the industry, I don't believe that this is going to be a peak as we've seen in the past, where you peak out in the year and because of all the new capacity. What's different this time around is you're just not seeing as much money. I can't speak for the commodity side of the chemical industry. But on the intermediate and differentiated side, I'm not seeing as much money going into, what I would call, reckless abandonment in expansions on a global basis. And I think that when you look at the overall industry, it's going to remain strong here for a couple of years. Again, as you look at the overall strength of this industry, it really goes around overall capacity utilization and GDP growth globally. And so those are two quite positive factors. From where I sit today, looking into the future, they look like they'll be winding up to be quite strong here for the next couple of years. Our board is very committed to continuing to strengthen our balance sheet, to continue to reduce debt and so forth. And I think that we're going to be focused on M&A opportunities, but we will want to make sure that they're accretive to our earnings, they're accretive to our shareholders. And we may be more creative, perhaps, than in the past where you just go out and you take on debt and you buy an acquisition. We'll be looking at potential mergers. We'll be looking at potentially other structures that are, perhaps, a little bit different than what we've done in the past. But I would just emphasize that the strength of maintaining a strong balance sheet, maintaining a strong dividend and being able to capitalize on our own technology and our own growth internally is going to be very high of on our list of priorities.

So Laurence, just to add, from a cash standpoint, you should only expect Huntsman to be doing more bolt-on type acquisitions, nothing that would change the credit profile of the company. Laurence Alexander - Jefferies & Company, Inc.: If you look at the demand trends since the Chinese New Year in your more short-cycle businesses, can you give us any comment on what your initial impression is?

Now the Chinese New Year seemed to be rather short, which tells me that a lot of people are getting back to work. So I think it's probably too early to tell you trends across the board. But we saw two years ago, the Chinese New Year seemed to kind of drag on for a couple of weeks because people were reducing inventories and so forth. And just anecdotally, it feels like people are back to work. Demand and production is heavy, and we continue to see, really across the board, strong demand within China and across Asia.

Your next question comes from the line of P.J. Juvekar from Citi.

So on the last call, you talked about Chinese adding 100,000 tons of TiO2 capacity every year. Do you think they could accelerate that if TiO2 becomes tight? Or would it be limited by feedstock availability?

I said 100,000 tons per year, and that was what we believe they've been averaging over the last couple of years. And I would expect that to continue. But I think you've raised a very good point. A lot of the feedstock availability in China is quite limited, and it appears just again from some of the statistics, there's so many producers. When you look at the TiO2 industry outside of China and you look at it inside of China, it's got two different profiles. There's the average size of plants and technology and so forth. But it appears that there's more and more buying that's taking place outside of China on the ores, which tells me that there's probably less ore availability on the short term, at least. But I can't answer as far as what the Chinese mining companies are going to be doing on a longer-term basis.

And you mentioned there has been no new investment in ore industry, and that concerns you. And I think it takes like eight years to build a new ore mine. If that continues, do you think the value will shift to the ore industry from the TiO2 industry?

No, because I believe that the TiO2 industry is tight today. I believe that more value -- and that's why I say, as prices rise in TiO2, that's what I was trying to say earlier, was that I don't believe all of that price increase benefit goes to the TiO2 producers. It's got to start going to ore producers as well. And I think you are right. I think that it's about five to eight years to bring on new ore capacity. And you look at the places in the world where that new capacity has been found and where the new deposits have been found and where they hope to exploit those in the coming decades, these are not bastions of stability. These are shipments that are being guarded with mercenaries and so forth. And so I think that more margin is going to have to be in the hands of the producers and the mining companies over the course of the next decade to justify this.

Your magnesium sulfate plant at the Calais site is kind of interesting. Can you do that at all your sulfate facilities?

I believe that we have two other facilities where this may make sense. This is not to say that Huntsman is going gangbusters into the fertilizer industry. But I do believe that this is a very interesting. You look at magnesium sulfate and what it goes into and the growth, particularly in the palm oil plantation and so forth in Southeast Asia, and right now, we're doing it in the joint venture so that we're not getting into the sales of fertilizer products. But who knows in the next project how that will be structured and so forth. This one works as we believe it will work very effectively for us. We'll certainly be looking for further opportunities, and this will just enhance our profitability and our cost basis in TiO2.

In fact, it transforms that Calais plant into one of the lowest cost facilities in Europe.

Yes. From where it was two years ago, I think it was one of the upper quartile as far as most expensive facilities in Europe.

