Good day everyone and welcome to the Third Quarter 2020 Minerals Technologies Earnings Call. Today’s call is being recorded. And at this time, I would like to turn the call over to Erik Aldag, Head of Investor Relations of Minerals Technologies. Please go ahead, Mr. Aldag.

Thanks, Sarah. Good morning everyone and welcome to our third quarter 2020 earnings conference call. Today’s call will be led by Chief Executive Officer, Doug Dietrich and Chief Financial Officer, Matt Garth. Following our prepared remarks, we will open it up to questions. I’d like to remind you that beginning on Page 14 of our 2019 10-K, we list the various risk factors and conditions that may affect our future results. And I’ll also point out the Safe Harbor disclaimer on this slide. Statements related to future performance by members of our team are subject to these limitations, cautionary remarks and conditions. I’ll now turn the call over to Doug. Doug?

Thanks for the introduction, Erik, and good morning everyone. We appreciate you taking the time to join today’s call and I hope you are all staying safe and healthy. Let me outline a brief agenda for the call. I’ll begin by taking you through our third quarter highlights, including improving trends in our sales results, strengthened operational and financial profile, and progress made on the business development front. I’ll then turn it over to Matt to provide a more detailed look at our third quarter performance by business segment. I’ll conclude our prepared remarks by discussing trends in our end markets and highlighting new business that will contribute to our volume growth next year. First, I want to comment on the 8-K we filed this week related to a ransomware attack we recently experienced which impacted access to some of our company’s IT systems. We have procedures and protocols in place for situations like this. Immediately after detecting the incident, we implemented our comprehensive cyber security response plan, including taking steps to isolate and carefully restore our network to resume normal operations as quickly as possible. We’ve notified law enforcement and have been working with industry-leading cyber security experts to conduct a thorough investigation. Throughout this situation, we operated our facilities safely and met our customer commitments. Before going through the third quarter review, I’d like to note that I’m very pleased with how our global team and businesses have performed in what continues to be a complex and challenging environment. We remain focused on managing our company with an unwavering commitment to keeping our employees safe, operating our plants efficiently and serving our customers with value-added products. Dedication, engagement and resilience of our employees has been nothing short of exemplary during these times. And I want to thank them…

Thanks, Doug. I’ll now review our third quarter results, the performance of our four segments, as well as our cash flow and liquidity positions. I’ll then turn the call back over to Doug for some additional perspective on our current operating environment and the visibility we have going forward. Now, let’s get into the review of the third quarter results. Third quarter sales were $388.3 million, 9% higher sequentially and 14% below the prior year. Gross margin, EBITDA margin and operating margin all improved sequentially and versus the prior year, driven by our continued pricing and productivity actions. SG&A expense was flat with the second quarter, and also contributed to the margin expansion. Earnings per share, excluding special items was $0.92 and we incurred special charges of $3.2 million after-tax in the third quarter or $0.09 per share. Our effective tax rate for the quarter was 19.8% versus 19.1% in the prior year and 16% in the prior quarter. Going forward, we expect our effective tax rate to be approximately 20%. Now, let’s review the changes in sales and operating income in more detail. On this slide, we are presenting the year-over-year comparisons of sales and operating income on the left side, and the sequential quarter comparisons on the right side. Third quarter sales were 13% lower than the prior year on a constant currency basis. Slowdown in economic activity brought on by the COVID-19 pandemic continue to impact our volumes on a year-over-year basis in the quarter. The operating income bridge on the bottom left shows we were able to significantly offset the impact of lower sales versus the prior year, the favorable pricing and cost performance driven by the actions we have taken after the last year. These actions resulted in higher operating margin versus the prior year…

