By: Rahul Koul
Last updated : June 15, 2021 10:24 am
The company is betting big on downstream operations, and is equally bullish on the quick recovery in non-European markets
In the backdrop of a raging COVID-19 pandemic, the market for methylene diphenyl di-isocyanate (MDI), as per various reports, is expected to grow at a CAGR of over 5% globally. Peter Huntsman Chairman, President and CEO of Huntsman Corporation, a global leader in MDI-based polyurethane business, terms it a volatile market that will get even tighter in coming times.
“The MDI market is fundamentally tight and I think you will see mega projects in the range of 400,000 to 600,000 tonnes in a single line. The global capacity is operating probably as high as 90%. While you get 2-3% taken out of the market in a single plank, you will see more volatility like this. The industry will get tighter and tighter in the future,” Huntsman mentioned at Deutsche Bank’s Global Basic Materials Conference on June 9-10, 2021.
In a conversation with David Begleiter, Research Analyst, Deutsche Bank Chemicals, Huntsman revealed that his company has 30% of overall capacity in China, half of which is polymeric and more commoditized while 15% is raw material capacity.
Referring to the pandemic, Peter R. Huntsman said, “I wouldn't say that it doesn't have any impact. We are in the process of downstreaming the polymeric as Chinese market continues to evolve and we benefit from it. When prices shot up as they did in a matter of days, we told the market that there is almost a million tonnes of capacity stuck in maintenance and operating issues in the beginning of the first quarter and due to Chinese New Year. We conveyed to customers that it’s a temporary issue.”
Providing valuable insights into the market, Huntsman opined, “I don't think the production capacities have had any major effect or any facility is down. I rather believe that all capacities that are required are getting produced. You have quite a big production market and the demand is getting balanced. Also, I don't think that the margins will change drastically but there have been recent reports about third party outages. In the last couple of months we have seen a couple of hiccups that have cost us a few millions.”
On the region-wise growth, Huntsman believes the conditions are improving in Europe and are fairly robust in China. “Globally, it feels good. Europe is in recovery mode, China is doing well and North America is quite good. Industry looks pretty balanced right now. The turnaround could happen by 2021 year end. If demand continues like it is today, we will see that in the 4th quarter, automation and construction will see closure take place. If you look at the number of new facilities across the world, it is a single digit sort of growth, 4-7% depending on application. There is nothing being built in terms of capacities in North America, nothing much coming on in Europe. While Chinese get a bad rap about operating facilities for volume over margin, the chemical industry in Europe will be under pressure and will outsource manufacturing to China due to harsh environmental rules. I think non-European markets continue to do well and will recover fast.”
Sharing his outlook, Huntsman said, “Market is incredibly demanding and shrewd. When we look at the peers, we see that many of them have a lot of EBITDA improvement. From an overall look at the market, you may get frustrated but when you look at it at the micro level, there has been good progress.”
Providing a peek into the company's strategy he says, “It will be difficult to have a MDI facility where you can’t adjust the excess. The formula pricing to sell the product at lesser cost is necessary to get double digit columns from production in the longer run. The intermediate business must be split up and merged with other businesses. In the case of specialty products, I am less worried about the molecular structure and chemistry part if the product is making money with an EBITDA of 20% margin. My idea around the specialty is the consistent earning and capacity to generate cash."
"I feel downstream processing is generating more cash flow. Hence, we will concentrate 70% of MDI business into downstream operations. We will be solely focused on a few areas and may shut down a few facilities. We will be more into blending materials, and expanding Terephthalic Acid (TPA) applications. While it may not necessarily mean right or wrong in the MDI market, the longer term goals are lesser volatility, more stability and cash flow,” added Huntsman.
On the broader question of M&A activities, Huntsman said, “Synergies are helping us in creating a value for shareholders. We are looking at globalization. In the Spray con business, we can double the number if we get cost synergies. We are happy with the Gabriel Performance Products acquisition. With expansion of our specialty chemicals portfolio, we have a large springboard of business growth.”