Your next question comes from the line of Frank Mitsch from BBT Capital Markets (sic) [BB&T Capital Markets]. Frank Mitsch - BB&T Capital Markets: With respect to the plant in Calais, you said you were expecting that to save or add $20 million to your profitability. What is the timing on that?

That would be about 18 to 24 months. I would say that it's probably closer to 24 months side of that. Frank Mitsch - BB&T Capital Markets: You've had a bit of a discussion on that segment, on the TiO2 segment, in terms of higher cost but higher prices, et cetera. Coming back to a comment that Andy made on your expectations for Polyurethanes, on Pigments, you're expecting two to three years kind of a good case scenario $300 million. You earned $71 million this quarter. Annualize that, you're about within spitting distance. So without putting words into your mouth, Peter, that $300 million, that's not a two to three-year time horizon, that's probably sooner than that?

I certainly would hope so, Frank. A lot of that is going to depend on ore availability and pricing and so forth, and it's going to continue on global demand. But, yes, I would hope that it's much sooner than later. Frank Mitsch - BB&T Capital Markets: Switching gears on ore to Asia. I think your sales are up 40% in the quarter. I think you made a comment that you're sold out in that part of world. And if so, when would we anticipate seeing better volumes or additional volumes to come in?

And again that was in MDI Polyurethanes in Asia that where we're sold out. Again, we'll have 150,000 tons have started up in the fourth quarter out of Geismar. Much of that product will be going to Asia. But obviously, the U.S. market starts to rebound. It continues to rebound, I should say. And as we start seeing more demand in insulation, so forth, coming back into the U.S. housing market, as the U.S. housing market were to rebound and I wouldn't say -- I don't have any internal projections on the housing going back to 2 million units per year. But if we get back to 1 million units a year, which is kind of where it was a record low for the last 15 years with the exception of the last two years, 1 million units, we would see our MDI going into the construction and residential area, OSB [oriented strand board] for plywood and construction board and insulation, we would see that segment more than double. So how much of that 150,000 tons would make it to Asia and how much will stay in North America? Simply put, Frank, we are going to be in a very tight situation in Asia as we look out over two to three years. If we get the permission and the economic justification to build a new facility in China, you're probably looking at two to three years by the time that facility is up and going. And I would say that two to three years would start once the permitting process and everything is over. And so you're probably looking at three, perhaps, a bit more than three years from now. So as you look at some of these things, you do have a facility coming up. A grassroots facility coming up in China, I believe, in two years from one of our competitors, and I believe that that's it for the major capacity that're going to be coming into the polyurethane market over the course of next two to three years. Frank Mitsch - BB&T Capital Markets: Any chance that the outgoing U.S. ambassador in China can bring home some business licenses prior to his departure?

Wow, Frank, I wouldn't even touch that one with a 10-foot pole. But I would certainly hope that they've got plenty of insulation in that embassy over there to save the U.S. taxpayers as much money as they could.

Your next question comes from the line of Laurence Jollon from Credit Suisse.

It looks like in Polyurethanes this quarter you did a pretty nice job covering higher benzene prices. I forecast or, actually, I estimate benzene was up 13% in the fourth quarter. It looks like Polyurethane prices were up about 9%, so nice job there. But as benzene shot up in the few months of this year, can you talk a little bit about your ability to achieve price increases in the current quarter? Or do you think those price increases will flow into the second quarter?

I think those price increases will be effective by the end of the first quarter. But let's just quickly look at the economics. So as we look at our November, December benzene price, it was right around $325, and the price effectively went up by March. The contracts for March are around $425, so that's $1 per gallon. And that comes out to about $0.08 or $0.09 per pound on MDI cost. Now we've announced a $0.10 per pound increase, January and February, in the Americas, and EUR 250 per ton coming out to a $0.15 per pound increase in Europe. And as we look at these, we are putting these in as quickly as possible. And I believe that they will be implemented by the early part of April, the latter part of March, fully implemented. So again, I would remind you that benzene prices will hit us almost immediately. Our price increases typically take two to three months. So in the first quarter, we will see the impact of higher benzene prices and the ongoing effort of raising our MDI prices to the point to either offset all of those increases or, hopefully, to exceed the amount of those increases. But it won't be until the latter part of the first quarter, early part of the second quarter, that we've been able to fully see the realization of those price increases. So simply put, during the first quarter, we will see a margin buys [ph] (00:54:21) in MDI as we are in the process of raising prices and as we are faced with higher benzene prices. Having said that, as we are out raising prices right now on MDI, and I don't want to get into specific regions of the world market-by-market, but we feel very confident by what we're seeing today that we will be able to achieve the full 10% and the full $0.15 over in Europe. Again, I say that we feel very confident about that, but we're in the process of implementing those as we speak.