Thanks, Matt. Before beginning the Q&A portion of the call, I wanted to take some time to provide a little more insight into the conditions across each of our businesses and where we see opportunities to drive incremental growth. The improving market trends experienced across most of our businesses will likely extend through the rest of the year, while our project-oriented businesses may continue to face persistent challenges with uncertain customer order patterns. In addition, as we build on the momentum from the third quarter, we’re also executing on a wide range of attractive growth projects which will accrue to revenue in 2021. Let me now take you through what’s happening by business segment, starting with Performance Materials, our largest and most diverse segment. Our Household and Personal Care product line will continue on its strong sales trajectory as demand for these products stays high and we leverage our expanded channels and presence with new customers. Specifically, we’re growing our portfolio of premium Pet Care products in both North America and Europe with the expansion of new online retail channels with larger customers, and the introduction of new products such as our 100% carbon-neutral Eco Care product in Europe, an example of how we’re satisfying customer preferences, while also contributing to our sustainability efforts. In addition, sales of our Edible Oil Purification products have more than doubled since last year as we grow this business through an expanded global customer base. In our Metalcasting business, we expect to continue to benefit from the automotive demand rebound in North America. Noted earlier, we expanded our customer base in China through the continued penetration of our higher value blended products, which led to sales growth of 20% over last year. Our solid growth trend there will continue for the rest of the…

[Operator Instructions] All right, the first question is from Daniel Moore with CJS Securities.

Doug, Matt. Good morning, thanks for taking the questions.

Hey, Dan.

Good morning.

I wanted to start with PCC. Can you just refresh us or break down the revenue by geography in Q3, where we are today as a baseline, and where do you see that by the end of 2021, given all the new scheduled capacity coming online?

Let me start, Dan, I’ll give you kind of a bridge to the new capacity and volumes that we see for 2021. And then, Matt, maybe you can have a word sort of revenue by geography. As I mentioned, we’re bringing on about 285,000 tons of capacity, 200,000 of that will be here in the fourth quarter, ramping up kind of this quarter and into the first, and then another 85,000 tons in the first half of next year, and that’s two facilities, the packaging and another facility in India. This year, we experienced shutdowns, if you remember last call, Verso Paper and Domtar mill in Ashdown, Arkansas totaling about 100,000 tons of volume came out this year. So net-net, we’re up about 185,000 tons next year, by the middle of next year we will have installed about 185,000 tons of incremental. Given the timing of when they come on and as they ramp up, we see probably 125,000, 150,000 tons of new volume in 2021 kind of on an annualized basis. So when you get to the second half of next year, you should be on an annualized run rate of about 150,000 tons of additional volume.

Very helpful, given all the puts and takes we’ve had over the last couple of quarters. And then just trying to get a sense for what the new baseline looks like as Europe and as far as Asia and China continue to grow, India as well, while North America has been on a bit of a different trajectory. Any update there?

Yes. So I think it’s – let me go back, pick the right baseline. So if you look at our 2019 volumes, before going into 2020 with all the puts and takes I just gave you, we’re are about 2.9 million tons of PCC. We’ve had a – you saw the chart, the big dip in volumes through the second quarter and a gradual improvement through the third and we think into the fourth. With this additional volume, we should probably, by the end of next year, be back to that level. Right? And then with the additional volume accruing into the next year. So again, look, we have – there is a lot of demand conditions that have to continue through the fourth quarter and into the first and seeing where we are with kind of COVID-related uncertainties, but if you’ve taken like on a 2019 base with the puts and takes from this year, we should be able to get back to that level run rate basis by the end of next year.

Okay, I’ll do some of the math offline on geography. Go ahead, sorry.

No. No, and, Dan, I was going to give you actually that rough breakdown on a geographic basis. And let’s do it on a revenue basis as you asked for. It’s roughly 40% in the North America region, they’re going to have, the rest fairly split between Europe and Asia. There is a small bit in there, call it, 5% that exists in Latin America, but that’s the way we’d break it down.

Perfect. That’s helpful. Okay.

I’ll add to that, Dan…

Sorry, go ahead.

I’ll add to that, that’s what we have in hand. So if things kind of stop today, that’s how that’s going to shake out. There are – we always talk about we have a pipeline of opportunities that we continue to work on. They are in different stages, technologies in terms of our high filler, our new yield products, recycling and those – many of those are in advanced stages of discussion which also should accrue to – could accrue to volume next year as well.

That was my follow-up was some of the new – it seems like the dam is breaking a little bit for new contracts. Are you seeing increased momentum there? And it sounds like you are, at least, with some of the new technologies.

Yes, let me give you – D.J., are you there? You want to give a little color about some of our new technologies and some of the trials we’re running?

Yes, sure. Glad to. And Dan, just to further the conversation on regional breakdown, for the standard PCCs, I would say that, of the contracts we’re chasing on standard PCC and the putting in writing grades, most of that is India and China and the rest of Southeast Asia. So that shift will continue to happen. And then if we look at the new technologies, it’s kind of a balance. The new yield technology that we’ve got where we’ve run some pretty successful machine trials and we’re into the commercial discussions, that’s a little bit more in Europe and the Americas, kind of balanced between those two. If I look at the new products in packaging, the most momentum we have right now for the white grades, the whiteboard packaging would be North American Packaging and then we’ve got a couple of products in brown grades, that newer technology, one being new yield, others being a new product design for brown paper. Those would be in the Americas too. So standard PCC, clear path for growth and a good pull in Asia. And then the new products seem to be getting more momentum in the Americas and a little bit in Europe.

Perfect. That’s Helpful. A lot of really good work done on the cost side and a lot of discussion in the prepared remarks about the opportunity for margins to move higher. Just remind us either across the businesses or consolidated, what incremental margins typically would look like and whether we’d see upside to those kind of historical typical incremental margins over the next 12-plus months, given some of those cost-reduction initiatives as volumes do recover?

Yes, Dan. And what we’ve typically told you, and if you remember in the beginning of the year, as revenues were tracking down, we talked about the decremental margins being in that 30% range and that’s been proved out as you look at the second quarter. What’s come back on the incremental margins has also been in that 30% range. Now it’s a little bit north of there and we would expect with the cost control that we’ve been seeing and the effort on our fixed cost expenses, that we would be able to move that incremental margin as the volumes are coming back. So I’d use those two numbers around 30% either decremental or incremental for now. And we’ll prove it out as it’s expanding over the next coming quarters.

And, Dan, I didn’t answer your initial question. There is absolutely room for margins to move north. If you take a look at the margin chart in terms of the volume impact we’ve absorbed and offset, that volume at those incremental margins really accrue to income but also those margins as well. We’re always looking at opportunities to become more efficient with our culture in terms of productivities and looking for ways to do things better. We’ve captured a lot of that over the summer and in these months, but that’s part of our DNA. We do that constantly. And so we’re always looking for ways to continue to hold costs or reduce costs, so that those new products, those higher margin products and that volume, as our markets continue to recover, all drop right to the bottom-line and help those – that margin story. So I think we always talked about 15%. If you take that volume from the first quarter or even just from last year, we’d be north of that right now.

Perfect. Last from me and I’ll hand it over. You gave very good color on Q4 and then some color on some of the margins for the individual – the individual segments. Overall, if we put all those together, margins flat or slightly down from Q3 sequentially, based on how we see the world today. Is that the right takeaway or is there a better conclusion?

What we told you, we basically laid out the trajectory for revenues to be essentially the same. Now, the mix of revenues is going to change. And one item we also called out for you, Dan, was the higher mining and energy costs, there can also be some other incremental costs that will be in there, and those are going to be in that $2 million to $3 million range. So you are going to see the margin impact taking place just based on sort of those seasonal temporary effects of the mining and energy costs, while revenues are staying relatively flat.

Perfect, thank you. I’ll jump back for any follow-up.

Yes. But, Dan, just to be clear, those margins continue that trend of being above the prior year, so strength in the margin story, but sequentially because of those seasonal effects, will be down.

Understood. Now, that’s really helpful. Thank you.

Yes.

[Operator Instructions] The next question is from Silke Kueck with JPMorgan.

Hi, good morning. How are you?

Good, Silke, how are you?

Good. Do you have any view on auto builds going at the fourth quarter, have your customers sickled anything about whether there’ll be shutdowns in the U.S. in December or there won’t be, and what, sort of, like that trajectory looks like? Like it looks like the – there’s sort of like some COVID shutdowns coming in Europe, like often there’s some seasonal shutdowns that happen in the U.S. in December, and the Asian markets, they’re really strong. And so, like I was just wondering like what you hear from your customers.