My second question on Pigments is a broader sort of industry-wide concern. If the whole industry is running at 95% to 100% operating rates today. And typically, or historically, I should say, TiO2 volumes have risen in line with GDP, obviously, higher than that in the developing economies. I guess my fear is how is the industry actually going to meet expected volume growth next year? Is it simply a little bit of de-bottlenecking or…?

Yes, let's remember that the over the course -- the last time, outside of China, that a new grassroots facility was built in this industry was over 20 years ago. So that tells you that the industry, over the last 20 years, has done a pretty good job de-bottlenecking 2% or 3% per year and, as a matter of fact, probably better than that. Because if you look at the margins for TiO2 over that 20-year time period, they're down more than they're up. This is a business. I just remind you that a little over a year ago, we have people calling us, just asking us why don't you just shut the whole thing down and throw away the keys. So as we look at the overall capacity of TiO2, it seems like there's a pretty good de-bottleneck rate of about 2% or 3% growth. Now again, I think that when you have margins that are as high as they are today, people obviously are aggressively going after that de-bottlenecking as quickly as they can and as effectively as they can. So the next 12 months, I think that you'll see some of that de-bottlenecking coming into the industry. But sooner or later, I would imagine there's going to have to be some new lines built or something more than just tweaking existing capacity. And then that brings to question is that, where does the ore come from for that? And will the ore be out there? I believe that it will, but that's just my thinking at this point.

So again, as you go back through the numbers, historically, and I think Huntsman is good representation of that experience, we can de-bottleneck roughly 1.5% a year. And then as earlier in the call suggested, the Chinese bring on roughly 100,000 tons a year, that's roughly 2.5%, 3% growth. If TZMI is right, that there's going to be 4% growth, someone's going to have to bring on some big chunks of capacity. And that's a lot more expensive than these little 1.5% de-bottlenecks of 10,000 to 15,000 tons every couple of years. So someone's going to have to bring on some big chunks. They're very, very expensive. And someone would have to believe that this is an extended cycle to see any kind of a return that exceeds 15% to 18% IRR [internal rate of return]. And that's a difficult conversation to have, given the last three years that this industry has suffered.

Your next question comes from the line of Edlain Rodriguez from Gleacher & Company. Edlain Rodriguez - Gleacher & Company, Inc.: Just one quick question on TiO2. Given the sluggish housing and construction market we're seeing right now, can you talk about the push back you're getting from your customers with all those price increases?

Well, we are getting push back for the price increases, but we're also getting a great deal of demand for more product. So yes, at the same time we're getting pushback, the same time we're getting more orders. So the automotive industry seems to be doing well globally. Asia continues to expand. There seems to be a great deal of, I don't know if people are out running around buying new homes, but they certainly seem to be doing a lot of remodeling, a lot of touchup within their existing homes and so forth. And demand continues to be there, evident of the low inventory that we have today going into the paint season, which typically starts fairly aggressively here in about a month. So do the people like the price increases? Probably not. But at the same time, they want the product as well, so….

And they're concerned about the availability of that product.

Longer term, yes they are. Short term and longer term.

Your next question comes from the line of Bob Amiña [ph] (00:59:30) from JP Morgan Asset Management.

You used to have in previous quarters a chart about year-over-year order patterns, and I had like a 19%, 17% and 11% increase for the previous three quarters. Did you have a number like that for the fourth quarter?

Yes, let me grab it.

So while Kimo's pulling that out, do you have a second question?

Yes, it was just -- it'll come out, I guess, when you file the K and everything, but working capital for the fourth quarter? And I know it's probably impossible with raw material volatility to guess for '11. But at least, for the fourth quarter, what kind of use or whatever that might have been?

Primary working capital was a positive source of cash of $130 million roughly. And to our old slide, we felt like because we've really reached our pre-recession levels of volume, we pulled that slide out, Bob. But I liked it, too. We are roughly even with the fourth quarter of 2007, so we're really back to pre-recession levels in terms of volumes. But it was up 11% year-over-year total company volumes. So you remember how that sequences back in the fourth quarter of 2008 where we were down 22% volumetrically, we've moved up. And so for the 2010 year, we go 19% first quarter, 17% second quarter, third quarter is 11% and fourth quarter is 11% year-over-year increases volumetrically. So again, we're back to that fourth quarter pre-recession total volume number.

Thank you very much. And again, thank you all very much for taking the time to join us this day.

Ladies and gentlemen, that concludes today's conference. Thank you for your participation. You may now disconnect. Have a great day.