Sure. Let me start it off and then I think we’ll talk more about the automotive, the impacts, just to remind everyone, impacts in automotive have – primarily in North America and Asia for our Metalcasting business, we supply more of the automotive industry, and our Minerals businesses in our Specialty PCC, a little bit more of North America and Europe focus. So just to give you the breakdown of those impacts, Jon Hastings, you want to talk a little bit about Metalcasting and what we’re hearing from customers going into the fourth quarter?

Sure, Doug. Hi, Silke. How are you?

Good.

Let me touch base on North America, I’ll talk about China and then also Southeast Asia. But what we’re seeing in North America is everybody is running pretty well, pretty strong. As you know, auto production went south in Q2, rebounded in Q3, but the inventories are remaining low and everybody’s looking to restock the pipeline and auto sales remained pretty strong. All of our customers are telling us that they are running fairly strong throughout the remainder of the year. Again, we’ll see what happens around the end of year holiday season with shutdowns, but we don’t expect any major impact. We see it fairly strong. China, about 40% of our business is in auto and heavy truck in China and we’ve seen a very, very strong year. The build rate – the customers are – has come back extraordinarily strong in Q3. We expect that to continue into Q4. What we see is not only domestic production and consumption but then also the exports, exports of parts and also vehicles going into both U.S. and Europe. Those continue to rebound and, as a result, the demand has been very strong. The last region in the world that’s rebounding is Southeast Asia. And what we’re seeing is that they’re currently running at about – our business is about 80% year on year. That’s a relatively small piece of our Metalcasting business worldwide. But we do see that increasing on a sequential basis and that’s because the auto production in Thailand, Korea, Indonesia – they’re on the rebound, coming off the COVID shutdowns. So that’s the last region and overall, we continue to look pretty strong going through Q4.

So, Silke, the only thing I’d add to that is, look, I think, our visibility in the middle of the third quarter was probably a little bit stronger going into – looking into the fourth. I will – addressing, I think questions coming from, with the shutdowns, recent news in Europe and what we’re seeing around the world, yes, it’s a bit of cautious, but right now, what we can see through the fourth quarter is kind of continued demand levels, as Jon alluded. And that includes the automotive supply that we have through North America and Europe and our Specialty PCC business for now. But we continue to watch it and we’re prepared to react accordingly.

Okay. And then secondly, yes, it looks like your cash balance is like getting close to like $400 million again. Like, what are you going to do with all the cash? Keep it to kind of begin to buyback share is more meaningful? What are your capital allocation plans?

Our capital allocation has remained similar to what it was. We talked about that in the last call. Look, I think going into April, ensuring that our balance sheet was in solid shape was – it was a priority and making sure that liquidity was there and our debt maturities were proper for the environment. We took advantage of the markets – capital markets in June, and we did just that. We pushed out maturities, $400 million unsecured out eight years. We left some cash on the balance sheet. And right now where we stand, we think that’s a great position to have to make sure that regardless what happens, this company’s liquidity position is solid. We do have a solid cash flow year which is good, as we’ve made some adjustments in working capital. And so we continue to put that cash on the balance sheet. I think, right now, our priority is making sure our debt positions – we’ve paid $30 million in the third quarter. I think we’ll continue to steer our capital more to that direction. But as you know, we have a $75 million authorization that we intend to execute on, and we have some cash on the balance sheet for opportunities. We’re going to support these growth projects that I mentioned today and do things like a small – we have our small hauling business that we acquired, we have a nice portfolio and profile of potential companies we think worked for us. And so I think our balance sheet is in a good position for all of that, repay debt, execute on our share repurchase program and ensure that we have resources to support our growth initiatives.

And, Silke, let me just add the free cash flow dimension to that. And Doug talked about the strength of the story and you saw here in the third quarter, generating another $40 million of free cash flow. If you listen to the call from last quarter, we told you that we were going to generate about $100 million to $120 million of free cash flow in the quarter – sorry, in the year. Based on what we’re seeing now through the rest of the year, we’re in the $140 million to $150 million range of free cash flow generation in 2020 for the company, and that includes continuing to invest in the company from a sustaining EHS and growth perspective. That CapEx level is going to be in the $60 million to $70 million range and so feeling good about, as Doug said, a very balanced approach toward the use of our cash flow generation.

So it seems like you’ll have plenty of cash to buy back $70 million worth of stock? You think that’s a good investment?

Yes, we think it is a good investment, Silke. So – but that’s not to say that – we’ve always talked about our approach and making sure that our debt levels are down at target levels, first investing in ourselves and our growth opportunities where we see the returns and that fit our strategy, and then, yes, we will balance returning cash to shareholders, and also as acquisitions, potentially there. As those change, we can share – steer more toward share repurchases and as those opportunities, we’d steer more toward our inorganic opportunities. So we’ll continue that approach. But I think the point is that making sure that we are in solid footing, regardless of what economy we’re in. I think we have that position, and being able to take advantage of opportunities, be it in the market for a return to shareholders or in the market for things that we think fit our core capabilities from an inorganic standpoint.

Thanks very much.

Gives us a lot of options, Silke.

All right. And the next question is from Rosemarie Morbelli with G. Research.

Thank you. Good morning, everyone.

Hi, Rosemarie.

So just finishing up on the cost side, how much of – first of all, do you have a dollar amount in terms of how much you have been eliminating in terms of costs? And then, how much of that do you think is only temporary and will come back?

Yes. Silke, if you take – I’m sorry, Rosemarie.

It’s okay. We both have an accent.

Yes, thank you very much, Rosemarie. If you take a look at what we just showed you, on a year-over-year basis, with the effort of cost that we have taken out in terms of expenses, fixed costs, starting with the restructuring that took place in the middle of last year where we told you that would be about $12 million. Since that time, we’ve also seen expenses and related to T&E and also other cost, meaning other headcount costs coming out that we haven’t been back filling and that we’ve been finding a way to be more efficient overall in our system, so that we would not need to backfill those heads. When we talk about what’s permanent and what’s not permanent, we say that about two-thirds of the overall cost benefit that we’ve been experiencing on a year-over-year basis is going to stay in place. And so we showed you here in the third quarter that that was about 180 basis points worth of favorability. And so, you could expect that to continue on at about a two-thirds basis going forward.

Thank you. That’s helpful. And then still on the quick questions type of answers, this last year of your $75 million of authorization, you only bought back $50 million worth of stock. Do you think that this year you could get closer to that full authorization?

Yes. So I think, Rosemarie, we were on track to do the full $75 million authorization. We suspended that in March after the first quarter, given the conditions. And so our pace was to – and our intent was to fully fulfill that authorization. So we took a pause over the summer, making sure we preserved cash, making sure that we are in the right position, as I mentioned earlier, on our balance sheet and then when we saw – as the cash flow and our balance sheet, resumed it with the remaining time that we had. We ended up with $50 million due to a bit of a pause. We have the cash on hand to be able to do that $75 million and I think we’d intend to do that going forward.

All right, thank you. And still on the cash note, I thought that with your debt level as low as it is right now, you had kind of post-debt repayment. I suppose I was wrong. Are you still – and if I heard probably, you are still planning in reducing your debt. So what is the net leverage target then?

We’ve maintained kind of a target level of 2 times, Rosemarie. We’ve been around that 2.1 times for a while. I think as we went through the second and the third quarter, as we viewed kind of the economy and what was happening, we felt prudent, as I said, to make sure that we had a very strong balance sheet and the priority was that. And so we put most of the free cash flow, the $40 million in the third quarter to debt repayment, a bit to shareholders. We’re comfortable with where our debt position is. We could make some additional debt payments going forward, but again that balance sheet that we have gives us a lot of options to make sure that our debt’s in the right position, we can steer our cash to shareholders, but also making sure we have resources for our growth opportunities. So we have a lot of options here. We might steer a little bit more to our debt, given where we are in the economy, but we take that balanced approach and we’re going to continue to do so.

Okay, thanks. And now, looking at your consumer-driven markets, revenues into those markets, overall, are now 25% and you are targeting that level to grow to 35% to 40%, if my memory serves me right, and that would include test doubling, going from $200 million to $400 million. So can you talk about the timing? And whether most of that growth is going to come from internal growth or whether in M&A is actually the biggest chunk getting you to your goal?

Yes, I think you’re, Rosemarie, referring to a question maybe from the last call. I think we answered how big could our consumer-oriented businesses be. Look, I think it could grow to that size. I think we’re certainly – our strategy around creating balance in the company from an industrial and consumer standpoint, as you mentioned, we’re currently about 25% consumer-oriented, and we look to grow some of our core positions. So I think we’re vertically integrated in our Pet Care business and a couple of years ago we added to that with an acquisition called Sivomatic which doubled that Pet Care business. I think you saw that the organic growth of that business is at 11%. And so we think that a large portion of those businesses, our Edible Oil Purification, our Animal Health business, our Pet Care business, our Fabric Care businesses, those will continue to grow and we continue to develop new products and ensure that we have the right capital base there to have healthy returns. We will continue to grow those organically and I think there’s opportunities out there for us to continue to add to our consumer-oriented product base to expand that I think. Could it get to 30%, 35%? Sure. That’s going to be both a combination of growing our current core positions organically and adding to them inorganically. And so over time, I think that’s a possibility to get to those types of levels. But we’re certainly focused on growing those product lines – these core product lines that we have in those consumer-oriented products.

Could you get to that level faster just by reshuffling your portfolio of businesses, meaning that divesting some non-consumer related operations?

On a percentage growth, yes, that could – that would do it. I think, at the moment, I think we’re looking – at the moment, yes, that would do it. But at the moment, we’re looking more toward adding and growing those businesses organically and potentially inorganically.

Okay, thanks.

All right. And your next question is from Mike Harrison with Seaport Global Securities.

Hi, good morning.

Hi, Mike.

I was wondering if we could talk about the HPC business, you said Pet Care was up 11%, but the business was flat overall on a year-over-year basis. So what’s going on outside of Pet Care? Was there some destocking or maybe declines from surge buying that was happening earlier in the pandemic?

Yes, that – the – that business product line is Household Personal Care & Specialty, and in that Specialty segment, there is some kind of high-end additives for drilling products, so both in construction drilling and oil and gas drilling. And that was the one product line that has been off, mostly that oil and gas drilling, those additives for oil and gas drilling. So I believe every other portion of that product line had grown over last year, with the exception of that.

Right. And then within the Paper PCC business, have you seen any of your printing and writing paper customers getting some benefits from colleges and schools getting back to some in-person learning or has that not provided much pick up and until we get totally in-person, we don’t see that improvements?

I think that some of what’s behind the demand growth recently – I’ll pass it over to D.J., I think the majority of our growth from the third – through the third quarter was really due to restarts. We had a number of shutdowns in the second quarter for entire months. So India, government restrictions and shutdowns for almost part of April and May. We had some shutdowns in South Africa and some of our plants in Europe. And so those restarted in the third quarter, which was really driving through that growth. I do think there is some demand improvement. I’ll let D.J. Monagle talk more to that about our conversations with customers. D.J., are you there?

Yes, I am, Doug. So, Mike, the way we’re – to generalize the statement, Doug is spot on that what we’ve been seeing is really just restarting and coming up from the shutdown. There is a general optimism that as more and more schools come online and more businesses get to work that operating rates will improve. Just to give you a perspective on this, the operating rates as we went into 2020 were in the neighborhood of just below 90%, so somewhere between 85% and 90% and North America was right at 90%, Europe was a little bit lower than that. So as things are coming back up, most people feel that North America is going to be back into that 80-plus percent operating rate. Europe seems to be a little bit slower. And the big question on everyone’s mind is, they know that going back to work or they feel that as people return to the offices and more and more people go into the schools, because a lot of schools are working on these hybrid things, that paper consumption will grow. What the question mark is, is how do the habits – how do the long-term habits change based on this pandemic? And there is a school of thought that says the longer that this lasts, the more likely people are going to be transitioning to more, I guess, electronic methods of keeping their data or doing their work. So there is a big question, but what we’ve seen is about getting people back to work and having the shutdowns stop. But there is still a big question on long-term demand, especially in North America and Europe. And then in Asia, the demand picture is the same, but for us, our growth story is more about penetration and that’s – that continues to move forward. Does that help, Mike?

Absolutely. Very helpful. And then last question I have is on the Refractories business. It seems like utilization rates are starting to approach the 70% level. I feel like 80% is more the magic number where these mills feel like they can run efficiently and profitably. Do you guys see 80% or 70% or any specific utilization rate as a magic number in terms of a pickup in your Refractories sales?

Let me start and then I’ll ask Brett Argirakis to comment. Historically, in this business, we thought that like an 85% rate was necessary for this business to be really strong in terms of operating income. We’ve changed this business tremendously over the past couple years from a margin contribution, margin technology, its portfolio of products. And so I think you saw last year, in the mid-70s, late in the first quarter, mid-70s, this business is still very profitable. So we’ve changed that kind of – the profile of the business over time. Brett, why don’t you talk a little bit about what you see in the marketplace and where you think our operating rates are going based on what you hear from our customers?

Sure, sure. Thanks, Mike. Yes, right now, looking at the market conditions, all regions, of course, has shown reduced rates from prior year, but all showing gradual improvements. Doug and Matt both pointed out automotive is improving really to pre-COVID levels. In NAFTA, we’re seeing steel and scrap prices in North America and Europe increasing, which is definitely beneficial to the steel industry and right now, the U.S. just continues to show signs of getting back up to those – to the better levels. Right now, it’s just under 70%. For the past couple of years, we’ve seen 80%, which was very healthy. At 80%, it gives the steelmaker plenty of time to do maintenance, but also at a very healthy rate. I would anticipate that these rates will continue to gradually improve. But as Doug pointed out, 80% would be great to get back to, and I think we can get there, assuming no further setbacks from COVID. But, overall, we are positioned pretty well to operate even if we don’t hit the 80% rate and continue on. There is also steel capacity that’s coming on, new plants. These new plants are starting up between the fourth quarter and through 2021, which we’re very well aligned to continue to expand with them. They both – Doug pointed out some of the new business growth that will be moving along with them in both refractory and metallurgical line. So, yes, I think we have a really good chance to get back to some reasonable rates and if not 80%, we’re positioned well, Mike.

All right, thanks very much.

All right. And we’ll take the next question from David Silver with C.L. King.

Yes, hi, good morning. Thank you. Actually, I should say good afternoon. So, I had a couple of like targeted questions here. Early on in your comments, Doug, you mentioned regarding the 11% increase in Pet Care sales this quarter year-over-year and sequential. You made a reference to partnering. And I have to confess I’ve never come across that before and also – sorry, come across that before in your commentary, and the 11% I think is significantly higher than maybe the 3% to 5% or 4% to 6% kind of numbers you’ve been targeting for that business for a long time. So, maybe just a little bit of color on, are you doing anything differently? Are these partnerships a little bit different? And what would be the ultimate potential to increase partnering opportunities in terms of growing that part of your Pet Care business? Thanks.

Sure. Thanks, David. I think when I referred to partnering, we talk about – we are a private label pet care supplier, and so partnering is producing brands for others for their shelves. And so when talking about partnering, we’ve been partnering with new customers around the world. We have a growing business in China. Our business in Sivomatic continues to grow its solid rates in Europe and continuing to come up – and supply new brands to new partners there as well. I think the other comments were, as we move and as you see the consumer buying behavior to be more online, we’re also looking at – and have started some online channels for our sales. So there’s a number of different partnering things that are going, and that’s not just – and that’s around the world. Those online channels are global, and our main regions. So when I talk about partnering, it’s that. It’s being able to partner by being able to provide brands for those who want to work with us and our vertically integrated position as a supplier.

Okay. Sorry, I didn’t associate the partnering with private label. But thank you for clarifying that. I wanted to maybe shift over to that PCC business in particular and in particular the volume growth that you cited in China this quarter. I think it was 18% or so. But I was scratching my head and I’m trying to kind of relate that growth this quarter with the upcoming new project for Chenming, which I guess has not started up. And I was wondering if you could characterize the full growth, all of the growth in China as related to the legacy satellite units you have there, or might there have been some product produced at other locations, but may be shipped over to the Chenming location, maybe to get things started there ahead of your full-scale start up. So in other words, was any – was that all – was the growth in China all related to legacy plants or was this somehow part of it – part of the growth related to Chenming, I guess, maybe pre-production or pre-start-up volumes that are may be required?

That – the growth – year-over-year growth in China was all from our legacy operating facilities there. So we saw some strong demand year-over-year from our legacy. So, to give you an example, the Chenming facility will be about 150,000 metric ton facility coming online – that has not come online, so none of those volumes came from that facility. That should be commissioned in December and ramping up through kind of the first quarter of next year. To give you an idea, our installed base of capacity in China is probably 850,000-ish tons and Chenming will represent another 150,000 tons, so bringing us to close to 1 million tons of capacity in Asia so – in China. So when you see that 18% growth and we’re adding another almost 16%, 17% to our capacity base, which we think ramps up next year, that’s why we are very enthusiastic about our growth in Asia and the Paper business because of that penetration story. And then also in India as we’re building – ramping up one and another facility next year. So as D.J. talked about, those opportunities and penetration are really driving our growth in this business in Asia. That’s where it’s coming from. So we see those type of growth numbers continuing through next year in Asia, David. Hopefully, that helps.

Yes, yes. Thank you. So 1 million metric – sorry, 1 million tons installed out of some – you’ll have a little bit over 3 million total and that’s kind of China share of your overall installed base.

I think the 1 million tons installed is in – it’s kind of our Asia base, 1 million tons in Asia, and the majority of that’s been in – the majority of that’s been in China. However, India has been growing very quickly over the past five years.

Okay and then just maybe one other question, this time on the foundry business. But for many quarters now you’ve been highlighting the growth in China related to the custom blends that you offer there, and again, just probably a gap in my understanding, but should I assume that the types of products, the custom blends that you sell in China are similar to the ones that are marketed regularly to, let’s say, North America or western Europe? Or is it the case where customers in other regions, maybe like to blend their own? In other words, is the value proposition the same in China as it is in North America and Europe or either due to custom or the types of products you’re selling, is it qualitatively or quantitatively different as you go region to region?

It’s not. It’s very much the same in terms of concept. And so I guess they’re not exactly the same formulas and the reason behind that is because we are tailoring a formula to that customer’s equipment, what they’re trying to make, the quality requirements and dimensions of that cast product. And so – but being able to develop a system and a blend and an additive blend that meets the requirements to help them whether it’s through their scrap – reduce their scrap rates to very low levels to improve the throughput through those casting machines, we’re able to tailor that. So the blends may not be exactly the same, but that is our value proposition, being able to, from a technical standpoint, go in really deeply understand and help that foundry improve many aspects, reduce cost, improve quality and then be able to deliver that blend kind of real-time. I mean, in North America, we’re delivering trucks on an hourly basis to our customers – our foundry customers. It’s that and if they have an issue, they can pick up the phone and talk to us. Our technical experts will go through and make sure we understand what the change we can make – what the issue is, we can make a change to our blend and deliver it on the next truck. It’s that level of capability and it’s exactly the type of value proposition, the technical capability and the know-how that we’re developing around the world and China, that’s what’s driving kind of a lot of our growth in China.

Okay, great, thank you very much.

[Operator Instructions] All right. It appears there are no further questions at this time. I’d now like to turn the conference back to Mr. Dietrich for any closing remarks.

Thank you very much. I do appreciate everybody joining the call today and I hope everyone and your families remain safe. Thank you again.

This concludes today’s call. Thank you for your participation, you may now disconnect.